Bolton gets his wish as SEC tightens ‘reverse merger’ rules

The Securities and Exchange Commission (SEC) has approved rules making it harder for overseas firms to list in the US via mergers with shell companies - a move advocated by Fidelity’s Anthony Bolton earlier this year.

Bolton called for greater regulation of so-called reverse mergers in the US earlier this year, after warning the relatively undemanding auditing requirements imposed on such companies was bringing US markets into poor repute.

The manager of Fidelity's China Special Situations trust said his investments in two such companies, which typically find reverse mergers faster and more cost-effective than filing for an IPO, had produced losses for the fund.

The SEC has previously warned about the quality of the auditing of Chinese companies' financial reporting and said the new rules would provide greater protection for investors.

The new regulations prohibit reverse merger companies from applying to list on the Nasdaq or New York Stock Exchange until they complete a one-year ‘seasoning period'. This is achieved by trading in the US over-the-counter market or on another regulated US or foreign exchange.

Such companies must now also file audited financial statements with the SEC and maintain a minimum share price level for at least 30 of the 60 trading days immediately prior to their listing applications.

The SEC and US exchanges have halted trading in more than 35 companies based overseas in recent months due to a lack of accurate information about the firms and their finances, including a number of companies formed by reverse mergers.