Shares of Futu Holdings (NASDAQ:FUTU) are down over 8% today on regulatory and delisting fears. Yesterday, Futu landed itself on a list of companies in possible violation of the Holding Foreign Companies Accountable Act (HFCAA). Along with Futu, four other companies were added to the list, including Baidu (NASDAQ:BIDU) and iQIYI (NASDAQ:IQ). After yesterday’s additions, there are a total of 11 Chinese companies on the list.
Why Is FUTU Stock Down Today?
Futu has until April 20 to submit evidence that disputes the claim under the “rebuttable presumption” clause. The U.S. Securities and Exchange Commission (SEC) states that companies are not “subject to the requirements under the HFCAA until they have been conclusively identified.”
In addition, a spokesperson for the China Securities Regulatory Commission (CSRC) explained that, “Whether the companies added to the list would be delisted will depend on the result of the negotiation between China and the US over their cooperation in audit regulation.”
The HFCAA became law in December of 2020. The act states that foreign companies with public listings in the U.S. must submit audited filings for additional oversight. The Public Company Accounting Oversight Board (PCAOB) then reviews these filings. If the foreign companies don’t submit audited filings for three consecutive years, then they may face the threat of delisting. The earliest the HFCAA could delist these companies is in 2024.
Meanwhile, regulators in China argue that national security law prevents them from submitting audited files to U.S. regulators. However, it appears that the two parties have recently been working to come to an agreement. According to Reuters, a source close to China regulators stated, “Both Chinese and U.S. regulators are fully aware of each other’s concerns, and are moving toward each other, and working hard to find solutions to the issue in order to achieve effective and sustainable cooperation as soon as possible.”
What’s Next For Futu Holdings?
The company added that “Futu’s operations continue to be stable and robust as always, and we will continue to strictly abide by all applicable laws and regulations.”
April 20 is a key date to watch to see if Futu submits any evidence of HFCAA compliance. Futu also announced that it had initiated a new $500 million buyback program when it reported earnings earlier this month.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
