SEC Blocks Chinese Take-Over of Chicago Stock Exchange

On February 15, 2018, the Securities and Exchange Commission (SEC) rejected the 49.5% equity stake in the Chicago Stock Exchange sought by a group led by Chinese investors (notably the Chongqing Casin Enterprise Group) after a two-year struggle that ultimately catalyzed security-minded bipartisan, congressional opposition.  Six months earlier, the SEC staff had recommended approving the $20 million sale, which some felt demonstrated a lack of security-oriented diligence within the Commission.  The Committee for Foreign Investment in the United States (CFIUS) also reportedly cleared the deal.

Congressional and other critics of the sale argued that granting China a major holding in any U.S. stock exchange could create a “backdoor” for the Chinese government to gain access to America’s financial infrastructure – and the downside risks that could eventuate.  The prestige factor of China securing such a foothold in the U.S. financial system is likewise something China could leverage globally.

Although the Exchange’s parent company CHX Holdings Inc. could appeal the SEC’s decision, it is unlikely to select such a confrontational approach, especially with such negative sentiment on Capitol Hill.  It was anticipated by a spokesman for the investment group promoting the sale to the Chinese that “thousands of Chinese companies” could be persuaded to seek liquidity on the Chicago Exchange (which has experienced a diminished presence in the American equities market), if Beijing secured this desired beachhead.

Senator Joe Manchin (D – W.Va.) summed up the view of many critics of the deal in a July letter to the SEC in which he pointed to China’s track record of intellectual property theft and serial, state-sponsored cyberattacks against the United States.  He stated, “I believe it is highly likely that they will employ similar deceitful practices to gain an unfair advantage in our financial markets through this acquisition.”