The Securities and Exchange Commission has approved new rules proposed by stock exchanges to make it harder for private companies to go public by merging with a shell company, a response to concerns that Chinese groups were using such deals to skirt accounting rules.
Earlier this year, a number of Chinese companies that had gone public via “reverse mergers” were targeted by short sellers who believed that US auditors were not able properly to monitor these companies’ Chinese operations.
The exchanges proposed new rules on such mergers earlier this year, which the SEC adopted on Wednesday despite some investor concern that the scrutiny should be on the companies themselves, rather than the reverse merger structure, as that could hurt capital formation for some small companies.