Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies

This executive order prohibits U.S. persons from purchasing publicly traded securities of Chinese companies identified as supporting the People's Republic of China's military, intelligence, and security apparatuses. It establishes a phased ban starting January 11, 2021, with a divestment window through November 11, 2021, and authorizes the Secretaries of Treasury and Defense to identify and list additional covered companies.

Federal Register Open PDF 85 FR 73185

Impact dates

Jan 11, 2022
Divestment deadline for securities of subsequently determined companies (365 days from determination)
Nov 11, 2021
Final deadline for permitted divestment transactions from securities held as of January 11, 2021
Jan 11, 2021
Prohibition on transactions in securities of Communist Chinese military companies listed as of order date takes effect

Key directives

Prohibit U.S. persons from purchasing securities of listed Communist Chinese military companies beginning 9:30 a.m. EST January 11, 2021
Prohibit U.S. persons from purchasing securities of subsequently designated companies beginning 60 days after determination
Permit divestment transactions through 11:59 p.m. EST November 11, 2021 for securities held as of January 11, 2021
Permit divestment within 365 days of determination for subsequently listed companies
Authorize Secretary of Treasury to issue rules, regulations, and licenses with mandatory interagency consultation
Authorize Secretary of Defense to list additional Communist Chinese military companies in consultation with Secretary of Treasury
Authorize Secretary of Treasury to publicly list subsidiaries and criteria-based determinations

Who is ordered

Timeline

Immediate

National emergency declared with respect to PRC military-industrial complex threat

Near term (90d)

Prohibition on transactions in covered securities begins January 11, 2021
Secretary of Treasury authorized to promulgate implementing rules and regulations

Long term

Divestment deadline for initial listed companies: November 11, 2021
Ongoing authority to list additional Communist Chinese military companies
Potential 365-day divestment windows for future designations

Risks & tensions

Vague scope of 'derivative' securities and 'designed to provide investment exposure' creates implementation uncertainty for funds and index products
Potential market disruption from forced divestment of widely held securities
Interagency consultation requirements (Treasury, State, Defense, DNI) may slow or politicize licensing and listing decisions
Retroactive application to existing holdings raises takings clause and due process concerns not addressed in text
Definition of 'subsidiary' in section 4(a)(iii) is cut off in text, leaving scope uncertain