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Congress Is Wary of Chinese Deal for Chicago Stock Exchange

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Several legal experts who have experience dealing with CFIUS cases told me that the Chinese acquisition of the Chicago Stock Exchange is an obvious choice for a review on national security grounds. Anne Salladin, an attorney who worked on CFIUS cases in the Treasury Department until 2013, told me that any case involving a Chinese acquisition is a likely candidate.

“Chinese companies routinely receive heightened scrutiny. It’s also in an area of financial infrastructure that could be viewed as particularly sensitive,” she said. “I’d be very surprised if CFIUS didn’t have an interest in taking a look at this deal.”

Often, parties to a deal that might warrant CFIUS review file papers with the government on their own, pre-emptively. The committee then typically conducts a 30-day review to determine whether an investigation is warranted. That investigation then takes an additional 45 days, after which the committee either approves the deal or recommends the president unwind it.

A Treasury Department spokesperson said the government does not comment on whether a deal is being reviewed in the CFIUS process.

Dozens of deals involving China have undergone CFIUS investigation, and most were approved. The U.S. government approved a Chinese firm’s acquisition of Smithfield Foods, the nation’s largest pork producer, in 2013 despite Congressional objections. That same year, CFIUS approved the Chinese state-owned oil giant CNOOC’s $15 billion purchase of Canadian energy behemoth Nexen Inc., which had assets in the U.S. In 2005, IBM was allowed to sell its PC business to Lenovo.

But the committee has rejected several Chinese purchases of U.S. firms when national security risks are front and center. The U.S. government has blocked multiple deals involving Huawei, the Chinese telecom company that has links to the Chinese military, according to the U.S. intelligence community. President Barack Obama also forced the dissolution of the Chinese Sany Group’s purchase of a wind farm company in 2012 because the wind farms were located near a Navy training facility in Oregon.

CFIUS has approved foreign acquisitions of U.S. stock exchanges in the past, including the 2007 purchase of a stake in the Nasdaq by a group including investors from the United Arab Emirates and the 2011 Deutsche Boerse acquisition of the New York Stock Exchange, although that deal later fell through for other reasons.

There’s also the possibility that CFIUS and Chongqing Casin could negotiate a middle ground whereby the Chinese firm agrees to limited access and involvement.

The U.S. has a strategic interest in attracting foreign direct investment, and the political imperative in building economic ties with China is high. The CFIUS process is meant to be apolitical and based solely on national security considerations.

If the U.S. government does look into this case, it will likely find that Chongqing Casin’s lack of transparency, combined with the systemic importance of the exchange, make this deal a tough sell.

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