US regulators have blocked the sale of the Chicago Stock Exchange (CHX) to a group of China-based investors. Though the CHX is only a very small exchange, blocking the deal is viewed as symbolic of the tougher line on Chinese takeovers being taken by US President Donald Trump. An announcement by the Securities and Exchange Commission (SEC) on February 15 ends two years of negotiations about the takeover.

The sale was originally announced in February 2016, and was valued at only around US$20 million. The consortium of buyers was led by Chongqing Casin Enterprise Group, a privately held company that invests in real estate development and financial holdings. CHX handles only 0.5% of trading in stocks conducted in the US.

The deal was originally approved under President Obama, and in December 2016 was approved by the Committee on Foreign Investment in the United States (CFIUS). But as a part of the US financial infrastructure, any sale of an exchange also had to be approved by the SEC. This looked doubtful, since Trump had specifically mentioned the CHX during his election campaign as an example of a bad deal for the US. The SEC did actually approve the sale in August 2017, but new Chairman Jay Clayton, a Trump appointee, immediately announced a review.

Ever since the deal was announced in February 2016 there had been opposition from within Congress. At that time Congressman Robert Pittenger and 45 colleagues signed a letter that said, “as you know, the Chinese economy revolves around the artificial boosting of domestic firms. Rather than adhering to openness and free market values, this performance is generated by Chinese government dominance over market sectors. Furthermore, government manipulation of currency in the Chinese marketplace continues to be an unresolved problem for the United States government.”

The entity leading the consortium, Casin, has denied any affiliation with the Chinese government.

When the announcement was made that the SEC finally blocked the deal, Pittenger put out a statement saying that “this has been a long fight and I am grateful we now have a president who recognises the national security threats of allowing a Chinese government-affiliated company to own the Chicago Stock Exchange.”

“We must continue to be vigilant, with thorough oversight, to prevent the highly coordinated and strategic efforts of the Communist Chinese government to threaten our national security through malicious business investments”, he added.

In its decision, the SEC did not specify that there was a particular problem with a Chinese buyer. Instead it cited a number of reasons why the deal did not comply with rules on the ownership of US exchanges. These rules are stricter than ownership rules in other sectors.

The SEC said that it was not satisfied about the source of funds for the deal and who the ultimate consortium owners would be, raising worries the structure of the deal could allow new, unknown entities to assume stakes over time. The CHX was not able to provide key information it had requested, including access to the potential owners’ books, “leaving various questions unanswered”.

The CHX’s inability to verify the ultimate potential owners would also make it difficult for the bourse to satisfy its ongoing compliance monitoring obligations and would obstruct the commission’s own capacity to oversee CHX, it said. In particular, the commission said it was not satisfied it would have full access to the exchange’s books and records if the deal were to go through.