Foreign Company Deregistration Rules Reproposed by SEC
December 13, 2006
FEI Summary
At its open commission meeting on Dec. 13, 2006, the SEC voted to repropose amendments to the rules that govern when a foreign private issuer:
o may terminate the registration of a class of equity securities under Section 12(g) of the Securities Exchange Act of 1934;
o [may terminate, in accordance with the above] the corresponding duty to file reports required under Section 13(a) of the Exchange Act; and
o may cease its reporting obligations regarding a class of equity or debt securities under Section 15(d) of the Exchange Act.
As noted in the SEC’s press release issued after the open commission meeting, the reasons for the reproposal are as follows:
o Under the current rules, a foreign private issuer may exit the Exchange Act registration and reporting regime if the class of the issuer's securities has less than 300 record holders who are U.S. residents.
o Because of the increased globalization of the U.S. securities markets that has occurred since the adoption of these rules, a foreign private issuer may find it difficult to terminate its Exchange Act registration and reporting obligations despite the fact that there is relatively little interest in the issuer's securities among U.S. investors.
o Moreover, currently a foreign private issuer can only suspend, and cannot terminate, a duty to report arising under Section 15(d) of the Exchange Act.
Under the reproposal, according to the press release:
- Foreign private issuers would be able to terminate Exchange Act reporting regarding a class of equity securities if the issuer meets a quantitative benchmark designed to measure relative U.S. market interest for that class of securities, which does not depend on a head count of the issuer's U.S. security holders.
- The reproposed benchmark would require the comparison of the average daily trading volume of an issuer's securities in the United States with that in its primary trading market. Because the commission did not fully address this approach when it originally proposed Rule 12h-6 last December, and because of other proposed changes to Rule 12h-6 not fully discussed in the original rule proposal, it has reproposed Rule 12h-6 and the accompanying rule amendments.
There will be a 30-day comment period on the reproposed foreign private issuer deregistration rules. Further details can be found in the SEC’s press release.
Other Actions Taken at SEC December 13 Meeting
Other actions taken at the SEC’s Dec. 13 open commission meeting include:
Other matters scheduled to be discussed at the December 13 SEC meeting, according to the agenda, were hedge funds and accredited investors, internet availability of proxy material, and mutual fund governance. If press releases are issued on those items, links to those press releases will be added to this summary.
Prepared Dec. 13, 2006 by Edith Orenstein, eorenstein@FinancialExecutives.org, Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.