Protect Investors From Chinese Military Firms

Summary#

The Protecting U.S. Investors From Chinese Military Companies Act would create a new federal law; it does not amend another Act. Its stated goal is to protect U.S. investors, and it would require the Securities and Exchange Commission (SEC) to indefinitely suspend trading in securities of certain companies on a Defense Department list.

The bill was introduced in the Senate and referred to committee. It is not law.

  • The SEC must suspend trading within 10 days after a Defense Department list revision if a company has remained on the list through two annual revisions.
  • If such a company is added to the Treasury Department’s Non-SDN Chinese Military-Industrial Complex Companies List, the SEC must notify Congress within 10 days that it did not suspend trading.
  • The SEC must issue only the regulations and orders strictly needed to identify affected securities, administer and enforce suspensions, handle the exception, and notify Congress.
  • The SEC could not use those rules to decide which companies go on or come off either list, or to impose other requirements not authorized by the bill.
  • The bill says the usual federal Administrative Procedure Act rules in Chapters 5 and 7 of Title 5 do not apply to the SEC regulations made under this section.

What it means for you#

  • Investors: Trading in securities covered by a required suspension would be halted indefinitely. The bill does not require investors to sell or surrender securities they already own.
  • Companies on the Defense Department list: If a company remains on the list through two annual revisions, its securities become subject to the SEC suspension rule, unless the exception applies.
  • Companies added to the Treasury list: For a company covered by the exception, the SEC must report to Congress that it did not suspend trading.
  • The SEC: It must carry out the suspensions and issue narrowly limited rules and orders. The bill does not set out a process for companies or investors to appeal.
  • General public: The bill does not directly change taxes, create a benefit, or establish a new investor service.

Money#

No cost information is in the available material.

  • The SEC must issue rules and administer the suspensions, but the bill gives no estimate of staffing needs or public cost.
  • No fees, fines, or new source of government revenue are specified.

What is unclear#

  • The Defense Department list is established under another law, but that law was not supplied. I could not verify the current list, its criteria, or how its annual revisions work.
  • The bill does not define “company,” “securities,” or “trading,” or explain how the SEC would identify all securities covered.
  • It does not explain how a suspension could end, or set out an appeal process for companies or investors.
  • It does not state when its requirements would begin to apply.
  • The exception says the SEC must report that it did not suspend trading when a covered company is added to the Treasury list. The bill does not explain how that exception relates to other trading restrictions.

Case for#

  • The bill appears intended to link a sustained Defense Department listing to a required SEC action, rather than leave the suspension decision to the SEC.
  • A possible argument for the bill is that keeping securities trading after a company has remained on the list through two annual revisions may conflict with the bill’s investor-protection goal.
  • Limiting the SEC’s rules to implementing the suspension could be seen as a way to keep the agency from expanding the policy beyond what Congress specifies.

Case against#

  • Indefinite suspension could leave investors unable to trade affected securities, while the bill does not provide a process for ending a suspension.
  • The bill relies on lists created outside the SEC but does not explain how affected companies or investors can challenge a suspension.
  • Exempting these SEC regulations from the usual federal rulemaking and judicial-review chapters reduces those procedures for rules made under this section.
  • The exception may leave trading unsuspended for some companies covered by the bill’s main rule, and the text does not explain the reason for that distinction.