Legal Issues Prevent Chinese Takeover of Chicago Stock Exchange

The United States Securities and Exchange Commission has scored a major legal victory that reflects the wishes of the White House under the leadership of President Donald Trump. On February 15, the Reuters news agency reported that the purchase of the Chicago Stock Exchange, abbreviated as CHX, to Chinese investors was halted due to regulatory concerns.

Although selling the CHX is a transaction that has been pending since 2015, its preliminary approval was not issued until August of 2017. Shortly after announcing the approval, SEC Chairman Jay Clayton clawed it back and called for a deeper legal review of the transaction. Legal analysts believe that Clayton’s appointment by President Trump explains the sudden decision to block the sale.

The Trump administration has been very critical of China’s rise in the American financial sector. Over the last few years, Chinese investors have been courting American investment banking firms, and their influence is being felt on Wall Street. The CHX purchase proposal was initiated by the Chongqing Casin Enterprise Group; the tender offer of $25 million was presented in February 2016. Legislators who followed the transaction alleged that the Chongqing Casin group was connected to the Chinese government, a situation that would put the U.S. financial markets in an uncomfortable position.

Foreign ownership of major American financial exchanges is not new; the International Securities Exchange, for example, was owned by a German entity until 2016, when it was sold to the Nasdaq. The CHX deal required greater due diligence that proved to be burdensome for the Chongqing Casin investors, and the greater scrutiny was certainly political since the Trump administration considers China to be a financial and economic adversary.

Although the CHX has a certain historical prestige, its current volume of operations account for less than one percent of all securities listed on Wall Street. Some analysts believe that the SEC may have strategically communicated its decision to block the sale right before the Chinese New Year celebrations.