Wall Street investment banks to delist Hong-Kong products following US ban

Suban Abdulla
JERSEY CITY, NJ - JUNE 21: The two tallest buildings in New Jersey, 99 Hudson Street and the Goldman Sachs building stand tall over the Empire State Building and Chrysler Building in New York City as the sun rises on June 21, 2020 in Jersey City, New Jersey. (Photo by Gary Hershorn/Getty Images)
From 11 January 2021 US investors will be prohibited from owning or trading any securities of the banned companies. Photo: Gary Hershorn/Getty Images

US investment banks will delist Hong-Kong (0388.HK) products following an order by Donald Trump.

The US president’s order bans American citizens from investing in Chinese firms the government deems to have links with China’s military.

JPMorgan (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) units will delist a total of 500 Hong Kong-listed structured products, according to Hong Kong stock exchange filings on Sunday.

Trump’s order covers 35 Chinese firms that Washington says "enable the development and modernisation" of China's military and "directly threaten" US security.

Bourse operator Hong Kong Exchanges and Clearing said in a statement it was “working closely with the relevant issuers to ensure orderly delisting, and facilitate buyback arrangements being arranged by the issuers.”

It added: “We do not believe this will have a material adverse impact on Hong Kong’s structured products market, the largest in the world with over 12,000 listed products.”

From 11 January US investors will be prohibited from owning or trading any securities of the banned companies. This includes pension funds or owning any shares in blacklisted Chinese companies.

Transactions made in order to divest ownership in the firms will be permitted until 11 November 2021.

“China is increasingly exploiting United States capital to resource and to enable the development and modernisation of its military, intelligence, and other security apparatuses,” a White House release said.

The rules have left financial institutions — which face fines for noncompliance — confused.

Investors were taken for a bumpy ride, when the New York Stock Exchange (^AMZI) announced on 31 December that it would delist three major Chinese telecom firms in compliance with Trump’s orders, only to reverse its decision.

On Wednesday, the NYSE said that it dropped the plans after “further consultation with relevant regulatory authorities in connection with Office of Foreign Assets Control.”

But, on Thursday, in another U-turn fulled by pressure from the Trump administration, it said it would press ahead with the delistings of American depository shares in China Telecom (CHA), China Mobile (CHL) and China Unicom (CHU).

Major stock index groups like MSCI (MSCI), S&P Dow Jones Indices (^DJI) and FTSE Russell as well as popular trading app Robinhood have all taken steps to adhere to the order.

READ MORE: Trump bans Americans from investing in 'Chinese military-linked' firms

China’s Huawei and Hikvision (002415.SZ) — one of the world's largest manufacturers and suppliers of video surveillance equipment — are among the blacklisted companies.

While the order doesn’t specify specific penalties for violations, it gives the US Treasury Department the ability to invoke “all powers” granted by the International Emergency Economic Powers Act, which permits the use of tough sanctions.

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On Saturday, China fired back at the US with new rules to counter foreign sanctions on Chinese companies and citizens as economic relations between Beijing and Washington fray.

The order, which went into effect on Saturday, empowers China to tell firms and citizens to ignore foreign restrictions and sue global businesses for complying.

This means that China can strike back at countries or companies that comply with US bans such as the ban on Huawei, which has prompted many global nations to sever ties with the Chinese firm.

In July, the UK government decided to block the Chinese firm from having a role in the country’s 5G network. As a result, British telecoms firms were instructed to remove Huawei equipment from the 5G network by 2027 and stop buying new 5G equipment from the company by the end of 2020.

The Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures are meant to counter foreign laws that “unjustly prohibit or restrict” people or firms in China from doing normal business, the country’s commerce department said.

It said that the measures were necessary to safeguard China’s national sovereignty and security and to protect the rights of its citizens and entities.

A Chinese person or organisation that is restricted by foreign legislation from “engaging in normal economic, trade and related activity with a third State or its citizens,” may report it to the commerce department within 30 days.

China’s commerce department will then assess a case for its potential violation of international law, impact on China’s sovereignty and national security, and impact on Chinese citizens.