US Securities Regulator Blocks Chinese Takeover Of Chicago Stock Exchange

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The U.S. Securities and Exchange Commission ("SEC") decision to block a Chinese-led investor group from buying the Chicago Stock Exchange ends a two-year campaign to turn the small , 136-year old exchange into a venue for international IPOs. It also marks the latest in a string of blocked deals involving Chinese companies trying to buy major U.S. assets.

The SEC’s ruling posted on its website stated concern over the concentrated ownership structure resulting from the deal, noting that the exchange is currently beneficially owned by 193 firms or individuals. But under the proposed agreement, the exchange would be 29% owned by NA Casin Group, Inc., which is wholly owned by Chinese company Chongqing Casin. Another 11% would be owned by Castle YAC Enterprises, LLC , controlled by Jay Lu, the 31-year old son of Shengju Lu, the Chairman of Chongqing Casin.

The other largest owners would be two US-based limited liability companies, Raptor and Saliba, who would control 25%  and 24.5%  respectively. Under the takeover plan, however, Raptor and Saliba have the right to sell their shares to NA Casin Holdings at a guaranteed price after two years, raising the possibility of close to 100% ownership of the exchange by Chongqing Casin.

The SEC noted that under the Exchange Act, U.S. stock exchanges are self-regulatory organizations “charged with a public trust to implement and enforce the federal securities laws and rules, as well as their own rules with respect to their members.” To minimize the likelihood of owners failing to fulfill their obligations under the Exchange Act, "the rules of national securities exchanges generally include ownership and voting limitations," the SEC wrote.

The largely foreign ownership of the exchange also "raised questions about whether the proposed ownership structure will allow the Commission to exercise sufficient oversight of the Exchange” and could limit the SEC ‘s ability to enforce compliance with federal securities laws, the SEC wrote.

Despite the setback, John Kerin, CEO and president of the Chicago Stock Exchange, expressed hope that the US$20 million deal could move forward without the Chinese investors.

“This investment is an investment group,” Kerin told the Chicago Tribune newspaper. “Two members happen to be Chinese. We’ll have to see what this investment group does going forward.”

The SEC’s decision is the latest in a series of high-level Chinese investments in the U.S. blocked under the Trump administration amid concerns over economic security. 

In January, AT&T, the U.S.’s second biggest telecom company, walked away from a deal with Chinese smartphone maker Huawei just before the partnership was to be unveiled at the CES tech show in Las Vegas, apparently for political reasons.

Ant Financial Services Group’s takeover of MoneyGram was mutually terminated last month after the two parties failed to obtain approval from the Committee on Foreign Investment in the United States (CFIUS).

In September, U.S. President Donald Trump blocked Chinese state-backed Canyon Bridge Capital Partners’ planned US$1.3 billion acquisition of Lattice Semiconductor Corp, while at the same time U.S. energy storage company Maxwell Technologies canceled a US$47 million equity investment by China’s SDIC Fund Management Co., Ltd., also due to CIFIUS objections.


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