SEC Delays Decision on Chinese Buyout of Chicago Exchange

  • Agency commissioners will review politically-fraught takeover
  • SEC staff said Wednesday that the sale should go through

The offices of the Chicago Stock Exchange in Chicago, Illinois.

Photographer: Scott Olson/Getty Images

The U.S. Securities and Exchange Commission has dodged a political hot potato -- for now -- by delaying a decision on whether to approve a Chinese-led group’s controversial takeover of the Chicago Stock Exchange.

Facing a Wednesday deadline, the SEC, led by Chairman Jay Clayton, said its commissioners will review the proposed buyout, potentially setting up a vote at an unknown date on whether it should go through. The surprise announcement effectively overrode a recommendation from the regulator’s staff to give the deal the green light.

Under the SEC’s byzantine structure, commissioner’s can overrule powers granted to staff attorneys to make decisions about the nation’s exchanges. The agency, which has five commissioners at full strength, didn’t say which of its three current officials requested a review of the sale. In a Wednesday letter to the Chicago Stock Exchange, the regulator said the staff’s decision to approve the transaction “is stayed” until further notice.

The move further stalls a takeover that has drawn opposition from members of Congress and even elicited criticism from President Donald Trump last year on the campaign trail. For months, the SEC has wrangled over whether to sign off on the buyout, which would put the 135-year-old exchange in the hands of a group of investors led by China’s Chongqing Casin Enterprise Group Co.

Small Deal

The $27 million takeover is small on paper -- the sleepy Chicago Stock Exchange handles less than 1 percent of daily U.S. stock trading. But it poses political headaches for the SEC and Clayton, as some lawmakers have argued that the buyers could have ties to the Chinese government, something the exchange denies. 

SEC approval would be the final hurdle for the deal to clear after the Committee on Foreign Investment in the United States, which assesses the national security implications of takeovers by overseas companies, signed off on it in December.

The Chicago Stock Exchange has said the buyout will remake its business, as the purchasers plan to turn the exchange into a destination for small companies to list their shares, particularly Chinese-based firms. Clayton wants to boost U.S. initial public offerings, venting since he became chairman in May that the drop in stock sales was hurting the nation.

Chongqing Casin wants to serve as a conduit to bring Chinese companies to the U.S. to raise money from investors. Hundreds of enterprises are waiting for IPO approval on exchanges in China, according to the China Securities Regulatory Commission. The Chicago Stock Exchange plans to leverage the 2012 Jumpstart Our Business Startups Act, which makes it easier for smaller companies to go public.

In a statement, the exchange said, “We are confident that, upon further review by the Commissioners, they will also conclude that this transaction is consistent with the Exchange Act and will allow CHX to significantly add to Exchange staff, provide needed capital to the small and medium-sized businesses that create jobs, and bring international business back to the United States.”

— With assistance by Annie Massa, and Dune Lawrence

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