On Short Selling Crisis Of Chinese Concept Stocks: Regulatory Ineffectiveness And Countermeasures

The financial globalization course has been witnessing the constantly enhancedinteraction among stock markets, together with the cross-border risk transfer accelerationas well. It is now widely received that coordination and cooperation of financial oversightamong jurisdictions serves as a pressing matter of the moment, for one country’s domesticfinancial regulation alone is far from enough to tackle with the current financial risksin advance or afterwards.Started from June2010, short sellers, such as Muddy Waters and Citron, have beenattacking several Chinese concept stocks on ground of financial fraud, which led to thedrastically shrinked market value and even delisting of these companys. Confidence hasbeen shattered. Nevertheless, due to the absence of support from the Chinese securitiesregulatory agencies in obtaining audit work papers, SEC and PCAOB are faced with limitedpunitive measures against related companies and accounting firms. Oversight is in adilemma.In December2012, SEC initiated an administrative lawsuit against the five accountingfirms, namely, Deloitte, PricewaterhouseCoopers, Ernst&Young, KPMG in China and BDO ChinaDahua. The Sino-US regulatory confrontation upgrades thereupon.Based on reviewing the short-selling crisis of Chinese concept stocks and PCAOB’sresearch data, this thesis proceeds with the paradigm of "Phenomenon-Cause-Measure", seeking to reveal the audit risks of cross-border listing. Reasons behind the Sino-USregulatory cooperation deadlock are analyzed in terms of law, notion, demand and culture.Apart from that, this thesis proposes several subordinate premise, for instance similarways of supervision and accounting standards, reasonable listing and accounting standards,along with the possible legal texts between the Chinese and U.S. regulators in the comingfuture.