Chinese electric vehicle maker Nio (NIO -2.05%) shares dropped as much as 2.4% in Monday morning trading after CNBC published a report overnight that stoked underlying delisting fears among U.S. investors. As of 1:05 p.m. ET, the stock had recovered much of that drop, however, with shares trading at nearly breakeven.
The report said that China's securities regulator informed the financial news service that prior reports that Chinese regulators were making plans to set up a system to avoid some companies from being delisted on U.S. exchanges were not true. The Financial Times had earlier reported over the weekend that a three-tiered system was being investigated as a possible concession to American regulators to avoid some companies from potential delisting. A tiered system based on a company's level of data sensitivity could potentially allow U.S. officials to apply its required audit rules to those that China deems less sensitive.
That would be good news for U.S. investors of stocks that could more quickly come into compliance and avoid delisting. In December 2020, the Holding Foreign Companies Accountable Act (HFCAA) became law, allowing the Securities and Exchange Commission (SEC) to delist foreign companies that fail to meet U.S. accounting and audit standards for three consecutive years.
The related uncertainty has weighed on Nio stock, even as the company introduces new models and continues to expand beyond China into Europe. After announcing the launch of its first sedan models, Nio most recently said it would begin selling the ES7, its newest SUV, in late August. For today, however, investors seemed to bring the potential delisting issue back to the forefront of their minds.