During a panel discussion hosted by the Securities & Exchange Commission (SEC), executives of Vanguard, NYSE and Nasdaq questioned a bill under consideration that could push Chinese businesses out of American stock markets. In opposing the bill they are pushing back on an escalating risk to their bottom lines: threats from Capitol Hill and the Trump administration to dramatically curtail U.S. investments in Chinese companies. The bill under consideration could lead to Alibaba Group Holding, Baidu and other Chinese businesses getting kicked out of American stock markets. The intent of the legislation is to force China to comply with U.S. accounting rules, but it might just prompt Chinese companies to relocate to markets with less regulatory oversight, such as moving their listings from New York to Hong Kong. The bill cleared the U.S. Senate unanimously in May with a companion version now being reviewed by the House. It would trigger the delisting of Chinese firms if they don’t allow their books to be examined by the U.S. Public Company Accounting Oversight Board (PCAOB) for three straight years – a requirement that China has long rejected. The legislation’s Republican and Democratic backers say it is needed to protect U.S. investors from fraud.

Vanguard is among giant money managers whose mutual funds invest in Chinese businesses listed on U.S. exchanges, while NYSE and Nasdaq make millions of dollars in fees by allowing Chinese shares to be traded on their platforms. John Tuttle, Chief Commercial Officer of NYSE Group, said the exchange would support adding an indicator to company tickers to ensure investors are aware of risks associated with firms whose audits aren’t inspected by the PCAOB, but he warned that the proposed legislation could backfire. “We don’t disagree with it philosophically,” Tuttle said. “However, some of the tactics – about how they want to get the results they want to get – we don’t necessarily agree with that.” While he was careful to say that Nasdaq wasn’t opposing the pending bill, John Zecca, the exchange operator’s global Chief Legal and Regulatory Officer, was also critical. “Legislation is a very blunt tool,” he said. “The government already has a number of tools to address this.”

President Donald Trump has ordered regulators to review Chinese companies’ lack of adherence to U.S. accounting rules and submit recommendations by early August on how to fix the problem, putting the SEC at the center of the fight. Adding urgency to the debate over Chinese companies is this year’s high-profile accounting scandal at Luckin Coffee. Since reaching a high of USD50 a share in January, the Chinese chain’s shares have dropped more than 90% in Nasdaq trading, a plunge that has erased about USD11 billion of market value. Following an internal investigation, Luckin disclosed earlier this month that fabricated transactions had inflated its 2019 revenue by about USD300 million, the South China Morning Post reports.