NYSE Gets Heat After Flip Flop About Chinese Companies

The order was one of Mr. Trump’s latest salvos to crack down on Beijing and put the NYSE in a difficult situation, as the exchange has long welcomed IPOs of companies from China.

During a trip to Egypt, Treasury Secretary Steven Mnuchin called NYSE President Stacey Cunningham to object to the stock exchange operator’s reversal, a Trump administration official said. Mr. Mnuchin supports NYSE’s original plan to take the companies off the stock exchange, this official added.

The news of his call to Ms. Cunningham was previously reported by Bloomberg News. A NYSE spokesman, which is owned by Intercontinental Exchange Inc., declined to comment on Mr. Mnuchin’s appeal.

The NYSE’s measures have also sparked investor concern about the ultimate impact on the companies in question, all of which are active in telecommunications: China Mobile Ltd.

CHL 9.27%

, China Telecom Corp.

NO 8.83%

and China Unicom (Hong Kong) Ltd.

CHU 11.82%

The three stocks have taken a wild ride, tumbling first and then back again following the NYSE turnaround.

The Big Board said on Dec. 31 that it would delist the three companies’ U.S. certificates to comply with Mr. Trump’s order. Then, late Monday, the NYSE said in a notice that it was halting the delisting process, citing “further consultations with relevant regulatory authorities.” Monday’s message was linked to an advisory paper recently issued by the Treasury Department clarifying which companies are affected by the executive order, but the NYSE has made no other explanation.

A person familiar with the case said on Tuesday that the NYSE has reversed its decision due to uncertainties as to whether the three telecom companies are under Mr Trump’s orders. If and when there is formal confirmation that the three companies are under the order, the NYSE would scrap them, this person said.

Lawyers not affiliated with the NYSE said there may have been some confusion as to which companies will be under the order and when the trade ban will take effect.

“It was clear that there was some sort of new information or miscommunication that caused them to change direction within a few days,” said Alan Seem, a partner at Jones Day law firm.

“The last thing the NYSE wants is to remove these Chinese companies from the list,” added Mr. Seem, who worked on the IPOs of China Mobile, China Telecom and other Chinese companies in a previous job.

Mr. Trump’s order in November identified 31 “Communist Chinese Military Companies” and banned trading of their shares from January 11th. But it did not specify in detail which of the companies’ subsidiaries and affiliates would also be subject to the trade ban. That ambiguity sparked a behind-the-scenes fight between different agencies over how broad the ban should be, The Wall Street Journal reported in December.

The Ministry of Finance issued guidelines on Dec. 28 stating that the ban would apply to subsidiaries owned 50% or more of the blacklisted Chinese companies. That would conquer the three NYSE-listed telecom companies, most of which are owned by blacklisted companies.

But the guideline also said that the ban on subsidiaries would not come into effect until 60 days after the Treasury Department formally identified which subsidiaries are under the order. The department has not yet taken that step. That could potentially spare the three NYSE-listed telecom companies as the incoming government of President-elect Joe Biden could reverse the ban before it takes effect.

The NYSE quoted the Dec. 28 guideline in reversing the deletion decision. It’s unclear why the exchange went ahead with the New Year’s Eve announcement of the deletion, even though the Treasury Department had not formally named the subsidiaries that would be under Mr. Trump’s orders. Stock exchanges are strictly regulated and normally work closely with their regulatory bodies in Washington.

Some supporters of Mr. Trump’s tough stance on China have toppled the NYSE.

“Once again, Wall Street has chosen the Chinese Communist Party over the economic and national security interests of the United States,” Christopher Iacovella, head of the American Securities Association, a brokerage group, said in a statement.

“The American people deserve an explanation for this unthinkable turnaround,” added Mr. Iacovella, whose group has backed tighter restrictions on Chinese stocks listed on US stock exchanges.

The NYSE’s intent is to comply with Mr. Trump’s order, the person familiar with the matter said.

Some investors have felt a whiplash from the NYSE’s moves. An individual investor said he had suffered a major loss on shares in China Mobile due to the NYSE’s original decision to go public.

He held the stock in hopes that Mr. Biden would eventually reverse Mr. Trump’s order, but decided to sell after his brokerage informed him that investors could have trouble liquidating the stock, the investor said. That notice prompted him to sell the stock at a loss just before the NYSE reversed its decision.

NYSE-listed China Mobile shares fell 5.9% on Monday before the reversal was announced, then rose 9.3% on Tuesday.

—Paul Kiernan contributed to this article.

Write to Alexander Osipovich at [email protected]