Termination of a Foreign Private Issuer's Registration of a Class of Securities Under Section 12(g) and Duty To File Reports Under Section 15(d) of the Securities Exchange Act of 1934, 77688-77713 [05-24618]
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Federal Register / Vol. 70, No. 250 / Friday, December 30, 2005 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 200, 232, 240 and 249
[Release No. 34–53020; International Series
Release No. 1295; File No. S7–12–05]
RIN 3235–AJ38
Termination of a Foreign Private
Issuer’s Registration of a Class of
Securities Under Section 12(g) and
Duty To File Reports Under Section
15(d) of the Securities Exchange Act of
1934
Securities and Exchange
Commission.
ACTION: Proposed rule.
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AGENCY:
SUMMARY: We propose to amend the
rules allowing a foreign private issuer to
terminate the registration of a class of
equity securities under section 12(g) of
the Securities Exchange Act of 1934
(and thus stop filing reports required as
a result of registration) and to cease its
reporting obligations regarding a class of
equity or debt securities under section
15(d) of the Exchange Act. Under the
current 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 United States
investors. Moreover, currently a foreign
private issuer can only suspend, and
cannot permanently terminate, a duty to
report arising under section 15(d). The
proposed rules would permit the
termination of Exchange Act reporting
regarding a class of equity securities
under either section 12(g) or section
15(d) by a foreign private issuer that
meets specified criteria designed to
measure U.S. market interest for that
class of securities. The proposed rules
would also permit a foreign private
issuer to terminate, and not merely
suspend, its section 15(d) reporting
obligations regarding a class of debt
securities as long as it meets conditions
similar to the current requirements for
suspending its reporting obligations
relating to that class of debt securities.
At the same time, the proposed rules
would seek to provide U.S. investors
with ready access through the Internet
to material information about a foreign
private issuer that is required by its
home country on an ongoing basis after
it has exited the Exchange Act reporting
system.
DATES: Comments should be received on
or before February 28, 2006.
ADDRESSES: Comments may be
submitted by any of the following
methods:
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–12–05 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number S7–12–05. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/
proposed.shtml). Comments also are
available for public inspection and
copying in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549. All comments
received will be posted without change;
we do not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT:
Elliot Staffin, Special Counsel, at (202)
551–3450, in the Office of International
Corporate Finance, Division of
Corporation Finance, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
3628.
We
propose to amend Commission Rule 30–
1,1 Rule 101 2 of Regulation S–T,3 and
Rules 12g3–2, 12g–4 and 12h–3 4 under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’),5 and to add Rule
12h–6 6 and Form 15F 7 under the
Exchange Act.
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview of the Current Rules
Governing Exiting the Exchange Act
Reporting Regime
Under the current Exchange Act
reporting regime, whether a domestic or
1 17
CFR 200.30–1.
CFR 232.101.
3 17 CFR 232.10 et seq.
4 17 CFR 240.12g3–2, 240.12g–4 and 240.12h–3.
5 15 U.S.C. 78a et. seq.
6 17 CFR 240.12h–6, as proposed.
7 17 CFR 249.324, as proposed.
2 17
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foreign private issuer 8 can terminate its
reporting obligations under section 13(a)
of the Act 9 depends on how it became
subject to those obligations. An issuer
may have become subject to section
13(a) reporting obligations by:
• Listing a class of either equity or
debt securities on a national securities
exchange and registering this class
under section 12(b) of the Exchange
Act; 10
• Registering a class of equity
securities under section 12(g) 11 either
voluntarily or because it had 500 or
more security holders of record and
more than $10 million in total assets 12
and, if a foreign private issuer, more
than 300 shareholders resident in the
United States on the last day of its most
recently completed fiscal year; 13 or
• Registering either equity or debt
securities under a Securities Act
registration statement, which has gone
effective, thus triggering section 13(a)
reporting obligations under Section
15(d) of the Exchange Act.14
An issuer may be subject to reporting
obligations under more than one of the
above statutory sections and rules.
While an issuer is deemed to have only
one active set of reporting obligations,
when an issuer attempts to exit the
Exchange Act reporting system, it must
consider whether there are any dormant
or suspended reporting obligations that
would preclude the issuer from ceasing
its Exchange Act reporting.
For example, an issuer may have
active section 13(a) reporting obligations
because it has a class of equity securities
listed on a national securities exchange
and registered with the Commission
8 As defined in Rule 3b-4(c) (17 CFR 240.3b–4(c)),
a foreign private issuer is a corporation or other
organization incorporated or organized in a foreign
country that either has 50 percent or less of its
outstanding voting securities held of record by
United States residents or, if more than 50 percent
of its voting securities are held by U.S. residents,
about which none of the following are true:
(1) A majority of its executive officers or directors
are U.S. citizens or residents;
(2) More than 50 percent of its assets are located
in the United States; and
(3) The issuer’s business is administered
principally in the United States.
9 15 U.S.C. 78m(a).
10 15 U.S.C. 78l(b).
11 This statutory section only applies to equity
securities. See Exchange Act Section 12(g)(1) [15
U.S.C. 78l(g)(1)].
12 Exchange Act Rule 12g–1 (17 CFR 240.12g–1).
13 Exchange Act Rule 12g3–2(a) (17 CFR
240.12g3–2(a)). A foreign private issuer may avoid
an Exchange Act registration obligation under
section 12(g) by establishing the exemption under
Exchange Act Rule 12g3–2(b) (17 CFR 240.12g3–
2(b)).
14 15 U.S.C. 78o(d). There are other methods by
which an issuer may be obliged to file reports under
section 13(a), such as, for example, under Exchange
Act Rule 12g-3 (17 CFR 240.12g–3) in the case of
a successor registrant.
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under section 12(b) of the Exchange Act.
When attempting to exit the Exchange
Act reporting system, the registrant not
only must take steps to effect its
delisting from the national securities
exchange,15 but also it must consider
whether it has any dormant or
suspended reporting obligations under
section 12(g)16 or 15(d) that will become
operative once its section 12(b)
registration ceases.17
Exchange Act Rule 12g-4 currently
governs whether an issuer may
terminate its registration of a class of
securities under section 12(g) of the
Exchange Act and its corresponding
section 13(a) reporting obligations.18
Under this rule, a foreign private issuer
may seek termination of its registration
of a class of securities under section
12(g) by certifying in Form 15 19 that the
subject class of securities is held by less
than 300 residents in the United States
or by less than 500 U.S. residents when
the issuer’s total assets have not
exceeded $10 million on the last day of
each of the issuer’s most recent three
fiscal years.20 For the purpose of
15 Exchange Act Rule 12d2–2 (17 CFR 240.12d2–
2) governs the process of the delisting of a class of
securities from a national securities exchange. To
effect the delisting and subsequent termination of
an issuer’s registration of a class of securities under
section 12(b), the national securities exchange or
issuer must file a Form 25 with the Commission.
We recently adopted amendments to our rules and
Form 25 to streamline the procedures for removing
from listing, and withdrawing from registration,
securities under section 12(b). See Release No. 34–
52029 (July 14, 2005), 70 FR 42456 (July 22, 2005).
16 A registrant may have section 12(g) reporting
obligations following its termination of registration
under section 12(b): (1) If it had initially registered
the class of securities under section 12(g) prior to
listing the securities on a national securities
exchange; or (2) under Exchange Act Rule 12g–2 (17
CFR 240.12g–2). That rule provides that any class
of securities that would have been required to be
registered under section 12(g) except for the fact
that it was listed and registered on a national
securities exchange shall be deemed to be registered
under section 12(g) upon the termination of
registration under section 12(b) as long as the class
of securities are not exempt from registration under
section 12 and are held of record by 300 or more
persons.
17 Exchange Act section 15(d) automatically
suspends the duty to file reports under that section
regarding securities registered under an effective
Securities Act registration statement once the issuer
has registered the class of securities under section
12 of the Exchange Act.
18 An issuer must look to this rule both when it
has only registered a class of securities under
section 12(g) and following the termination of
registration of a class of equity securities under
section 12(b).
19 17 CFR 249.323.
20 Exchange Act Rule 12g–4(a)(2) (17 CFR
240.12g-4(a)(2)). Alternatively, a foreign private
issuer may seek to terminate its section 12(g)
registration under the Rule 12g-4 provision that
applies to any issuer, whether domestic or foreign.
Under this provision, an issuer must certify on
Form 15 that its class of equity securities is held
of record by less than 300 persons or by less than
500 persons when the issuer’s total assets have not
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determining the number of U.S. resident
shareholders under this rule, a foreign
private issuer must use the method of
counting provided under Exchange Act
Rule 12g3–2(a).21 This method requires
looking through the record ownership of
brokers, dealers, banks or other
nominees on a worldwide basis and
counting the number of separate
accounts of customers resident in the
United States for which the securities
are held.22 Under this rule, issuers are
required to make inquiries of all
nominees, wherever located and
wherever in the chain of ownership, for
the purpose of assessing the number of
U.S. resident holders.
An issuer that has determined that it
meets the threshold requirements for
termination of registration of a class of
securities under Rule 12g–4, and has
also never engaged in a registered
offering under the Securities Act, may
seek termination of its Exchange Act
reporting obligations by filing the Form
15 certification.23 However, an issuer
that has registered securities under an
effective Securities Act registration
statement must determine if it has any
suspended reporting obligations under
section 15(d) that will become operative
after it has terminated the registration of
a class of securities under Exchange Act
section 12(g).
Rule 12h–3 24 is the Exchange Act rule
governing when an issuer may suspend
its reporting obligations under section
15(d).25 While Rule 12h–3’s standards
are substantially similar to those under
Rule 12g–4,26 there are two important
differences. First, an issuer may
generally not suspend its section 15(d)
reporting obligations until it has filed
one Exchange Act annual report after
the offering in question. Second, an
issuer cannot permanently terminate its
reporting obligations under section
15(d) but can only suspend those
obligations.27 Therefore, for as long as
exceeded $10 million on the last day of each of the
issuer’s most recent three fiscal years. Exchange Act
Rule 12g-4(a)(1) (17 CFR 240.12g–4(a)(1)).
21 17 CFR 240.12g3–2(a).
22 See 17 CFR 240.12g3–2(a)(1).
23 Filing this form immediately suspends the
issuer’s Exchange Act reporting obligations. If, after
90 days from the date of filing the Form 15, the
Commission has not objected, the suspension
becomes a termination. See Rule 12g-4(b) (17 CFR
12g-4(b)).
24 17 CFR 240.12h–3.
25 Section 15(d) itself provides that an issuer
cannot suspend its reporting obligations unless the
subject class of securities is held of record by less
than 300 persons at the beginning of a fiscal year
other than the year in which the Securities Act
registration statement triggering the section 15(d)
reporting obligations became effective.
26 See, in particular, Rule 12h–3(b)(2) (17 CFR
240.12h–3(b)(2)).
27 Exchange Act Rule 12h–3(a) (17 CFR 240.12h–
3(a)).
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the subject class of securities is
outstanding, a foreign private issuer
must also determine at the end of each
fiscal year whether the number of U.S.
resident security holders or total
number of record holders has increased
enough to trigger anew its section 15(d)
reporting obligations.
B. The Increased Internationalization of
the U.S. Securities Markets
It has been almost four decades since
the Commission first adopted the ‘‘300
U.S. resident shareholder’’ standard as
the benchmark for determining both
when a foreign private issuer must
register a class of equity securities under
section 12(g) and when it may terminate
that registration.28 Moreover, it has been
over two decades since the Commission
adopted Form 15 under Rules 12g–4 and
12h–3.29
Since then, market globalization,
advances in information technology, the
increased use of American Depositary
Receipt (‘‘ADR’’) 30 facilities by foreign
companies to sell their securities in the
United States,31 and other factors have
increased significantly the number of
foreign companies that have engaged in
cross-border activities and sought
listings in U.S. securities markets, as
well as increased the amount of U.S.
investor interest in the securities of
foreign companies. For example:
• The number of foreign companies
with Exchange Act reporting obligations
increased from approximately 300 in
1985 to over 1,200 in 2004; 32
• The number of foreign companies
listed on the New York Stock Exchange
(‘‘NYSE’’) increased from 54, or
approximately 3.5% of the total number
of NYSE-listed companies in 1985, to
28 See
Release No. 34–8066 (April 28, 1967).
Release No. 34–20784 (March 22, 1984), 49
FR 12688 (March 30, 1984).
30 An ADR is a negotiable instrument that
represents an ownership interest in a specified
number of securities, which the securities holder
has deposited with a designated bank depositary.
Use of an ADR facility makes it easier for a U.S.
resident to collect dividends in U.S. dollars.
Moreover, because the clearance and settlement
process for ADRs generally is the same for securities
of domestic companies that are traded in U.S.
markets, a U.S. holder of an ADR is able to hold
securities of a foreign company that trades, clears
and settles within automated U.S. systems and
within U.S. time periods.
31 For example, the number of ADR issues traded
on the NYSE increased from 134 in 1993 to 344 in
2004. During this same period, the market
capitalization of NYSE-traded ADRs nearly
quadrupled. See ‘‘Summary Data on NYSE-Listed
Non-U.S. Companies’’ located at https://
www.nyse.com/attachment/nonussum0916.xls.
32 See ‘‘International Registered and Reporting
Companies’’ located at https://www.sec.gov/
divisions/corpfin/internatl/companies.shtml; see
also The New Economy Handbook, Derek C. Jones,
editor, pp. 428–429 (2003).
29 See
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460 or over 16% of the total number of
NYSE-listed companies in 2004; 33 and
• The average daily trading value of
NYSE-traded foreign securities
increased from over $350 million, or
over 5% of the total value of NYSEtraded securities in 1991, to over $4.5
billion, or over 10% of the total value
of NYSE-traded securities in 2000.34
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C. Concerns Regarding the Exchange
Act Reporting Exiting Rules for Foreign
Private Issuers
Representatives of foreign companies
and foreign industry associations have
recently voiced their concerns to the
Commission about the rules that govern
whether a foreign private issuer may
exit the Exchange Act registration and
reporting regime.35 These
representatives maintain that, due to the
increased internationalization of U.S.
investor interest, the ‘‘300 U.S. resident
shareholder’’ standard has become
outdated and too easily exceeded by a
foreign company that may have engaged
in very little recent selling activity in
the United States. According to these
representatives, after a few years of
listing its securities in the United States,
a foreign company may discover that
there is little U.S. market interest in its
securities. Yet because it has not been
able to reduce the number of its U.S.
shareholders to below 300, it must
continue to incur the costs of being an
Exchange Act reporting company.
These representatives have further
criticized the exit rules’ reliance on the
number of U.S. resident shareholders
because, with the advent of book-entry
recording,36 it is difficult and costly to
33 See ‘‘Stocks of non-U.S. Corporate Issuers’’
located at https://www.nysedata.com/factbook; see
also ‘‘Listed Company Directory’’ located at https://
www.nyse.com/about/listed/listed.html. A similar
increase occurred on Nasdaq. See The New
Economy Handbook at p. 429.
34 See ‘‘NYSE Value of Trading—U.S. and nonU.S. Companies’’ located at https://www.nyse.com/
attachment/sumdolv051005.xls. In September 2005,
the average daily trading value of NYSE-traded
foreign securities was over 9% of the total value of
NYSE-traded securities.
35 See, for example, the letters from the
Association Francaise Des Entreprises Privees
(‘‘AFEP’’) and other European industry group
representatives, dated February 9, 2004 and March
18, 2005 (the ‘‘AFEP letters’’), which we will make
publicly available on our Web site and in the
Commission’s Public Reference Room in its
Washington, DC headquarters, together with
comment letters received concerning this proposed
rulemaking.
36 The last three decades have seen the
development of a U.S. clearance and settlement
system that relies on electronic book-entry to settle
securities transactions and transfer ownership
rather than one dependent on the use of paper
certificates. For an overview of this development,
see Release No. 33–8398 (March 11, 2004), 69 FR
12922 (March 18, 2004), the text surrounding n.
104. This movement to electronic book-entry
clearance and settlement systems has taken place
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arrive at an accurate count of a foreign
company’s U.S. resident shareholders.
These representatives also are critical of
Rule 12h–3 because it merely suspends
rather than permanently terminates a
company’s section 15(d) reporting
obligations. As such, years after filing a
Form 15, a foreign company may find
that it has once again exceeded the 300
U.S. resident shareholder threshold, and
thereupon again become subject to
section 15(d) reporting duties, without
regard to its U.S. market activity.
Finally, these representatives disagree
with the fact that our current rule does
not permit a foreign private issuer to
obtain the Exchange Act Rule 12g3–2(b)
exemption 37 if, during the previous 18
months, it has had a class of securities
registered under section 12 or a
reporting obligation, suspended or
active, under section 15(d) of the
Exchange Act.38
II. Discussion
A. Summary of the Proposed Rule
Amendments
In light of the increased
internationalization of the U.S.
securities markets that has occurred, we
believe that it is time to reconsider the
rules allowing a foreign private issuer to
exit the Exchange Act registration and
reporting regime. We propose to amend
Rules 12g–4 and 12h–3 to eliminate the
provisions that primarily condition a
foreign private issuer’s eligibility to
cease its Exchange Act reporting
obligations on whether the number of its
U.S. resident security holders has fallen
below the 300 or 500 person threshold.
In their place, we propose new
Exchange Act Rule 12h–6 that would
permit a foreign private issuer that
meets the conditions discussed below to
achieve the following:
• Termination of the registration of a
class of equity securities under section
12(g) and its resulting section 13(a)
reporting obligations;
on a global basis as well, as both developed and
developing securities markets have sought to
improve efficiency.
37 17 CFR 240.12g3–2(b). Rule 12g3–2(b) provides
an exemption from registration under section 12(g)
with respect to a foreign private issuer that submits
to the Commission, on a current basis, the home
country materials required by the rule.
38 Exchange Act Rule 12g3–2(d)(1) (17 CFR 12g3–
2(d)(1)). This exception to the Rule 12g3–2(b)
exemption does not apply to registered Securities
Act offerings filed by Canadian companies on
certain Multijurisdictional Disclosure System
(‘‘MJDS’’) forms. Exchange Act Rule 12g3–2(d) also
precludes the Rule 12g3–2(b) exemption to a foreign
private issuer’s securities issued to acquire by
merger or similar transaction an issuer that had
securities registered under section 12 or a reporting
obligation, suspended or active, under section
15(d), except for a transaction registered on
specified MJDS forms. See Exchange Act Rule
12g3–2(d)(2) (17 CFR 240.12g3–2(d)(2)).
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• Permanent termination of its
section 15(d) reporting obligations
regarding a class of equity securities;
and
• Permanent termination of its
section 15(d) reporting obligations
regarding a class of debt securities.
A foreign private issuer would be
eligible to terminate its Exchange Act
reporting obligations regarding a class of
equity securities under proposed Rule
12h–6 if it met the following conditions:
• The issuer has been an Exchange
Act reporting company for the past two
years, has filed or furnished all reports
required for this period, and has filed at
least two annual reports under section
13(a);
• The issuer’s securities have not
been sold in the United States in either
a registered or unregistered offering
under the Securities Act during the
preceding 12 months other than
securities:
• Sold to the issuer’s employees;
• Sold by selling security holders in
non-underwritten offerings;
• Exempt from registration under
section 3 of the Securities Act,
except section 3(a)(10); 39 and
• Constituting obligations having a
maturity of less than nine months at
the time of issuance and offered and
sold in transactions exempted from
registration under section 4(2) of
the Securities Act; 40 and
• For the preceding two years, the
issuer has maintained a listing of the
subject class of securities on an
exchange in its home country, as
defined in Form 20–F,41 which
constitutes the primary trading market
for the securities.
Rule 12h–6 would further permit a
foreign private issuer seeking to
terminate its registration and reporting
obligations regarding a class of equity
securities to meet one of a set of
alternative benchmarks, which are not
based on a record holder count, and
which depend on whether the issuer is
a well-known seasoned issuer.42 If a
39 15
U.S.C. 77c(a)(10).
U.S.C. 77d(2).
41 17 CFR 249.220f. Form 20–F General
Instruction F defines ‘‘home country’’ as the
jurisdiction in which the issuer is legally organized,
incorporated or established and, if different, the
jurisdiction where it has its principal listing.
42 For purposes of Rule 12h–6 a ‘‘well-known
seasoned issuer’’ means a well-known seasoned
issuer as defined in Securities Act Rule 405 (17 CFR
230.405) that meets the requirements of paragraph
(1)(i)(A) of that definition. Under Rule 12h–6,
therefore, a ‘‘well-known seasoned issuer’’ must
have a worldwide market value of its outstanding
voting and non-voting common equity held by nonaffiliates of $700 million or more, and must satisfy
40 15
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well-known seasoned issuer, then a
foreign private issuer could terminate its
Exchange Act registration and reporting
obligations as long as either:
• The U.S. average daily trading
volume of the subject class of securities
has been no greater than 5 percent of the
average daily trading volume of that
class of securities in its primary trading
market during a recent 12 month period,
and U.S. residents held no more than 10
percent of the issuer’s worldwide public
float 43 at a date within 60 days before
the end of that same period; or
• Regardless of U.S. trading volume,
U.S. residents held no more than 5
percent of the issuer’s worldwide public
float at a date within 120 days before the
filing date of the Form 15F, which is the
form that a foreign private issuer would
have to file to certify that it meets the
conditions for terminating its Exchange
Act registration and reporting
obligations under proposed Rule 12h–6.
If not a well-known seasoned issuer,
then a foreign private issuer could
terminate its Exchange Act registration
and reporting obligations regarding a
class of equity securities as long as,
regardless of U.S. trading volume, U.S.
residents held no more than 5 percent
of the issuer’s worldwide public float at
a date within 120 days before the filing
date of the Form 15F.
Under proposed Rule 12h–6, if a
foreign private issuer is unable to meet
one of these proposed benchmarks, but
satisfies the other conditions of the rule,
it could still terminate its Exchange Act
registration and reporting obligations
regarding a class of equity securities as
long as that class of securities is held of
record by less than 300 persons on a
worldwide basis or less than 300
persons resident in the United States at
the other requirements of the definition in
Securities Act Rule 405 (for example, the issuer
must not be an ‘‘ineligible issuer’’). The time of
determination of well-known seasoned issuer status
under Rule 12h–6 would be a date within 120 days
of the filing of proposed Form 15F. Although Rule
405 also defines ‘‘well-known seasoned issuer’’
alternatively to mean an issuer that has registered
a specified amount of non-convertible securities
other than equity over a three-year period, that part
of the definition is inapplicable under proposed
Rule 12h–6. Only the equity prong of the definition
is relevant for purposes of termination of
registration and reporting requirements under
proposed Rule 12h–6. The proposed conditions that
would permit a foreign private issuer to terminate
its section 15(d) reporting obligations regarding a
class of debt securities do not distinguish between
well-known seasoned issuers and other issuers.
43 The term ‘‘public float’’ refers to the
outstanding voting and non-voting equity securities
held by an issuer’s non-affiliates. As proposed,
when calculating the percentage of its worldwide
public float held by U.S. residents, an issuer would
include in its worldwide public float only the class
or classes of equity securities regarding which there
is an Exchange Act reporting obligation.
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a date within 120 days before the filing
date of the Form 15F.
A foreign private issuer would be
eligible to terminate its section 15(d)
reporting obligations regarding a class of
debt securities under proposed Rule
12h–6 if it met the following conditions:
• The issuer has filed or furnished all
required reports under section 15(d),
including at least one annual report
pursuant to section 13(a) of the Act; and
• At a date within 120 days before the
filing date of the Form 15F the class of
debt securities is either held of record
by less than 300 persons on a
worldwide basis or less than 300
persons resident in the United States.
Rules 12g–4 and 12h–3 currently
require the filing of Form 15 by which
an issuer certifies that it meets the
conditions for ceasing its Exchange Act
reporting obligations. Unlike Form 15,
proposed new Form 15F would require
a foreign private issuer to provide
specified information regarding several
items that would enable investors to
obtain information regarding the issuer’s
decision to terminate its Exchange Act
reporting obligations. In addition,
proposed new Form 15F would help
Commission staff to assess whether the
issuer qualifies for termination of its
Exchange Act reporting obligations. As
under current Rules 12g–4 and 12h–3,
the filing of Form 15F would
automatically suspend an issuer’s
reporting duties. If the Commission has
not objected, the suspension would
become a permanent termination 90
days after the filing of the Form 15F.44
Proposed Rule 12h–6 would further
require a foreign private issuer, no later
than fifteen business days prior to the
filing of the Form 15F, to publish a
notice, such as a press release, in the
United States that discloses its intent to
terminate its section 13 reporting
obligations, and to submit a copy of the
press release either under cover of a
Form 6–K, before or at the time of filing
of the Form 15F, or as an exhibit to the
Form 15F.
Finally, we propose to amend
Exchange Act Rule 12g3–2(d) to permit
a foreign private issuer to establish the
Rule 12g3–2(b) exemption for a class of
equity securities that is the subject of a
Form 15F immediately upon the
effectiveness of termination of Exchange
Act reporting pursuant to Rule 12h–6.
As a condition to maintaining this
44 The Commission is also proposing to amend its
delegated authority rules to permit the Division of
Corporation Finance to accelerate the effectiveness
of a Form 15F termination of reporting sooner than
the 90th day at the request of the issuer. See the
proposed amendment to 17 CFR 200.30–1(e). This
delegation of authority currently exists with respect
to Form 15, although it is rarely used.
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exemption, a foreign private issuer
would have to publish in English the
home country materials required by
Rule 12g3–2(b) on its Internet Web site
or through an electronic information
delivery system that is generally
available to the public in its primary
trading market.
We recognize that U.S. investors
benefit from the investment
opportunities provided by the
registration of foreign private issuers
with the Commission and listing and
publicly offering securities in the
United States. The current exit process
may serve as a disincentive to foreign
private issuers accessing the U.S. public
capital markets because of the burdens
and uncertainties associated with
terminating registration and reporting
under the Exchange Act. We believe that
these changes to the exit process for
foreign private issuers, if adopted,
should provide those issuers with a
meaningful option to terminate their
Exchange Act reporting obligations
when, after electing to access the U.S.
public capital markets, they find a
diminished level of U.S. investor
interest in their securities. As a result,
foreign private issuers should be more
willing initially to register their
securities with the Commission when
there is a clearly defined process with
more appropriate benchmarks by which
they can terminate their Exchange Act
reporting obligations if after a period of
time U.S. investor interest is not
significant relative to non-U.S. investor
interest.
In addition, we believe the conditions
under proposed Rule 12h–6 are
consistent with the interests of U.S.
investors in other ways. The two-year
reporting and the one-year dormancy
conditions are intended to provide
sufficient time periods of Commission
reporting and of not promoting U.S.
investor interest through recent capital
raising. The conditions relating to
trading on a non-U.S. securities
exchange and the benchmarks based on
relevant U.S. public float and (for wellknown seasoned issuers) relative U.S.
trading volume support our view that
foreign private issuers that would
terminate Exchange Act reporting under
proposed Rule 12h–6 should be subject
to an ongoing disclosure and financial
reporting regime, and have a significant
market following, in their home market.
The conditions relating to the
publication of a press release or other
notice, the filing of proposed Form 15F,
and the immediate availability of the
exemption under Rule 12g3–2(b)
promote transparency of the exit process
as well as access by U.S. investors to
ongoing home country information
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B. Proposed Exchange Act Rule 12h–6
1. Purpose and Scope of Proposed Rule
12h–6
Like current Rule 12g–4, proposed
Rule 12h–6 would permit a foreign
private issuer meeting specified criteria
to terminate its registration of a class of
securities under section 12(g) and its
corresponding section 13 reporting
obligations after filing a certification
with the Commission. However, unlike
the current Exchange Act reporting
exiting regime, proposed Rule 12h–6
would also permit a foreign private
issuer to terminate permanently, rather
than merely suspend, its reporting
obligations regarding a class of equity or
debt securities, or both, under section
15(d).
As discussed below, proposed Rule
12h–6 would permit termination of
Exchange Act registration and reporting
regarding a class of a foreign private
issuer’s equity securities for which U.S.
investor interest is small relative to nonU.S. investor interest, and the expected
risk of harm to U.S. investors of
termination of registration and reporting
is low. Once a foreign company has met
the proposed Rule 12h–6 criteria, and
taken the other necessary steps to effect
termination of reporting,45 we believe
that it is unlikely that, following
termination of its reporting obligations,
U.S. trading in the subject class of
securities would increase to such an
extent as to justify reimposing Exchange
Act reporting obligations, and the
proposed rule would not do so.
We have proposed to require a foreign
company that terminates its Exchange
Act registration and reporting under
Rule 12h–6 regarding a class of equity
securities to provide material home
country documents in English under
Rule 12g3–2(b) on its Internet Web site
or through an electronic information
delivery system that is generally
available to the public in its primary
trading market.46 We believe that this
proposed ‘‘home country disclosure’’
requirement should provide continued
access to issuer information for U.S.
investors that continue to own the
subject class of equity securities
following a foreign company’s
termination of Exchange Act registration
and reporting. Merely suspending a
foreign company’s section 15(d)
45 For example, a section 15(d) reporting
company would have to file a post-effective
amendment to terminate the registration of its
remaining unsold securities under any of its
Securities Act registration statements.
46 Proposed Rule 12g3–2(e).
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reporting obligations could discourage
foreign companies from initially
registering their securities with the
Commission and joining our Exchange
Act reporting system, to the detriment of
investors in U.S. securities markets.47
Proposed Rule 12h–6 would further
permit a foreign private issuer to
terminate permanently its section 15(d)
reporting obligations regarding a class of
debt securities as long as the issuer met
conditions similar to the current
requirements for suspending its
reporting obligations under Rule 12h-3.
One of these conditions would require
a foreign private issuer’s debt securities
to be held either by less than 300
persons on a worldwide basis or by less
than 300 U.S. residents.48 Once the
number of a foreign private issuer’s debt
holders has fallen below either of these
thresholds, we believe that it is unlikely
that the number of its debt holders
would increase enough to warrant
reimposing Exchange Act reporting
obligations. Moreover, by providing a
definite means of exiting the Exchange
Act reporting system, we would remove
one possible disincentive for foreign
companies to register their debt
securities with the Commission, to the
benefit of U.S. investors.
Comment Solicited
We solicit comment on the purpose
and scope of proposed Rule 12h–6.
• Should we permit a foreign
company to terminate permanently its
section 15(d) reporting obligations
regarding a class of equity securities, as
proposed?
• Should we instead merely permit a
foreign company to suspend its section
15(d) reporting obligations regarding a
class of equity securities on the
condition that those obligations would
resume once it no longer meets the
criteria specified under proposed Rule
12h–6?
• If so, should we also merely
suspend section 12(g) reporting on the
same grounds?
• Should we permit a foreign
company to terminate its section 15(d)
reporting obligations regarding a class of
debt securities, as proposed?
47 Representatives of foreign industry associations
have stated that the inflexibility of the current
Exchange Act reporting regime is one reason why
their member companies are reluctant to list in the
United States at the present time. As an example
of this inflexibility, these representatives have
stated the risk that a foreign company with limited
U.S. interest could withdraw from the U.S. market
only to become subject to renewed U.S. reporting
because U.S. investors have acquired its shares in
its home market. See the AFEP letter, dated
February 4, 2004, at pp. 3–4.
48 See Part II.B.4 of this release for a discussion
regarding the proposed methodology for counting
holders of securities.
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• Should we prohibit a foreign
company whose sole Exchange Act
reporting obligations arise from a class
of debt securities under section 15(d) to
terminate those reporting obligations
under proposed Rule 12h–6?
• Should we merely permit a foreign
company to suspend its section 15(d)
reporting obligations regarding certain
classes of debt securities? If so, what
classes of debt securities should we
exclude from the proposed Rule 12h–6
termination process?
• Should we require a foreign
company that has terminated its
Exchange Act reporting obligations
under proposed Rule 12h–6 to resume
Exchange Act reporting if it reaches a
certain number or percentage of U.S.
resident shareholders? If so, what
number or percentage of U.S.
shareholders should trigger renewed
Exchange Act reporting?
• Should we add additional
conditions to proposed Rule 12h–6,
such as a requirement that the issuer
self-tender for securities held by U.S.
residents?
• Should proposed Rule 12h–6
require issuers to establish a share-sale
facility as a condition to termination of
registration, through which U.S. holders
of securities would be able to dispose of
securities without incurring brokerage
or other fees? If so, for what period of
time would an issuer be required to
maintain such a facility—one month,
two months, or longer or shorter?
• How frequently do foreign
companies find that, after filing Form
15, the number of their U.S. resident
shareholders has increased and exceeds
the 300 U.S. resident shareholder
threshold?
• How unlikely is it that, once a
foreign company has met the proposed
Rule 12h–6 criteria and taken the other
steps to effect termination of its
reporting, U.S. trading or U.S. resident
holdings in the subject class of
securities would increase to an extent
that could justify reimposing Exchange
Act reporting obligations? How unlikely
is it that, once the number of a foreign
private issuer’s debt holders drops
below 300 persons on a worldwide basis
or 300 U.S. residents, the number of its
debt holders would increase to an extent
that could justify reimposing Exchange
Act reporting obligations?
2. Conditions for Equity Securities
Registrants
a. The Two Year Exchange Act
Reporting Condition
In order to be eligible to terminate its
Exchange Act reporting obligations
regarding a class of equity securities
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under proposed Rule 12h–6, a foreign
private issuer must have been an
Exchange Act reporting company for the
two years preceding its filing of the
Form 15F. It also must have filed or
furnished all reports required for this
period.49 Proposed Rule 12h–6 would
also provide that an issuer must have
filed at least two Exchange Act annual
reports.50
The purpose of this Exchange Act
reporting condition is to provide
investors in U.S. securities markets with
a reasonable period of time to make
investment decisions regarding a foreign
private issuer’s securities based on the
information provided in Exchange Act
annual reports and the interim home
country materials furnished in English
under cover of Form 6–K.51 Without this
Exchange Act reporting condition, a
foreign private issuer could conduct a
U.S. registered offering of equity
securities under the Securities Act and
then seek to terminate its section 15(d)
reporting duties in less than a year, after
filing an Exchange Act annual report.52
The value of securities of a foreign
issuer may be discounted, and the level
of interest among U.S. investors in such
securities may be lowered, if U.S.
investors are not confident that the
foreign private issuer will be subject to
Exchange Act reporting for a sufficient
period of time. In addition, without this
condition, a foreign private issuer could
promote U.S. investor interest in its
equity securities by listing on a U.S.
stock market and registering a class of
securities under section 12(b) or section
12(g), and then shortly thereafter
terminate its registration without even
filing one Exchange Act annual report.
Once a foreign private issuer has elected
to list equity securities or otherwise sell
equity securities publicly to investors in
U.S. securities markets, we believe that
the issuer should have to provide
Exchange Act reports for a reasonable
period of time to enable investors to
49 See
proposed Exchange Act Rule 12h–6(a)(1).
typically a foreign private issuer would
file its Exchange Act annual report on Form 20–F,
one that filed on the domestic Form 10–K or on the
MJDS Form 40–F would also potentially qualify for
termination under proposed Rule 12h–6.
51 Under cover of a Form 6–K (17 CFR 249.306),
a foreign private issuer is required to furnish in
English a copy of any document that it publishes
or is required to publish under the laws of its home
country or the requirements of its local exchange or
that it has distributed to shareholders, and which
is material to an investment decision.
52 For example, without this condition, a foreign
private issuer with a calendar year end could
complete a Securities Act registered offering late in
the year, file its Form 20–F annual report as soon
as possible in the following year, and seek
termination of its section 15(d) reporting obligations
under Rule 12h–6 after only a few months of
reporting under the Exchange Act.
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discern trends about and to otherwise
evaluate their investment in the issuer.
A balance of prudence against the
burden on a foreign private issuer that
has attracted limited U.S. investor
interest leads us to propose setting this
requirement at two years.
Comment Solicited
We solicit comment on the proposed
Exchange Act reporting requirement.
• Should we require a foreign private
issuer to be an Exchange Act reporting
company for a specified period and to
have filed or furnished all reports
required during that period before it can
terminate its reporting obligations
regarding a class of equity securities
under proposed Rule 12h–6?
• If so, should we set this Exchange
Act reporting requirement at two
previous years, as proposed?
• Should we require an issuer to have
provided two Exchange Act annual
reports, as proposed?
• Should we instead adopt a longer
reporting period that requires an issuer
to have provided at least three Exchange
Act annual reports?
• Should we adopt an Exchange Act
reporting requirement that covers a
shorter period, such as one year, and
requires a foreign private issuer to have
filed at least one Exchange Act annual
report?
• Or should we permit a foreign
private issuer to terminate its Exchange
Act reporting obligations regarding a
class of equity securities under
proposed Rule 12h–6 even if it has not
yet filed one Exchange Act annual
report?
• If we should impose an Exchange
Act reporting requirement under
proposed Exchange Act Rule 12h–6,
should this requirement relate only to
annual report filings under the
Exchange Act and not to filings or
submissions on Form 6–K?
• Should this requirement relate only
to specified materials likely to be filed
or furnished on Form 6–K (such as
annual reports to shareholders, proxy
statements and other materials relating
to meetings of shareholders, earnings
releases, and interim period financial
statements), and if so, what should they
be?
b. The One Year Dormancy Condition
Proposed Rule 12h–6 would require a
foreign private issuer not to have sold
any securities in a registered offering in
the United States during the preceding
12 months, other than securities sold to
its employees and those sold by its
selling security holders in nonunderwritten offerings, before it could
terminate its Exchange Act reporting
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obligations regarding a class of equity
securities. The purpose of this condition
is to help ensure that Rule 12h-6 would
only be available to a foreign issuer
when the U.S. securities markets have
relatively little interest and the issuer is
not trying to create or take advantage of
such interest. A foreign company that
has actively engaged in U.S. capital
raising efforts and sold securities to U.S.
investors relatively recently should not
be permitted to exit the Exchange Act
reporting regime under Rule 12h-6 on
the grounds that the U.S. securities
markets no longer represent as viable an
option for capital raising.
The proposed ‘‘one year dormancy’’
condition would further prevent a
foreign company from exiting the
Exchange Act reporting system within a
year after it has conducted a U.S.
registered offering under the Securities
Act and garnered investors who are
entitled to the protections afforded by
our Exchange Act reporting regime. We
have excluded from this proposed
dormancy period securities sold to a
foreign company’s U.S. employees,
since such sales are undertaken
primarily for purposes other than
capital formation. Similarly, we have
excluded from this proposed dormancy
period securities sold by a foreign
company’s selling security holders in
non-underwritten offerings registered
under the Securities Act since such
sales are not undertaken primarily for
the benefit of the issuer.
The proposed condition would also
prohibit a foreign company from
engaging in unregistered offerings in the
United States, other than securities sold
to its employees, and securities exempt
from registration under section 3 of the
Securities Act, except section 3(a)(10),
during the previous 12 months.53 Our
reasoning regarding an issuer actively
seeking U.S. investors would apply
equally to unregistered offerings. In
addition, if we only proscribed
registered offerings, that condition
could act as a disincentive to a foreign
private issuer to conduct a registered
offering in the United States.
We have generally excluded from the
proposed one year dormancy
requirement securities exempt from
registration under section 3 of the
Securities Act 54 because, given their
53 This proposed condition would prohibit, for
example, offers and sales under section 4(2), Rule
144A and Rules 801 and 802 under the Securities
Act. The proposed condition would not prohibit
offers and sales effected under Regulation S since
such offers and sales, which occur outside the
United States, are deemed to fall outside the scope
of Securities Act section 5. See Securities Act Rule
901 (17 CFR 230.901).
54 15 U.S.C. 77c.
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exemptive nature and their limited role
in capital formation, they do not raise
the same concerns as other securities
transactions. We also propose to
exclude from the prohibition obligations
having a maturity at the time of issuance
of less than nine months and exempted
from registration under section 4(2) of
the Securities Act, on the theory that socalled ‘‘4(2) commercial paper’’ is
analogous for these purposes to
commercial paper exempt from
registration under section 3(a)(3) of the
Securities Act.55
However, we have proposed to
preclude the issuance of securities
pursuant to a court-approved scheme of
arrangement under section 3(a)(10) of
the Securities Act 56 during the one year
dormancy period. Such schemes of
arrangement typically possess
characteristics of registered offerings,
including the solicitation of numerous
U.S. resident security holders.
Comment Solicited
We solicit comment on the ‘‘one year
dormancy’’ condition.
• Is it appropriate to prohibit an
issuer from selling securities in the
United States for a period preceding its
termination of Exchange Act reporting
regarding a class of equity securities
under Rule 12h–6?
• If so, should we adopt a one year
dormancy period, as proposed? Should
the period be more than one year, for
example, 18 months or two years?
Should it be less than one year, for
example, three or six months?
• If it is appropriate to adopt a
dormancy condition, should it prohibit
both registered and unregistered
offerings, as proposed? Should it
prohibit only registered offerings? If so,
why should the rule distinguish
between registered and unregistered
offerings?
• Should the dormancy condition
exclude from its prohibition securities
sold to an issuer’s employees and those
sold by its selling security holders in
registered, non-underwritten offerings,
as proposed? Should we distinguish
between smaller security holders and
55 15
U.S.C. 77c(a)(3).
private issuers have frequently relied
on Securities Act section 3(a)(10) to effect
acquisitions and corporate restructurings. See, for
example, Anglogold Limited no-action letter
(January 15, 2004) and Constellation Brands, Inc.
no-action letter (dated January 29, 2003). Section
3(a)(10) exempts from Securities Act registration
securities issued in an exchange pursuant to terms
that have been approved by a court or other
governmental authority following a hearing
regarding their fairness in which all interested
parties have been given an opportunity to be heard.
The exemption does not apply to securities issued
in a U.S. federal proceeding under Title 11 of the
United States Code.
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those who may have control or have
other significant interests and sell
without ending their relationship with
the issuer?
• Should the dormancy condition
exclude from its prohibition securities
exempted under Securities Act section 3
other than section 3(a)(10), as proposed?
Should we exclude from the one year
prohibition securities issued under
Securities Act section 3(a)(10) as well?
• Should we exclude ‘‘4(2)
commercial paper’’ from the
prohibition, as proposed?
• Are there any other types of
securities offerings that should be
excluded from the prohibition, for
example, rights offers, certain exchange
offers, and offers under Securities Act
Rule 144A?57
• Should the dormancy period for
unregistered offerings only extend to
equity securities?
c. The Home Country Listing Condition
Proposed Rule 12h–6 would require a
foreign private issuer to have
maintained a listing of the subject class
of equity securities for the preceding
two years on an exchange in its home
country. As proposed, the term ‘‘home
country’’ would have the same meaning
as under Form 20–F, which defines
‘‘home country’’ as the jurisdiction in
which the issuer is legally organized,
incorporated or established and, if
different, the jurisdiction where it has
its principal listing.58
Proposed Rule 12h–6 would further
require that a foreign private issuer’s
home country constitutes its primary
trading market. As proposed, the term
‘‘primary trading market’’ would mean
that at least 55 percent of the trading in
the foreign private issuer’s securities
took place in, on or through the
facilities of a securities market in a
single foreign country during a recent 12
month period.59 Proposed Rule 12h–6
would define ‘‘recent 12 month period’’
to mean a 12 calendar month period that
ended no more than 60 days before the
filing date of the Form 15F.60
The purpose of this condition is to
provide for a non-U.S. jurisdiction that
principally regulates and oversees the
issuance and trading of the issuer’s
securities and disclosure obligations by
the issuer to its investors. If the United
57 17
CFR 230.144A.
Form 20–F General Instruction F.
59 Proposed Rule 12h–6(d)(6). We similarly used
‘‘55 percent of trading through the securities market
facilities of a single foreign country’’ as one of the
benchmarks for determining whether there is
substantial U.S. market interest for a foreign private
issuer’s securities under Regulation S. See
Securities Act Rule 902(j)(1)(ii) (17 CFR
230.902(j)(1)(ii)).
60 Proposed Rule 12h–6(d)(7).
58 See
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States was the sole or principal market
for the foreign private issuer’s securities,
then the Commission would have a
greater regulatory interest in continuing
to subject the foreign company to the
Exchange Act reporting regime. In
contrast, if 55 percent or more of the
average daily trading volume of the
company’s securities occurred through
the facilities of its home country
securities market, then there is a greater
likelihood that the principal pricing
determinants for the company’s
securities are within the jurisdiction of
its home country regulator.61 There also
is a greater likelihood that the foreign
company will be subject to a body of
reporting and other securities regulatory
requirements in its home jurisdiction.
Consequently, for a company meeting
these requirements, there should be less
interruption in the flow of material
information about the company once it
exits the Exchange Act reporting system.
Comment Solicited
We solicit comment on the proposed
‘‘home country listing’’ condition.
• Should we require that a company
have maintained a listing of the subject
class of equity securities on an exchange
in its home country for the last two
years, as proposed?
• Do other countries have markets or
facilities that are not an ‘‘exchange’’? If
so, should the listing requirement be
satisified by means of quoting the
subject class of securities on foreign
markets operated other than as an
exchange?
• Should we impose a home country
listing requirement that is shorter than
two years, say, one year? Should we
impose a home country listing
requirement that is longer than two
years? Should we not impose a home
country listing requirement at all?
• Should the Commission’s rule be
sensitive to particular characteristics of
the listing market or the home country?
If so, how should this be accomplished?
• Should we require that a foreign
private issuer represent that it is in
compliance with the rules of, or
otherwise in good standing with, its
home country securities regulator or
listing authority?
• Should we require that a foreign
private issuer’s home country
constitutes its primary trading market,
as proposed?
• If so, should we require that 55
percent or more of the average daily
61 This ‘‘primary trading market’’ requirement
would also help ensure that an issuer’s foreign
listing represents a significant trading market for its
equity securities rather than a listing on a nontrading market such as the Luxembourg Stock
Exchange.
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trading volume of a foreign company’s
securities occurred through the facilities
of a single foreign country securities
market during a recent 12 month period,
as proposed?
• Should we require that a higher
percentage, for example, 60 or 75
percent or a lower percentage, for
example, 50 percent of the average daily
trading volume of a foreign company’s
equity securities occurred through the
facilities of its home country securities
market during a recent 12 month
period?
• Should we permit a foreign
company to terminate its Exchange Act
reporting obligations regarding a class of
equity securities if the percentage of the
average daily trading volume of its
securities that occurred in its home
country market is less than 50 percent
as long as that percentage when
aggregated with the percentage of the
average daily trading volume of the
company’s securities occurring in
another non-U.S. jurisdiction was at
least 55 percent or some other
percentage greater than 55 percent?
Would another test better accomplish
the goals of the home country listing
condition?
• Should we adopt the definition of
‘‘recent 12 month period’’, as proposed?
Should we adopt a period that is
longer or shorter than 12 months?
• Should we adopt the 60-day
window to the 12 month period, as
proposed?
Should the window be longer or
shorter than 60 days?
d. Public Float and Trading Volume
Benchmarks
Proposed Rule 12h–6 would next
permit a foreign private issuer to meet
one of a set of quantitative conditions
designed to measure the relative level of
U.S. market interest in a foreign
company’s equity securities, and which
is not based on a record holder count.
The particular condition applicable to a
foreign company would depend upon
whether the foreign company met the
definition of a well-known seasoned
issuer under Rule 405 of the Securities
Act.62
If the issuer is a well-known seasoned
issuer, and the average daily trading
volume of the subject class of equity
securities in the United States has been
5 percent or less of the average daily
trading volume of that class of securities
in its primary trading market during a
recent 12 month period, then the foreign
company would be eligible to terminate
its Exchange Act registration and
reporting obligations under proposed
62 Proposed
Rules 12h–6(a)(4) and 12h–6(a)(5).
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Rule 12h–6 as long as U.S. residents
held no more than 10 percent of the
class of company’s outstanding voting
and non-voting equity securities,
regarding which there is an Exchange
Act reporting obligation, held by the
company’s non-affiliates on a
worldwide basis (‘‘worldwide public
float’’) at a date within 60 days before
the end of the same 12 month period.63
Otherwise, a foreign private issuer that
is a well-known seasoned issuer could
terminate its Exchange Act registration
and reporting obligations under
proposed Rule 12h–6 regarding a class
of equity securities if its U.S. resident
shareholders held no more than 5
percent of the company’s worldwide
public float at a date within 120 days
before the filing date of the Form 15F.64
A foreign company that is not a wellknown seasoned issuer could terminate
its Exchange Act registration and
reporting under proposed Rule 12h–6 if
U.S. residents held no more than 5
percent of the company’s worldwide
public float at a date within 120 days
before the filing date of the Form 15F,
regardless of its U.S. trading volume.65
One of the principal reasons that we
are proposing to replace the current
standard for a foreign private issuer’s
termination of reporting, which rests
solely on a ‘‘300 U.S. holder’’
benchmark (or ‘‘500 U.S. holder’’
benchmark for companies with $10
million or less in assets), with
benchmarks based upon, among other
things, relative U.S. ownership of a
foreign company’s worldwide public
float, is that the proposed benchmarks
should liberalize a foreign private
issuer’s exiting of the Exchange Act
registration and reporting regime. At the
same time, the proposed benchmarks
should work with the other proposed
conditions to permit a foreign private
issuer to exit the Exchange Act
registration and reporting regime only
when the impact of the issuer’s
termination of reporting on the U.S.
investor community is expected to be
low.
Our expectation that the proposed
benchmarks will liberalize exiting the
Exchange Act reporting regime for
foreign private issuers arises from an
evaluation of data developed by our
staff in the Division of Corporation
Finance and the Office of Economic
Analysis regarding the number of
63 Proposed Rule 12h–6(a)(4)(i). The combination
of the 60-day period for calculating trading volume
percentage and the 60-day period for calculating
U.S. percentage ownership would in effect
generally provide a 120-day window for calculating
percentage ownership.
64 Proposed Rule 12h–6(a)(4)(ii).
65 Proposed Rule 12h–6(a)(5).
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foreign private issuers that would be
eligible to deregister under the proposal.
The staff developed a database of 510
foreign private issuers for which data
was sufficient to make the necessary
calculations.66 The data show that
approximately 26% of these foreign
private issuers would be eligible to
deregister under the proposals.67 The
breakdown of that 26% is as follows:
• Well-known seasoned issuers with
5% or less U.S. trading volume and 10%
or less U.S. ownership—26% of WKSIs
or 16% of total;
• Well-known seasoned issuers with
more than 5% U.S. trading volume and
5% or less U.S. ownership—8% of
WKSIs or 5% of total; and
• Other issuers with 5% or less U.S.
ownership—15% of other issuers or 5%
of total.
The proposed benchmarks do not take
a ‘‘one size fits all’’ approach. Although
any foreign private issuer may meet the
public float condition if U.S. residents
hold 5 percent or less of the issuer’s
worldwide public float, we have
proposed an additional benchmark for a
foreign company that is a well-known
seasoned issuer. For the following
reasons, we believe that a well-known
seasoned issuer that is at or below the
proposed U.S. trading volume threshold
should be able to exit the registration
and reporting system under Rule 12h–
6 even though the percentage of its
worldwide public float held by U.S.
investors is greater than the public float
benchmark applied to a non-wellknown seasoned issuer.
It is more likely that a very large,
well-followed foreign company will
have a greater percentage of its shares
held by U.S. residents than smaller
foreign companies. Large companies,
including those that are foreign private
issuers, are included in various
securities indices that are tracked by
many U.S. institutional investors. Thus,
a large foreign company may especially
find it unduly difficult to terminate its
Exchange Act reporting obligations,
despite the lack of recent U.S. securities
offerings and other transactions by that
company, because a significant portion
of its public float continues to be held
by index-based U.S. investors.
In addition, in order to satisfy
investor interest around the world as
66 Of the 510 foreign private issuers, 320 were
WKSIs and 190 were non-WKSIs.
67 Because the counting rules that we propose,
discussed below, are not currently in use, these
figures may be conservative, although they may
overstate the effect of the proposed conditions to
the extent that issuers perceive themselves to be
already eligible to terminate their Exchange Act
registration and reporting obligations under the
current record holder standard in Rules 12g–4 and
12h–3.
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well as home country requirements,
large foreign companies are more likely
to provide a steady flow of financial and
non-financial information that is easily
accessible. Because of their extensive
market following, this information is
more likely to be the subject of analysis
and comment. After a large foreign
company’s termination of Exchange Act
reporting under proposed Rule 12h–6, it
is likely that both this steady flow of
information from the company and the
ensuing analysis will continue, to the
benefit of U.S. and other investors.
Although some foreign company
representatives have proposed using a
benchmark based solely on trading
volume as the determinant of a foreign
private issuer’s ability to exit the
Exchange Act reporting regime, we have
declined to do so.68 A benchmark based
solely on trading volume could result in
an inaccurate gauge of U.S. investor
interest. For example, some U.S.
investors, particularly large institutional
investors, are more likely to purchase
and sell securities of foreign wellknown seasoned issuers and other
foreign companies through foreign
markets rather than U.S. markets. These
U.S. investors may look to the
information contained in a foreign
private issuer’s Exchange Act reports
when investing in the foreign private
issuer’s home market. A benchmark
based solely on U.S. trading volume as
a percentage of worldwide trading
volume would not capture these U.S.
investors and, therefore, would
understate the degree of U.S. interest in
a foreign company’s securities.
Moreover, some economists have
noted that various securities markets
measure trading volume differently.
Accordingly, adoption of a benchmark
that relies only on trading volume could
result in overstating the trading volume
of a particular foreign company’s
securities either in its home country or
the United States.69 Reliance solely on
68 Some foreign company representatives have
suggested an exit rule based solely on a foreign
company’s U.S. trading volume as a percentage of
its global trading volume. According to these
representatives, if the U.S. trading volume of a
foreign company’s securities were to fall below a
specified percentage of its global trading volume,
that would signify that the U.S. market is not a
determinative factor in the pricing of the company’s
securities. As a result, little disruption should occur
in the global market for the company’s securities
once the company ceases to provide its Exchange
Act reports. See the AFEP letter, dated March 18,
2005, at p. 4. Although we do not believe that a
termination benchmark should be based solely on
trading volume for the reasons discussed, it appears
appropriate to use it as part of an overall assessment
of U.S. market interest in a foreign private issuer’s
equity securities.
69 See, for example, Anne-Marie Anderson and
Edward A. Dyl, ‘‘Market Structure and Trading
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trading volume could also induce
attempts to affect the trading volume of
a foreign private issuer’s securities in
global markets in order to affect the
determination of whether the issuer
could exit the U.S. reporting system.
As U.S. trading volume increases as a
percentage of the trading volume of a
foreign company’s securities in its
primary trading market, so does the
concern that U.S. investor interest in
that foreign company’s securities may
be large enough to warrant establishing
a stricter ownership threshold before the
company could exit the Exchange Act
reporting regime. In order to mitigate
this concern, under the rule proposal, if
a foreign well-known seasoned issuer
has a U.S. average daily trading volume
that is greater than 5 percent of its
average daily trading volume in its
primary trading market for a class of
securities, it must have a smaller
percentage of its worldwide public float
held by U.S. investors than a foreign
well-known seasoned issuer that has a
U.S. average daily trading volume below
5 percent of its average daily trading
volume in its primary trading market.
We have not proposed a similar
benchmark based on trading volume for
non-well-known seasoned issuers
because, based on our review of data for
non-well-known seasoned issuers, it
does not appear that U.S. trading
volume as a percentage of worldwide
trading volume is a dispositive factor
that would permit a significant number
of these smaller issuers to terminate
their Exchange Act registration and
reporting under proposed Rule 12h–6.
Instead we have proposed to permit a
smaller foreign company to rely on the
percentage of its worldwide public float
held by U.S. investors as the primary
benchmark governing whether it may
terminate its Exchange Act registration
and reporting.70
In proposing these benchmark
conditions, we believe that a foreign
company that meets any of them is more
likely to be one for which the
protections afforded by the Exchange
Act registration and reporting regime are
no longer justified in light of the costs
and burdens borne by the company in
complying with that regime. We hold
this view because the benchmarks
suggest that the relative interest of U.S.
investors in the foreign private issuer’s
securities would be low. Moreover, for
such a foreign company, the U.S.
securities markets would generally have
Volume,’’ The Journal of Financial Research, Vol.
XXVIII, No. 1, pp.115–131 (Spring 2005).
70 Both a smaller foreign company and a WKSI
may also rely on proposed Rule 12h–6(a)(6), which
uses a ‘‘300 record holder’’ standard, as discussed
below.
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played little role in determining the
prevailing price of its equity securities
in world markets. Consequently, once
such a foreign company has exited the
Exchange Act reporting system, there
should be little disruption in the
information flow relating to, and the
global pricing of, its securities. U.S.
investors would be able to look to a
foreign company’s primary trading
market should they desire to trade the
company’s equity securities in an
established securities market once it has
exited the Exchange Act reporting
system.71
A Canadian issuer that files its
Exchange Act annual report on Form
40–F under the MJDS would be eligible
to terminate its Exchange Act
registration and reporting obligations
under proposed Rule 12h–6. However,
because a MJDS filer is not eligible to be
a well-known seasoned issuer as
defined under Rule 405 of the Securities
Act, a MJDS filer would not be able to
proceed under the well-known seasoned
issuer provisions of proposed Rule 12h–
6.72 However, a MJDS filer could take
advantage of the non-WKSI conditions
regarding a class of equity securities and
the debt securities provision of
proposed Rule 12h–6.
Comment Solicited
We solicit comment on the proposed
U.S. trading volume and public float
benchmarks. In particular, we solicit
comment on the trading volume and
ownership information developed by
Commission staff and our conclusions
derived from them, as discussed in this
section, and also solicit additional
information regarding trading volume
and ownership data.
• Should we adopt a termination of
reporting condition for well-known
seasoned issuers that relies on two
measures—trading volume and public
float—as proposed?
• If not, should we adopt a
benchmark that uses just trading
volume, public float, or some other
measure?
• Does the potential for manipulation
of trading volume make it an
inappropriate benchmark, either alone
or in combination with other
benchmarks?
• Should we instead adopt a
benchmark that uses some combination
of measures excluding trading volume?
71 As discussed in Part II.C of this release,
following a foreign private issuer’s termination of
reporting under proposed Rule 12h–6, its securities,
including its ADRs, could be traded in the unlisted
over-the-counter market in the United States.
72 See question 16 of the Securities Offering
Reform FAQ located at https://www.sec.gov/
divisions/corpfin/faqs/
securities_offering_reform_qa.pdf.
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• For example, should we adopt a
condition requiring a foreign wellknown seasoned issuer to have U.S.
residents holding no more than a
specified percentage, say 10 percent or
5 percent of its worldwide public float
at the end of a recent 12 month period,
and having U.S. resident shareholders
numbering no greater than 1,000, 2,000,
3,000 or some other number? Should we
adopt a similar condition for non-wellknown seasoned issuers?
• Should we adopt a benchmark that
requires a foreign private issuer to have
a specified U.S. public float expressed
in dollars rather than as a percentage of
the issuer’s worldwide public float?
• Should we adopt a benchmark that
excludes using public float?
• Should we adopt one set of
conditions for well-known seasoned
issuers and another for foreign
companies that are not well-known
seasoned issuers, as proposed? Should
we instead have one set of conditions
that applies to all?
• Proposed Rule 12h–6 would use the
same definition of well-known seasoned
issuer as under Securities Act Rule 405.
That definition contains various
conditions in addition to the $700
million public float requirement.
Should proposed Rule 12h–6
incorporate all of those conditions or
just some of them?
• A company that is an ‘‘ineligible
issuer’’ under Securities Act Rule 405
does not qualify as a well-known
seasoned issuer. Should we require an
‘‘ineligible issuer’’ to meet the more
stringent benchmarks under Rule 12h–
6, as proposed?
• Should we preclude a MJDS filer
from using the well-known seasoned
issuer benchmarks, as proposed? Should
we instead allow a MJDS filer to
proceed under the well-known seasoned
issuer benchmarks as long as it meets
the $700 million public float
requirement?
• Should the date of determination of
well-known seasoned issuer status be a
date within 120 days of filing the
proposed Form 15F, as proposed?
• Should we use the ‘‘well-known
seasoned issuer’’ definition at all as the
basis for making distinctions between
foreign private issuers regarding
termination of reporting? Should we
instead use the definition of ‘‘large
accelerated filer’’, which we are
adopting in a separate release? 73
• Should we develop another
measure based on a higher public float
(for example, $1 billion) or a lower
public float (for example, $500 billion)?
73 See Release No. 33–8644, 34–52989 (December
21, 2005).
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Should we rely on a $75 million
public float threshold, which we have
previously used as a benchmark for
eligibility to engage in certain U.S.
securities transactions?74
We encourage commenters in this
area specifically to support the use of
other thresholds with information about
a foreign private issuer’s market
following. With respect to trading
volume information, the proposed rule
would require a comparison between
the United States and the issuer’s
primary trading market.
• Should we require the comparison
of trading volume information in the
United States with worldwide trading
volume information instead of solely
with trading volume information in the
issuer’s primary trading market?
• Do many foreign well-known
seasoned issuers have significant
trading volume activity in two or more
markets, other than the United States, so
that a benchmark based on U.S. trading
volume as a percentage of worldwide
trading volume would be more
meaningful?
• Are many foreign well-known
seasoned issuers subject to home
country reporting standards that require
disclosure of worldwide trading volume
information? If so, should proposed
Rule 12h–6 use worldwide trading
volume information instead of primary
trading market information as well?
• Should we adopt alternative
conditions for a foreign well-known
seasoned issuer depending upon
whether the U.S. average daily trading
volume of a foreign company’s class of
securities is no greater than 5 percent of
the average daily trading volume of that
class of securities in its primary trading
market during a recent 12 month period,
as proposed? Should the threshold
percentage instead be larger than 5
percent? Should it be smaller than 5
percent?
• Should we adopt a different period
than a ‘‘recent 12 month period’’? For
example, should we adopt a period that
is longer than 12 months, say 18 or 24
months? Should we adopt a period that
is shorter than 12 months, for example,
6 or 3 months?
• Should we adopt the dual 60-day
windows for determining U.S. trading
volume and U.S. percentage of
ownership? Should the periods be
longer or shorter?
• If we should adopt the proposed ‘‘5
percent of primary trading market
trading volume’’ benchmark, should we
74 For example, a public float of $75 million is the
eligibility threshold that a foreign private issuer
must meet to use Form F–3 for a primary issuance
of securities. See General Instruction I.B.1 to Form
F–3.
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also adopt the condition that a wellknown seasoned issuer that meets this
trading volume benchmark must have
U.S. residents holding no more than 10
percent of the foreign company’s
worldwide public float at the end of the
recent 12 month period, as proposed?
• Should we instead adopt a
percentage that is greater than 10
percent, for example, 15 or 20 percent?
Should we adopt a percentage that is
less than 10 percent, for example, 5 or
7 percent?
• Similarly, should we adopt the
condition that would permit a wellknown seasoned issuer to terminate its
Exchange Act reporting obligations as
long as U.S. residents held no more than
5 percent of its worldwide public float
at a date within 120 days of the filing
date of the Form 15F even if its U.S.
average trading volume was greater than
5 percent of the average trading volume
in its primary trading market, as
proposed?
• Should we instead adopt a public
float percentage that is larger than 5
percent, for example, 7, 10 or 15
percent, or smaller than 5 percent, for
example, 3 percent?
• Should we adopt the condition
permitting a foreign company that is not
a well-known seasoned issuer to
terminate its Exchange Act reporting
obligations as long as U.S. residents
held no more than 5 percent of its
worldwide public float at a date within
120 days of the filing date of the Form
15F, regardless of its U.S. trading
volume, as proposed?
• If not, should we adopt a public
float percentage that is greater than 5
percent, for example, 7 or 10 percent, or
less than 5 percent, for example, 3
percent?
We have proposed a single benchmark
for non-well-known seasoned issuers
based on the proportion of U.S.
residents who hold their securities.
• Should we adopt dual benchmarks,
based on trading volume and U.S.
ownership, similar to the dual
benchmarks proposed for well-known
seasoned issuers?
• Does a single benchmark provide an
adequate measure in determining when
a non-well-known seasoned issuer may
terminate its Exchange Act reporting
obligations under the proposed scheme,
or would dual benchmarks provide a
more refined classification that is
supported by data and experience?
• For example, should we adopt a
condition that permits a non-wellknown seasoned issuer to terminate its
Exchange Act registration and reporting
obligations if the U.S. average daily
trading volume of its class of securities
is no greater than a certain percentage,
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say 5 percent, of the average daily
trading volume of that class of securities
in its primary trading market during a
recent 12 month period, and U.S.
residents held no more than 5 percent
of its worldwide public float at a date
within 60 days of that recent 12 month
period?
• If so, should either of the U.S.
trading volume or U.S. public float
thresholds be larger or smaller than 5
percent?
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e. Alternative Threshold Record Holder
Condition
Proposed Rule 12h–6(a)(6) would
permit a foreign private issuer that
could not meet one of the benchmarks
in proposed Rule 12h–6(a)(4) or (5), but
met the other conditions of the rule, to
terminate its Exchange Act registration
and reporting obligations with regard to
a class of equity securities as long as
that class of securities was held of
record by less than 300 persons on a
worldwide basis or less than 300 U.S.
residents at a date within 120 days
before the filing date of the Form 15F.
This threshold record holder condition
is similar to that found in current Rules
12g–4 and 12h–3. Those rules also
permit a foreign private issuer to cease
its reporting obligations if the class of
securities is held by less than 500
persons on a worldwide basis or by less
than 500 U.S. residents where the
issuer’s total assets have not exceeded
$10 million on the last day of each of
the issuer’s most recent three fiscal
years.75 We have not proposed a similar
500 record holder condition because,
based on current experience, we believe
that foreign private issuers seldom use
the current standard.
The purpose of this 300 record holder
condition is to provide that the new exit
rules for a foreign private issuer are no
more rigorous than the current rules. A
foreign private issuer that cannot meet
one of the proposed benchmarks, but is
eligible under the current 300 record
holder standard, should be allowed to
terminate its Exchange Act registration
and reporting, assuming that it meets
the other conditions of proposed Rule
12h–6(a).
Although similar to the current
standard, the proposed alternative
threshold record holder condition
would offer advantages compared to the
current exit rules. As discussed below,
proposed Rule 12h–6 would adopt a
counting method that limits the
jurisdictions in which a foreign private
75 Exchange Act Rules 12g–4(a)(1)(ii) and (a)(2)(ii)
(17 CFR 12g–4(a)(1)(ii) and (a)(2)(ii)) and 12h–
3(b)(1)(ii) and (b)(2)(ii) (17 CFR 240.12h–3(b)(1)(ii)
and (b)(2)(ii)).
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issuer must search for records of its U.S.
resident holders.76 Moreover, in
addition to enabling a foreign private
issuer to terminate, rather than merely
suspend, its section 15(d) reporting
obligations regarding a class of
securities, proposed Rule 12h–6 would
impose a prior Exchange Act reporting
requirement that is potentially shorter
than that under current Rule 12h–3.77
Given these advantages, if proposed
Rule 12h–6 is adopted, we believe that
few, if any, foreign private issuers
would choose to proceed under the
provisions of Rule 12g–4 or Rule 12h–
3 that allow a foreign private issuer to
terminate its registration of a class of
securities under section 12(g) or
suspend the duty to file reports under
section 15(d) if the class of securities is
held by less than 300 U.S. residents or
by 500 U.S. residents and the issuer has
had total assets not exceeding $10
million on the last day of each of its
most recent three fiscal years.78
Accordingly, we are proposing to amend
these rules to eliminate the above
provisions.
Comment Solicited
We solicit comment on proposed Rule
12h–6(a)(6).
• Should we permit an issuer that
cannot meet the proposed benchmarks
in proposed Rule 12h–6(a)(4) or (5) to
terminate its Exchange Act registration
and reporting as long as it has satisfied
the other requirements of proposed Rule
12h–6 and has its class of equity
securities held of record by less than
300 persons worldwide or by less than
300 U.S. resident holders, as proposed?
• Should we raise the record holder
threshold to 500, 600, 750, 1,000 or
some other number?
• Should we adopt a record holder
threshold that is higher for a wellknown seasoned issuer than a non-wellknown seasoned issuer?
• Should we require a minimum total
assets threshold in addition to a record
holder threshold as under current Rules
12g–4 and 12h–3? For example, should
we adopt the ‘‘less than 500 U.S.
residents and $10 million asset’’
standard currently provided under
Rules 12g–4 and 12h–3? If so, should we
require that the asset test be met for only
76 See
Part II.B.4 of this release.
12h–3(a) requires a company that has been
an Exchange Act reporting company for at least
three fiscal years to have filed all Exchange Act
reports for those three years and for the portion of
the current year preceding the filing of the Form 15.
Proposed Rule 12h–6 would only require an issuer
to have filed all required reports for a prior two year
period, and have filed two Exchange Act annual
reports.
78 See Exchange Act Rules 12g–4(a)(2) and 12h–
3(b)(2).
77 Rule
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the registrant’s most recently completed
fiscal year or for two or more previous
years?
• Should we adopt an asset threshold
that is more than $10 million, for
example, $25, 50, 75, or 100 million? In
conjunction with an assets test, should
we adopt a record holder threshold that
is greater than 500, for example, 750,
1,000, 2,000, or 3,000?
• Should we amend Rules 12g–4 and
12h–3 to eliminate the provisions
permitting a foreign private issuer to
cease its reporting obligations, as
proposed? Should we retain these
provisions in addition to adopting
proposed Rule 12h–6?
3. Conditions for Debt Securities
Registrants
a. Section 15(d) Reporting Requirement
Proposed Rule 12h–6 would require a
foreign private issuer to meet the
minimum Exchange Act reporting
requirement under section 15(d) before
it could terminate its section 15(d)
reporting obligations regarding a class of
debt securities.79 Under section 15(d),
an issuer cannot suspend its Exchange
Act reporting obligations even if its
record holders have fallen below 300
during the year in which the Securities
Act registration statement that triggered
the section 15(d) reporting obligations
became effective. Consequently, section
15(d) requires that, at a minimum, a
foreign private issuer must file one
annual report pursuant to section 13,
and furnish Form 6–K reports until it
has filed that one annual report, before
it can effect a suspension based upon
the number of its record holders.
Proposed Rule 12h–6 would impose
this minimum reporting requirement on
a debt securities registrant rather than a
longer period, as would be required for
an equity securities registrant, in order
to prevent the new exiting standard
from being more burdensome than is
currently the case for debt securities
registrants under section 15(d). Because
debt securities offerings typically result
in fewer securities holders than equity
securities offerings, it is generally easier
for a debt securities registrant to fall
below the 300 record holder threshold.
Consequently, on several occasions,
debt securities registrants have filed
Form 15 to suspend their section 15(d)
reporting obligations after having filed
only one Exchange Act annual report.
Proposed Rule 12h–6 would permit this
practice to continue.
Comment Solicited
We solicit comment on proposed Rule
12h–6’s Exchange Act reporting
79 See
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requirement for debt securities
registrants.
• Should we permit a foreign private
issuer to terminate its section 15(d)
reporting obligations regarding a class of
debt securities after filing only one
Exchange Act annual report and
furnishing Form 6–Ks only up to the
filing of that annual report, as proposed?
Should we require a debt securities
registrant to file at least two annual
reports and furnish Form 6–Ks until it
has filed its second annual report, as we
have proposed to require for an equity
securities registrant, before it can
terminate its section 15(d) reporting
obligations?
• Should we permit a foreign private
issuer only to suspend rather than
terminate its section 15(d) obligations
regarding certain classes of debt
securities? If so, what are those classes
of debt securities?
b. Threshold Record Holder Condition
Proposed Rule 12h–6 would require
the record holders of a foreign private
issuer’s debt securities to be either less
than 300 persons on a worldwide basis
or less than 300 U.S. residents as of a
date within 120 days before the filing of
the Form 15F.80 As with the alternative
threshold record holder condition for
equity securities registrants, we have
based these thresholds on current
statutory and rule conditions governing
an issuer’s suspension of reporting
under section 15(d).81 Accordingly, the
proposed record holder condition for
termination of a debt securities
registrant’s reporting obligations would
in most instances not pose any
additional burdens.
Rule 12h–3 alternatively permits a
foreign private issuer to suspend its
section 15(d) reporting obligations if its
class of debt securities is held of record
by less than 500 U.S. residents and its
total assets have not exceeded $10
million on the last day of each of the
issuer’s three most recent fiscal years.82
We have not proposed to adopt this
alternative condition for a debt
securities registrant under proposed
Rule 12h–6 because we believe that
most foreign private issuers that are debt
securities registrants would likely
exceed that asset threshold.83
80 See
proposed Rule 12h–6(b)(2).
‘‘less than 300 persons’’ standard appears
both in section 15(d) and in Rule 12h–3(b)(1)(i) (17
CFR 240.12h–3(b)(1)(i)). The ‘‘less than 300 U.S.
residents’’ standard appears in Rule 12h–3(b)(2)(i)
(17 CFR 240.12h–3(b)(2)(i)). See Part II.B.4 of this
release for a discussion of proposed modifications
in the method of counting U.S. residents.
82 Exchange Act Rule 12h–3(b)(2)(ii).
83 A foreign private issuer could still seek to
suspend its section 15(d) reporting obligations
under Rule 12h–3’s alternative provision, which
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81 The
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For purposes of Rule 12h–6, the term
‘‘debt securities’’ refers not only to
traditional debt securities but also to
non-convertible preferred securities, the
holders of which are entitled to a
preference in payment of dividends and
in distribution of assets on liquidation,
dissolution or winding up of the issuer,
but are not entitled to participate in
residual earnings or assets of the issuer
(referred to as ‘‘non-participating
preferred stock’’). The preferred
securities have market characteristics
more similar to traditional debt
securities than to equity securities. This
treatment of non-participating preferred
stock under Rule 12h–6 is consistent
with the treatment under other rules
under the Federal securities laws.84
Comment Solicited
We solicit comment on proposed Rule
12h–6’s threshold record holder
condition for debt securities registrants.
• Should we require that the subject
class of debt securities be held of record
by less than 300 persons on a
worldwide basis or less than 300 U.S.
residents, as proposed?
• Should we increase the record
holder threshold to, for example, less
than 500, 750 or 1,000 persons on a
worldwide basis or who are U.S.
residents?
• If we do increase the threshold
number of record holders, should we
also impose a threshold asset standard?
Should we adopt the ‘‘less than 500 U.S.
residents and $10 million asset’’
standard currently provided under Rule
12h–3? If so, should we require that the
asset test be met for only the registrant’s
most recently completed fiscal year?
• Should we adopt an asset threshold
that is more than $10 million, for
example, $25, 50, 75, or 100 million? If
so, should we adopt a record holder
threshold as well that is greater than
500?
• Should we instead adopt a record
holder condition that would vary
depending on whether a debt securities
registrant was a well-known seasoned
issuer?
We also solicit comment on the
definition of debt securities under
proposed Rule 12h–6.
• Should we treat as debt securities
non-participating preferred securities, as
proposed?
• Are there any other types of debt
securities that should be included or
applies to any issuer, and which imposes the same
asset standard but requires the subject class of
securities to be held of record by less than 500
persons on a worldwide basis. See Exchange Act
Rule 12h–3(b)(1)(ii).
84 See, for example, Securities Act Rule 902(a)(1)
under Regulation S (17 CFR 230.902(a)(1)).
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excluded from the proposed definition
of debt securities?
4. Counting Method
In order to facilitate a foreign private
issuer’s determination regarding
whether U.S. residents hold no more
than the applicable threshold
percentage of its worldwide public float,
or whether the number of its equity or
debt securities record holders meet the
applicable threshold condition,
proposed Rule 12h–6 would permit an
issuer to use a method of calculating
record ownership that is substantially
similar to that we have adopted under
the exemptive rules for cross-border
rights offerings, exchange offers and
business combinations,85 as well as
under the definition of foreign private
issuer.86 After instructing an issuer to
use the method of calculating record
ownership under Rule 12g3–2(a),87
proposed Rule 12h–6(e) would provide
that an issuer may limit its inquiry
regarding the amount of securities
represented by accounts of customers
resident in the United States to brokers,
dealers, banks and other nominees
located in the United States, the foreign
private issuer’s jurisdiction of
incorporation, legal organization or
establishment, and the jurisdiction of
the foreign private issuer’s primary
trading market if different from the
issuer’s jurisdiction of incorporation,
legal organization or establishment.88
The purpose of this provision is to
limit the number of jurisdictions in
which an issuer must search for records
regarding its U.S. resident shareholders.
The rule would permit an issuer to
restrict its search to those jurisdictions
that represent the most probable
locations for brokers, dealers, banks and
other nominees to hold the issuer’s
securities on behalf of U.S. customers.89
85 Securities
Act Rule 800(h) (17 CFR 230.800(h)).
Act Rule 405 and Exchange Act Rule
3b–4. The Regulatory Flexibility Act Agenda most
recently published by the Commission states that
Commission staff are considering recommendations
with respect to rule amendment proposals relating
to the definition of securities ‘‘held of record’’
under the Exchange Act. Release 33–8608
(September 2, 2005), 70 FR 65680 (October 31,
2005). Today’s proposals relating to foreign private
issuers are unrelated to that consideration.
87 17 CFR 240.12g3–2(a). Used to determine
whether a foreign private issuer has fewer than 300
U.S. resident holders, that method requires looking
through the record ownership maintained by
brokers, dealers, banks or other nominees and
counting the number of separate accounts held by
them on behalf of U.S. customers.
88 Proposed Rule 12h–6(e)(1).
89 This counting method would not apply to a
foreign private issuer that is terminating its
reporting because its equity or debt securities
record holders are less than 300 persons on a
worldwide basis. Like the current 300 worldwide
86 Securities
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Proposed Rule 12h–6(e) would further
provide that, if, after reasonable inquiry,
an issuer is unable without
unreasonable effort to obtain
information about the amount of
securities represented by accounts of
customers resident in the United States,
it may assume that the customers are the
residents of the jurisdiction in which
the nominee has its principal place of
business. However, the proposed rule
would further instruct that an issuer
must count securities as owned by U.S.
holders when publicly filed reports of
beneficial ownership or information that
is otherwise provided to the issuer
indicates that the securities are held by
U.S. residents.90
We are aware that domestic and
foreign issuers use third party service
providers for the purpose of obtaining
information relating to the identification
of their security holders. In general, the
primary purpose of obtaining this
information is usually not to satisfy a
regulatory requirement, but to assist
company management in
communicating with security holders
and otherwise to promote good investor
relations. Nonetheless, foreign private
issuers currently use these services for
the purpose of determining whether
they fall below the current 300 U.S.
holder threshold.
In light of the difficulties associated
with determining levels of U.S.
ownership of securities, we believe it is
appropriate to permit foreign private
issuers to rely on a third party
information service provider that is in
the business of supplying security
holder information to issuers generally.
Accordingly, proposed Rule 12h–6(e)
would provide that, when calculating
the number of its U.S. resident security
holders under proposed Rule 12h–6, a
foreign private issuer could rely in good
faith on the assistance of an
independent information services
provider that in the regular course of
business assists issuers in determining
the number of, and collecting other
information regarding, their
shareholders.91 By allowing a foreign
private issuer to retain an expert when
making the determination of the extent
to which its securities are held by U.S.
residents, this proposed provision
should help increase the accuracy of
that determination while reducing the
We solicit comment on proposed Rule
12h–6(e).
• Should we permit an issuer to
restrict its inquiry regarding the number
of its U.S. resident holders to the
jurisdictions referenced in that rule, as
proposed?
• Are there other jurisdictions in
which an issuer must search for
evidence of U.S. ownership of its
securities when calculating the
percentage of its worldwide public float
held by U.S. holders or the number of
U.S. residents who hold its equity or
debt securities under proposed Rule
12h–6?
• Is there another method of
accurately determining the percentage
of an issuer’s worldwide public float
held by U.S. residents that does not
require using the counting method in
Rule 12g3–2(a)?
• Should we permit a foreign private
issuer to exclude institutional investors
when determining the number of its
U.S. resident shareholders?
• Should we permit a foreign private
issuer to rely in good faith on the
assistance of an independent
information services provider when
making its public float determination or
calculating the number of U.S. residents
who hold its equity or debt securities,
as proposed? Should we also allow an
issuer to rely on an information services
provider when calculating the number
of its record holders worldwide?
We understand that some foreign
jurisdictions have laws that provide an
established and enforceable means for a
public company to obtain information
about their shareholders.92
• Should we allow a foreign private
issuer to rely on information obtained
through these foreign statutory or code
provisions when calculating the
percentage of its worldwide public float
held by U.S. residents or the number of
its U.S. resident equity or debt holders?
If so, should we permit reliance on only
certain specified foreign provisions?
Interested persons are requested to
provide detailed information about such
foreign provisions in their comments.
record holder provisions under Rules 12g–4 and
12h–3, proposed Rule 12h–6’s worldwide record
holder provisions would generally not require an
issuer to look through nominee accounts when
determining its record ownership.
90 Proposed Rule 12h–6(e)(2) and (3).
91 Proposed Rule 12h–6(e)(4).
92 See, for example, Section 212 of the Companies
Act of the United Kingdom, which gives a public
company the power to investigate the ownership of
its shares by sending a written notice to any person
or company whom it believes has or had an interest
in its relevant share capital during the preceding
three years.
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Comment Solicited
5. Form 15F
Like our current exit rules, proposed
Rule 12h–6 would require a foreign
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private issuer to file a form certifying
that it meets the requirements for
ceasing its Exchange Act reporting
obligations. By signing and filing
proposed new Form 15F,93 a foreign
private issuer would be certifying that:
• It meets all of the conditions for
termination of Exchange Act reporting
specified in Exchange Act Rule 12h–6
(17 CFR 240.12h–6); and
• There are no classes of securities
other than those that are the subject of
the Form 15F regarding which the issuer
has Exchange Act reporting obligations.
Unlike current Form 15, proposed
new Form 15F would require a foreign
private issuer to provide disclosure
regarding several items in order to
provide investors with information
regarding an issuer’s decision to
terminate its Exchange Act reporting
obligations. That information would
also help Commission staff to assess
whether the issuer meets the
requirements for termination of
reporting under Rule 12h–6. We believe
that this disclosure approach is
appropriate because of the multiple
conditions that a foreign company
would have to meet under proposed
Rule 12h–6. Moreover, some of the
proposed conditions, such as the trading
volume and public float benchmarks,
have not previously been the subject of
mandatory disclosure under our
Exchange Act reporting regime.
Accordingly, without the proposed
Form 15F items, investors would not be
informed about, and Commission staff
would not be able to assess readily,
whether a foreign company was eligible
to terminate its reporting under
proposed Rule 12h–6.
The proposed Form 15F items would
solicit information regarding:
• An issuer’s Exchange Act reporting
history;
• When it last sold securities in the
United States other than those excluded
from consideration under proposed Rule
12h–6;
• The primary trading market for its
equity securities being deregistered;
• Whether it is a well-known
seasoned issuer;
• Trading volume data for a wellknown seasoned issuer’s securities, both
in the United States and in its primary
trading market;
• Its worldwide public float and the
portion held by U.S. residents
93 An issuer would have to file proposed Form
15F through the Commission’s Electronic Data
Gathering, Analysis, and Retrieval System
(‘‘EDGAR’’). See the proposed amendment to
Regulation S–T Rule 101(a)(1)(xii) (17 CFR
232.101(a)(1)(xii)), which would also clarify that, as
currently interpreted by the Commission,
Regulation S–T also requires an issuer to file a Form
15 on EDGAR.
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determined pursuant to the proposed
rules with respect to the equity
securities being deregistered, if
applicable;
• The number of its equity or debt
securities record holders, if applicable;
and
• The classes of equity and debt
securities, if any, that are the subject of
the Form 15F.94
As under the current deregistration
regime, filing of the Form 15F would
immediately suspend the issuer’s
Exchange Act reporting obligations
regarding the subject class of securities
and commence a 90-day waiting
period.95 During this period,
Commission staff may review the Form
15F. If, at the end of the 90-day period,
the Commission has not objected to the
filing, the suspension would
automatically become a termination of
registration and reporting. If the
Commission denies the Form 15F or the
issuer withdraws it, within 60 days of
the date of the denial or withdrawal, the
issuer would be required to file or
submit all reports that would have been
required had it not filed the Form 15F.96
We are also proposing to revise the
rules governing the Commission’s
delegated authority to permit staff of the
Division of Corporation Finance to
accelerate the effectiveness of an
issuer’s termination of registration and
reporting under proposed Rule 12h–6
prior to the 90th day at the issuer’s
request. The issuer would have to make
this request in writing and file it on
EDGAR.97 Nevertheless, Division of
Corporation Finance staff may submit
requests to accelerate the effectiveness
of an issuer’s termination of registration
and reporting pursuant to proposed
Rule 12h–6 to the Commission for
consideration, as appropriate.
We are aware that in today’s investing
and technological environment, it
would be overly burdensome and costly
to require foreign private issuers to
assess the level of U.S. ownership of
their securities with absolute certainty.
Accordingly, we have proposed
methods that should provide a
reasonable level of certainty to the
process by which a foreign private
94 Proposed Form 15F would also seek
confirmation that the issuer has met the notice
requirement of proposed Rule 12h–6(c) (17 CFR
240.12h–6(c)) discussed in Part II.B.6 of this release.
95 During this period, although the issuer would
not be required to file Exchange Act reports, its
equity securities would continue to be registered.
Consequently, security holders and others might
continue to have obligations under Exchange Act
sections 13(d) and 14(d) [15 U.S.C. 78m(d) and
78n(d)].
96 Proposed Rule 12h–6(f).
97 As noted earlier, there is currently a similar
delegation relating to Form 15, which is rarely used.
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issuer determines the level of U.S.
ownership of its securities.98
As proposed, after filing its Form 15F,
an issuer would have no continuing
obligation to make inquiries or perform
other work concerning the information
contained in the Form 15F, including its
assessment of U.S. ownership of its
securities. However, proposed Form 15F
would require an issuer to undertake to
withdraw its Form 15F prior to the date
of its effectiveness if it becomes aware
of information that causes it reasonably
to believe that U.S. holders held more
than the applicable threshold
percentage of its worldwide public float
or exceeded the threshold number of
debt securities record holders, or
otherwise causes the issuer no longer to
believe that it meets the conditions for
terminating its Exchange Act reporting
obligations under proposed Rule 12h–6.
Are there other undertakings that we
should require on Form 15F? For
example, should we also require an
issuer to undertake to issue a press
release in the United States announcing
its withdrawal of the Form 15F? Should
we not require any undertakings at all?
• Are there other means to address
the possibility of temporary shifts in an
issuer’s security holders to outside the
United States? For example, should we
require a foreign private issuer to assess
the number of its U.S. security holders
at the beginning and end of a three or
six-month period before filing a Form
15F?
• Are there other means to address
the difficulties associated with
determining the level of U.S. ownership
of a foreign private issuer’s securities
through book-entry systems and
nominee holders?
Comment Solicited
6. Notice Requirement
We solicit comment on the proposed
Form 15F.
• Should the Form 15F constitute an
issuer’s certification regarding each of
the specified conditions, as proposed?
• Are there some conditions that we
should exclude from the proposed Form
15F certification? Are there other
conditions that we should include in
the proposed Form 15F certification?
• Should we request an issuer to
provide information on each of the
enumerated items in the Form 15F, as
proposed? Should we revise or omit
some or all of the items on the proposed
Form 15? Are there any other items that
should be included on the proposed
Form 15F?
• Should we adopt a 90-day waiting
period following the filing of the Form
15F before termination of reporting
could become effective, as proposed?
Should we instead adopt a shorter or
longer period?
• Should we adopt a 60-day period in
which an issuer would have to file or
submit all required reports should its
Form 15F be denied or withdrawn, as
proposed? Should we adopt instead a
shorter or longer period?
• In the ordinary course, we
anticipate that terminations pursuant to
proposed Form 15F will become
effective 90 days after filing, without
Commission action. Should proposed
Rule 12h–6 provide for some required
processing or action by the Commission
before any Form 15F termination of
reporting would become effective?
• Should we require an issuer to
provide the undertaking, as proposed?
As a condition to termination of
reporting, proposed Rule 12h–6 would
require a foreign private issuer, not later
than 15 business days before it files its
Form 15F, to publish a notice in the
United States disclosing its intent to
terminate its Exchange Act registration
and reporting obligations regarding each
class of securities under section 12(g) or
section 15(d) or both. The issuer would
be required to publish the notice
through a means, such as a press
release, reasonably designed to provide
broad dissemination of the information
to the public in the United States.99 The
issuer would be required to submit a
copy of the notice either under cover of
a Form 6–K, before or at the time of
filing of the Form 15F, or as an exhibit
to the Form 15F.100 The primary
purpose of this provision is to alert U.S.
investors who have purchased the
issuer’s securities about the intended
exiting of the issuer from the Exchange
Act registration and reporting system.
The notice requirement would also
serve to alert investors and other U.S.
market participants that, in the future,
they will have to look to the issuer’s
home country documents, and not
Exchange Act reports, for information
regarding the issuer.
98 See the proposed counting method and reliance
on an independent information services provider
discussed in Part II.B.4 of this release.
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Comment Solicited
We solicit comment regarding
proposed Rule 12h–6(c)’s notice
requirement.
99 There are no specific proposed requirements
relating to the form or content of the press release
or other notice, although such matters may be
addressed under the rules of a U.S. securities
market in which the issuer’s securities are listed.
100 Proposed Rule 12h–6(c) (17 CFR 240.12h–
6(c)).
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• Should we require a foreign private
issuer to issue a notice, such as a press
release, disclosing its intention to
terminate its Exchange Act reporting
obligations, as proposed?
• If so, should we prescribe the form
or content of the notice other than that
it be broadly disseminated in the United
States?
• Should a foreign private issuer be
permitted to submit a copy of the notice
to the Commission either prior to or at
the time of filing the Form 15F?
• Does the filing of the Form 15F
provide enough notice regarding a
foreign private issuer’s intentions to
make the notice requirement
unnecessary?
• Should a foreign private issuer be
required to issue a notice upon the
effectiveness of the termination of its
Exchange Act registration and reporting
obligations under proposed Rule 12h–6?
C. Proposed Amendment Regarding
Rule 12g3–2(b)
Under Rule 12g3–2(b), a foreign
private issuer may avoid registering
under Exchange Act Section 12(g) if,
prior to incurring a registration
obligation, it establishes and maintains
the exemption by submitting to the
Commission various materials that are
made public in its home market. As part
of our proposals, we are proposing two
amendments under this exemption:
• We are proposing to amend Rule
12g3–2(d), which currently prohibits a
foreign private issuer from availing itself
of the Rule 12g3–2(b) exemption for a
period of 18 months after terminating its
registration under Section 12(g) or an
active or suspended reporting obligation
under Section 15(d); 101 and
• We are proposing new Rule 12g3–
2(e), which would facilitate compliance
with the information submission
requirements by foreign private issuers
that terminate their reporting
obligations under proposed Rule 12h–6
by having them publish required
materials on their Internet Web sites
instead of submitting materials to the
Commission on an ongoing basis.
The proposed amendment to Rule
12g3–2(d) would except from its 18month prohibition a foreign private
issuer that receives the Rule 12g3–2(b)
exemption pursuant to new proposed
Rule 12g3–2(e). As proposed, a foreign
private issuer that has filed a Form 15F
with regard to a class of equity
securities would receive the Rule 12g3–
101 As a result, under the current rules, a foreign
private issuer is at risk that, during the 18 months
after terminating registration under Section 12(g), it
may exceed the registration thresholds under
Section 12(g) and be required to re-register under
the Exchange Act.
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2(b) exemption immediately upon the
effective date of the termination of its
Exchange Act reporting obligations
pursuant to Rule 12h–6.102 Thereafter, a
foreign private issuer would have to
publish in English on its Internet Web
site the home country materials that it
is required to furnish on a continuous
basis 103 under Rule 12g3–2(b).104 If a
foreign private issuer’s primary trading
market has an electronic information
delivery system that is generally
available to the public, the issuer
instead could publish its home country
materials in English through that
system.105
Proposed Exchange Act Rule 12g3–
2(e) would clarify that, at a minimum,
in order to satisfy the conditions of the
exemption, a foreign private issuer
would have to publish electronically
English translations of the following
home country documents:
• Its annual report, including or
accompanied by annual financial
statements;
• Interim reports that include
financial statements;
• Material press releases; and
• All other material communications
and documents distributed directly to
security holders of each class of
securities to which the exemption
relates.106
Proposed Exchange Act Rule 12g3–
2(e) would further condition the
exemption on requiring a foreign private
issuer to disclose in its Form 15F the
address of its Internet Web site or of the
electronic information delivery system
on which it will publish its home
country materials.107 The purpose of
102 See
proposed Exchange Act Rule 12g3–2(e)(1).
Rule 12g3–2(e)(2).
104 Under Rule 12g3–2(b), a foreign private issuer
must furnish information that it: (a) has made or is
required to make public under the laws of its
incorporation, organization or domicile; (b) has
filed or is required to file with a non-U.S. stock
exchange on which its securities are traded and
which has been made public by that exchange; and
(c) has distributed or is required to distribute to its
security holders. See Exchange Act Rules 12g3–
2(b)(1)(i) and (iii) (17 CFR 240.12g3–2(b)(1)(i) and
(iii)).
105 For example, a Canadian issuer would be able
to fulfill its Exchange Act Rule 12g3–2(e)
requirements by filing its home country documents
through the Canadian Securities Administrators’
System for Electronic Document Analysis and
Retrieval (‘‘SEDAR’’).
106 Note 1 to proposed Rule 12g3–2(e). Exchange
Act Rule 12g3–2(b)(3) (17 CFR 240.12g3–2(b)(3))
currently provides that the information required to
be furnished under the Rule 12g3–2(b) exemption
is that which is material to an investment decision.
This materiality standard would continue to apply
to Rule 12g3–2(b) materials furnished electronically
under proposed Rule 12g3–2(e).
107 There would be no obligation to amend the
Form 15F to update the address of the Internet Web
site or electronic information delivery system
should it change subsequent to the effective date of
103 Proposed
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this proposed extension of Rule 12g3–
2(b) is to provide U.S. investors with
access to material information about an
issuer of equity securities following its
termination of reporting pursuant to
proposed Rule 12h–6.108 In addition, an
issuer would be able to maintain a
sponsored ADR facility with respect to
its securities.109 It also would facilitate
resales of that issuer’s securities to
qualified institutional buyers under
Rule 144A.110 Moreover, having a
foreign private issuer’s key home
country documents posted in English on
its Web site would assist U.S. investors
who are interested in trading the
issuer’s securities on its home country
exchange.111
The proposed extension of Rule 12g3–
2(b) would apply to both a class of
equity securities formerly registered
under section 12(g) and one that
formerly gave rise to section 15(d)
reporting obligations.112 The Rule 12g3–
2(b) exemption received under proposed
Rule 12g3–2(e) would remain in effect
for as long as the foreign private issuer
satisfied the rule’s electronic
publication conditions or until the
issuer registered a new class of
securities under section 12 or incurred
section 15(d) reporting obligations by
filing a new Securities Act registration
statement, which became effective.113
However, absent a new effective
Securities Act registration statement,
under proposed Rule 12h–6, the
termination of reporting obligations
under section 15(d) would be
permanent and would not be
an issuer’s termination of reporting under proposed
Rule 12h–6.
108 Any post-termination trading of a foreign
private issuer’s securities in the United States
would have to occur through over-the-counter
markets such as that maintained by the Pink Sheets,
LLC since, as of April, 1998, the NASD and the
Commission have required a foreign private issuer
to register a class of securities under Exchange Act
section 12 before its securities could be traded
through the electronic over-the-counter bulletin
board administered by Nasdaq. See, for example,
NASD Notice to Members (January 1998).
109 In order to establish an ADR facility, an issuer
must register the ADRs on Form F–6 (17 CFR
239.36) under the Securities Act. The eligibility
criteria for the use of Form F–6 include the
requirement that the issuer have a reporting
obligation under Exchange Act section 13(a) or have
established the exemption under Rule 12g3–2(b).
110 See Securities Act Rule 144A(d)(4) (17 CFR
230.144A(d)(4)).
111 Brokers currently are exempt from complying
with certain information obligations under
Exchange Act Rule 15c2–11 (17 CFR 240.15c2–11)
when a foreign company has established and
maintains the Rule 12g3–2(b) exemption. See
Release No. 34–41110 (February 25, 1999), 64 FR
11124 (March 8, 1999).
112 Our primary authority for the proposed
extension of Rule 12g3–2(b) is Exchange Act
Section 12(h) [15 U.S.C. 78l(h)].
113 See proposed Rule 12g3–2(e)(3).
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conditioned on continued maintenance
of the Rule 12g3–2(b) exemption.
Currently foreign companies maintain
the Rule 12g3–2(b) exemption by
submitting to the Commission on an
ongoing basis the material required by
the rule. This material may only be
submitted in paper format.114 Although
the Commission’s EDGAR database
contains an entry signifying the receipt
of paper documents, materials received
in paper are not accessible through the
EDGAR system. Because paper
submissions are more difficult to access,
we have proposed the amendment to
Rule 12g3–2, which relies on electronic
access to a foreign company’s home
country securities documents, although
not through the Commission’s electronic
database.
Comment Solicited
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We solicit comment on the proposed
amendment to Rule 12g3–2(d) and on
proposed new Rule 12g3–2(e).
• Should we require a foreign private
issuer that has terminated its Exchange
Act reporting with regard to a class of
equity securities under proposed Rule
12h–6 to comply with the home country
publication requirements under Rule
12g3–2(b) by immediately granting the
issuer the Rule 12g3–2(b) exemption
upon the effectiveness of its termination
of reporting, as proposed?
• Should we instead permit but not
require such a foreign private issuer to
apply for the Rule 12g3–2(b) exemption
following termination of reporting
under proposed Rule 12h–6?
• Or should we leave unamended
Rule 12g3–2(d) and require a foreign
private issuer to wait 18 months before
it could apply for the Rule 12g3–2(b)
exemption?
• If we should extend the Rule 12g3–
2(b) exemption to a foreign private
issuer that has terminated its Exchange
Act reporting under proposed Rule 12h–
6, should we require the issuer to
publish electronically on its Internet
Web site the home country documents
required to be furnished under Rule
12g3–2(b)?
• If so, should we also allow the
issuer to publish its home country
documents through an electronic
information delivery system in its
primary trading market?
• Should we permit the issuer either
to publish the required home country
114 A non-Exchange Act reporting issuer that has
successfully filed an application for the Rule 12g3–
2(b) exemption must currently furnish its home
country documents in paper because the
application is analogous to one submitted for an
exemption under Exchange Act section 12(h). See
Regulation S–T Rule 101(c)(16) (17 CFR
232.101(c)(16)).
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documents electronically or submit
them in paper to the Commission?
• Should we require the issuer only
to submit the required home country
documents in paper to the Commission
as is currently the requirement for nonExchange Act reporting companies that
have received the Rule 12g3–2(b)
exemption?
• Should we require a foreign private
issuer that has received the Rule 12g3–
2(b) exemption under proposed Rule
12g3–2(e) to publish electronically
English translations of the home country
documents listed in proposed Note 1 to
that proposed rule?
• Should we exclude any of the
specified home country documents from
the English translation and electronic
publication condition? Are there other
home country documents not
mentioned in the proposed rule that
should be translated in English and
published electronically?
• Should we require the issuer to post
its home country documents in English
on its Internet Web site for a specified
period of time? For example, should the
issuer be required to keep its annual
report in English available on its
Internet Web site for at least 1, 2 or 3
or more years? Should the issuer be
required to keep its material press
releases in English for at least 6 months
or a year?
As proposed, foreign companies that
obtain the Rule 12g3–2(b) exemption by
filing a Form 15F would be able to
maintain the exemption through their
Web site postings without the need for
submitting material to the Commission.
We would continue to require all other
foreign companies that have the Rule
12g3–2(b) exemption to submit the
required materials in paper to the
Commission. In light of developments
relating to information dissemination
and information technology, we solicit
comments generally on the Exchange
Act exemptive scheme for foreign
private issuers.
• Should we modify the registration
thresholds under Rule 12g3–2(a) from
300 U.S. resident holders to some other
measure?
• Does the Rule 12g3–2(b) exemption
continue to serve a useful purpose for
investors seeking information on foreign
companies?
• Should we consider methods of
compliance with Rule 12g3–2(b), such
as Web site postings, as an alternative to
the submission of paper documents to
the Commission? How would such
alternative methods operate in practice,
and how would Commission staff
oversee compliance?
• Does oversight by Commission staff
in this area continue to be necessary or
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appropriate and serve to further investor
protection? Is such oversight necessary
or appropriate for a company that has
obtained the Rule 12g3–2(b) exemption
after terminating its reporting
obligations under proposed Rule 12h–6?
General Request for Comments
We solicit comment on proposed Rule
12h–6, proposed Form 15F, proposed
amendments to Rules 12g–4, 12h–3,
12g3–2(d) and 12g3–2(e) as well as to all
other aspects of the proposed rule
amendments. Here and throughout the
release, when we solicit comment, we
are interested in hearing from all
interested parties, including members
and representatives of the investing
public, representatives of foreign
companies and foreign industry groups,
representatives of broker-dealers,
domestic issuers, and other participants
in U.S. securities markets. We are
further interested in learning from all
parties what aspects of the rule proposal
they deem essential, what aspects they
believe are preferred but not essential,
and what aspects they believe should be
modified.
III. Paperwork Reduction Act Analysis
This rule proposal contains
‘‘collection of information’’
requirements within the meaning of the
Paperwork Reduction Act of 1995
(‘‘PRA’’).115 We are submitting our
proposal to the Office of Management
and Budget (‘‘OMB’’) for review in
accordance with the PRA.116 The titles
of the affected collection of informations
are Form 20–F (OMB Control No. 3235–
0288), Form 40–F (OMB Control No.
3235–0381), Form 6–K (OMB Control
No. 3235–0116), and proposed new
Form 15F.117 An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information such as Form 20–F or
proposed new Form 15F unless it
displays a currently valid OMB control
number. Compliance with the
disclosure requirements of proposed
Form 15F and proposed Rule 12h–6,
115 44
U.S.C. 3501 et seq.
U.S.C. 3507(d) and 5 CFR 1320.11.
117 A limited number of foreign private issuers
file annual reports on Form 10–K. In voluntarily
electing to file periodic reports using domestic
issuer forms, these issuers seem to have closely
aligned themselves with the U.S. market. For
purposes of the Paperwork Reduction Analysis
therefore, these issuers would appear unlikely to
terminate their Exchange Act registration using
proposed Rule 12h–6, and we have assumed that
none of these companies would seek to use
proposed Rule 12h–6. Foreign private issuers that
file periodic reports using domestic issuer forms
would, nonetheless, be eligible to use proposed
Rule 12h–6.
116 44
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which will affect the above collections
of information, will be mandatory.
Form 20–F sets forth the disclosure
requirements for a foreign private
issuer’s annual report and registration
statement under the Exchange Act as
well as many of the disclosure
requirements for a foreign private
issuer’s registration statements under
the Securities Act. The Commission
adopted Form 20–F pursuant to the
Exchange Act and the Securities Act in
order to provide investors with
information about foreign private
issuers that have registered securities
with the Commission.
Form 40–F sets forth the disclosure
requirements regarding the annual
report and registration statement under
the Exchange Act for a Canadian issuer
that is qualified to use the
Multijurisdictional Disclosure System
(‘‘MJDS’’). The Commission adopted
Form 40–F pursuant to the Exchange
Act in order to permit qualified
Canadian issuers to prepare their
Exchange Act annual reports and
registration statements based primarily
in accordance with Canadian
requirements.
Form 6–K is used by a foreign private
issuer to report material information
that it:
• Makes or is required to make public
under the laws of the jurisdiction of its
incorporation, domicile or organization
(its ‘‘home country’’);
• Files or is required to file with its
home country stock exchange that is
made public by that exchange; or
• Distributes or is required to
distribute to its security holders.
A foreign private issuer may attach
annual reports to security holders,
statutory reports, press releases and
other documents as exhibits or
attachments to the Form 6–K. The
Commission adopted Form 6–K under
the Exchange Act in order to keep
investors informed on an ongoing basis
about foreign private issuers that have
registered securities with the
Commission.
Proposed Form 15F is the form that a
foreign private issuer would have to file
when terminating its Exchange Act
reporting obligations under proposed
Exchange Act Rule 12h–6. Proposed
Form 15F would require a filer to
disclose information that would help
investors understand the foreign private
issuer’s decision to terminate its
Exchange Act reporting obligations and
assist Commission staff in assessing
whether the Form 15F filer is eligible to
terminate its Exchange Act reporting
obligations pursuant to proposed Rule
12h–6.
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The hours and costs associated with
preparing, filing and sending Forms 20–
F, 40–F, and 6–K and proposed Form
15F constitute reporting and cost
burdens imposed by those collections of
information. We have based our
estimates of the effects that the rule
proposal would have on those
collections of information primarily on
our review of the most recently
completed PRA submissions for Forms
20–F, 40–F, and 6–K, on those forms’
requirements and on the proposed
requirements of Form 15F, and on
relevant information, for example,
concerning comparative trading volume
and public float for numerous filers of
those forms.
The estimated effects of the rule
proposal reflect the initial phase-in
period of the Exchange Act termination
process under proposed Rule 12h–6 and
under proposed Form 15F during the
first year of use. We expect that most if
not all of these estimated effects will
occur on a one time, rather than a
recurring, basis. While we expect that
some issuers will terminate their
Exchange Act reporting under proposed
Rule 12h–6 and file Form 15F in
subsequent years, we do not expect the
resulting burdens and costs to be of the
same magnitude as the burdens and
costs currently expected during the first
year.
A. Form 20–F
We estimate that currently foreign
private issuers file 1,100 Form 20–Fs
each year. We further estimate that it
requires a total of 2,893,000 annual
burden hours to produce these Form
20–Fs or 2,630 hours on average for
each Form 20–F. We estimate that
foreign private issuers incur 25% of the
burden, or 723,250 annual burden
hours, required to produce the Form 20–
Fs. We further estimate that outside
firms, including legal counsel,
accountants and other advisors, account
for 75% of the burden required to
produce the Form 20–Fs at an average
cost of $300 per hour for a total annual
cost of $650,925,000.
Proposed Rule 12h–6 would permit a
foreign private issuer to terminate its
Exchange Act reporting obligations,
including the obligation to file an
annual report on Form 20–F, regarding
a class of securities under section 12(g)
or pursuant to section 15(d) of the
Exchange Act. It is possible that, if
adopted, as many as 15% of Form 20–
F filers could terminate their Exchange
Act reporting obligations under the rule
proposal in the first year. However, if
adopted, the rule proposal also may
encourage some foreign companies to
enter the Exchange Act registration and
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reporting regime for the first time. As a
result, during this same period, the
number of Form 20–F annual reports
filed could increase by 5%, leading to
a net decrease of 10% for Form 20–Fs
filed over this same period. This would
result in a decrease for this 1 year
period in:
• The number of Form 20–Fs filed by
110 to 990 Form 20–Fs;
• The total number of burden hours
for Form 20–F by 289,300 to 2,603,700
hours;
• The total number of burden hours
incurred by foreign private issuers to
produce Form 20–F by 72,325 to
650,925 hours; and
• The total cost incurred by outside
firms to produce Form 20–F by
$65,092,500 to $585,832,500.
B. Form 40–F
We estimate that foreign private
issuers file 134 Form 40–Fs each year.
We further estimate that it requires a
total of 57,240 annual burden hours to
produce these Form 40–Fs or 427 hours
on average for each Form 40–F. We
estimate that foreign private issuers
incur 25% of the burden, or 14,310
annual burden hours, required to
produce the Form 40–Fs. We further
estimate that outside firms, including
legal counsel, accountants and other
advisors, account for 75% of the burden
required to produce the Form 40–Fs at
an average cost of $300 per hour for a
total annual cost of $12,879,000.
Proposed Rule 12h–6 would permit a
foreign private issuer filing on the MJDS
forms to terminate its Exchange Act
reporting obligations, including the
obligation to file its annual report on
Form 40–F. It is possible that, if
adopted, as many as 10% of Form 40–
F filers could terminate their Exchange
Act reporting obligations under the rule
proposal in the first year. However, if
adopted, the rule proposal may
encourage some foreign companies to
enter the Exchange Act registration and
reporting regime for the first time,
including some that would be eligible to
use the MJDS forms, including the Form
40–F annual report. As a result, over
this same period, the number of Form
40–F annual reports filed could increase
by approximately 3%, so that there
would be a net decrease of 7% for Form
40–Fs filed over this same period. This
would result in a decrease for this 1 year
period in:
• The number of Form 40–Fs filed by
9 to 125 Form 40–Fs;
• The total number of burden hours
for Form 40–F by 3,865 to 53,375 hours;
• The total number of burden hours
incurred by foreign private issuers to
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produce Form 40–F by 966 to 13,344;
and
• The total cost incurred by outside
firms to produce Form 40–F by
$869,625 to $12,009,375.
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C. Form 6–K
We estimate that foreign private
issuers file 14,661 Form 6–Ks each year.
We further estimate that it requires a
total of 127,197 annual burden hours for
the Form 6–K, of which 9,909 annual
burden hours relate to the work required
to translate foreign language text into
English. We estimate that foreign private
issuers incur 75% of the burden of
preparing the Form 6–K, not including
the English translation work (87,966
hours) and 25% of the burden required
to translate foreign language text into
English (2,477 hours), which results in
90,443 total annual foreign private
issuer burden hours to produce the
Form 6–Ks, or 6.2 burden hours on
average for each response.
We estimate that outside firms,
including legal counsel, accountants
and other advisors, account for 25% of
the burden required to produce the
Form 6–Ks, not including the English
translation work, (29,322 hours) at an
average cost of $300 per hour for an
annual cost of $8,796,600. We estimate
that each year 367 Form 6–K filings
result in costs to translate into English
8 pages of foreign language text per
filing. We estimate that outside firms
incur 75% of these English translation
costs at a cost of $75 per page, which
results in additional annual costs of
$165,150 for outside firms, and total
annual costs of $8,961,750 incurred by
outside firms in the preparation and
translation of the Form 6–K.
Proposed Rule 12h–6 would permit a
foreign private issuer to terminate its
Exchange Act reporting obligations,
including the obligation to file Form 6–
K reports. It is possible that, if adopted,
as many as 14% of Form 6–K filers
(including those that file their Exchange
Act annual reports either on Form 20–
F or Form 40–F) might terminate their
Exchange Act reporting obligations
under the rule proposal in the first year.
However, if adopted, the rule proposal
could encourage some foreign
companies to enter the Exchange Act
registration and reporting regime for the
first time. As a result, over the same
period, the number of Form 6–K reports
filed could increase by as much as 5%,
resulting in a net decrease of 9% for
Form 6–Ks filed over this same period.
This would result in a decrease for this
1 year period in:
• The number of Form 6–Ks filed by
1,319 to 13,342 Form 6–Ks;
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• The total number of burden hours
for Form 6–K by 10,552 to 116,645; 118
• The total number of burden hours
incurred by foreign private issuers to
produce Form 6–K by 7,502 to 82,941
hours (of which 2,272 relate to English
translation burden hours); and
• The total cost incurred by outside
firms to produce Form 6–K by $744,450
to $8,217,300.119
D. Proposed Form 15F
The rule proposal would further
require a foreign private issuer seeking
to terminate its Exchange Act reporting
obligations under proposed Rule 12h–6
to file a Form 15F. As proposed, Form
15F would require a foreign private
issuer to provide information regarding
several items, including its Exchange
Act reporting history, its primary
trading market, and its U.S. securities
market.
It is possible that as many as 178
foreign private issuers may file Form
15F if adopted during the initial 1 year
period. We estimate that it will take
approximately 30 burden hours on
average to produce each Form 15F. The
filing of 178 forms 15F would take a
total of 5,340 burden hours. We estimate
that foreign private issuers would incur
25% of this burden or approximately
1,335 burden hours to produce the Form
15Fs. We further estimate that outside
firms, including legal counsel, financial
analysts and other advisors, would
account for 75% of the burden required
to produce the Form 15Fs at an average
cost of $300 per hour for a total cost of
$1,201,500.
118 Although the total number of burden hours
required to produce the 1,319 Form 6–Ks amounts
to 11,443 hours, 891 of these hours relate to the
burden of translating Form 6–K documents into
English. We have subtracted these hours from the
total burden hours expected to be reduced by the
proposal (11,443–891 = 10,552) because we expect
a foreign private issuer to incur approximately the
same burden hours and costs related to English
translation work when it fulfills the requirement
under the rule proposal to publish its home country
documents required under Exchange Act Rule
12g3–2(b) in English on its Internet Web site. Those
home country documents are substantially the same
as the home country documents that a reporting
foreign private issuer must furnish under cover of
a Form 6–K.
119 We have derived these estimated costs as
follows: 116,645¥9,087 = 107,558 burden hours
related to non-English translation work. 107,558 ×
0.25 = 26,890 burden hours borne by outside firms.
26,826,90 hours × $300/hour = $8,067,000 000 in
costs borne by outside firms for non-English
translation work. In addition, we estimate outside
firms would incur an additional $150,300 in costs
relating to English translation work, derived as
follows: 334 Form 6–Ks would each require 8 pages
of foreign language text to be translated (a total of
2,672 pages) at a cost of $75 per page ($200,400),
of which outside firms would incur 75% ($200,400
400 × .75 = $150,300). $8,067,000 + $150,300 =
$8,217,300.
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Comment Solicited
We solicit comment on the expected
effects of the rule proposal on Form 20–
F, Form 40–F, and Form 6–K and on the
expected effects of proposed Form 15F
under the PRA. In particular, we solicit
comment on:
• The extent to which foreign private
issuers would respond to proposed Rule
12h–6 by electing to file Form 15F to
terminate their registration and
reporting in the U.S.;
• How many foreign private issuers
would join the Exchange Act
registration and reporting regime for the
first time as a result of the proposed
rule;
• How accurate are our burden hour
and cost estimates for Forms 20–F, 40–
F and 6–K expected to result from
proposed Rule 12h–6;
• How accurate are our burden hour
and cost estimates for proposed Form
15F; and
• Whether most of the effects of
proposed Rule 12h–6 would occur
during the first year, as expected, or
over a longer period, for example,
during the first two or three years.
We further solicit comment in order
to:
• Evaluate whether the proposed
collections of information are necessary
for the proper performance of the
functions of the Commission, including
whether the information will have
practical utility;
• Determine whether there are ways
to enhance the quality, utility, and
clarity of the information to be
collected;
• Evaluate whether there are ways to
minimize the burden of the collections
of information on those who respond,
including through the use of automated
collection techniques or other forms of
information technology; and
• Evaluate whether the rule proposal
will have any effects on any other
collections of information not
previously identified in this section.
Any member of the public may direct
to us any comments concerning these
burden and cost estimates and any
suggestions for reducing the burdens
and costs. Persons who desire to submit
comments on the collections of
information requirements should direct
their comments to the OMB, Attention:
Desk Officer for the Securities and
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and send a copy
of the comments to Jonathan G. Katz,
Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–9303, with
reference to File No. S7–12–05.
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Requests for materials submitted to the
OMB by us with regard to these
collections of information should be in
writing, refer to File No. S7–12–05, and
be submitted to the Securities and
Exchange Commission, Records
Management, Office of Filings and
Information Services, 100 F Street, NE.,
Washington, DC 20549. Because the
OMB is required to make a decision
concerning the collections of
information between 30 and 60 days
after publication, your comments are
best assured of having their full effect if
the OMB receives them within 30 days
of publication.
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IV. Cost-Benefit Analysis
A. Expected Benefits
Proposed Rule 12h–6 and the
accompanying proposed rule
amendments would benefit investors to
the extent that they remove a
disincentive for foreign companies that
are not currently Exchange Act
reporting companies to register their
equity and debt securities with the
Commission by lessening their concerns
that the Exchange Act reporting system
is one that is difficult to leave once a
company joins it. In so doing, the rule
proposal would help encourage more
foreign companies to initiate
participation in U.S. public capital
markets while providing U.S. investors
with the protections afforded by our
Exchange Act reporting regime.
The rule proposal would offer foreign
firms stronger incentives to enter into
our Exchange Act reporting regime by
lowering the cost of exiting from that
regime. Investors would benefit because
they generally receive a high level of
investor protection from trading in
securities registered with the
Commission. In addition, U.S. investors
typically incur lower transaction costs
when trading on U.S. exchanges relative
to foreign exchanges. U.S. investors may
further benefit as more foreign
companies list on U.S. exchanges, to the
extent that trading on U.S. exchanges
exhibit economies of scale or scope.
To offer incentives for foreign
companies to enter U.S. public capital
markets, the proposed rules would
provide foreign Exchange Act reporting
companies with lower costs of
compliance, which may benefit foreign
companies and their investors. These
costs of compliance are incurred
directly by the foreign companies, yet
accrue to investors in those foreign
companies.
The proposal may result in foreign
private issuers incurring lesser costs of
Exchange Act compliance in three
possible ways. The first is that it would
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decrease the issuer’s cost of verifying
whether it qualifies for Exchange Act
termination of registration and
reporting. That is, the rule proposal
would enable a foreign private issuer to
rely on the assistance of an independent
information services provider when
making that determination. The option
to hire an independent information
services provider may allow some
foreign firms to save costs, which would
benefit U.S. and foreign investors.
Moreover, proposed Rule 12h–6 would
limit the number of jurisdictions in
which a foreign private issuer would
have to search for the amount of
securities represented by accounts of
customers resident in the United States
held by brokers, dealers, banks and
other nominees when determining
whether it qualifies for termination of
reporting. The current rules require a
foreign private issuer to conduct a
worldwide search for such U.S.
customer accounts.
Second, once having terminated its
reporting obligations under proposed
Rule 12h–6, a foreign company would
no longer be required to incur costs
associated with producing an Exchange
Act annual report or having to submit
Form 6–K interim reports.
Third, a foreign private issuer would
face lower costs of compliance under
proposed Rule 12h–6 and the
accompanying rule amendments than
under the current regime because the
proposed rules would allow the foreign
firm to terminate permanently its
Exchange Act reporting obligations
regarding a class of equity or debt
securities. Accordingly, such a
terminating foreign private issuer would
be able to avoid the costs associated
with continued annual verification that
its number of holders of record remains
below 300.
B. Expected Costs
Investors could incur costs from the
proposed rules to the extent that foreign
companies respond by terminating their
Exchange Act registration and reporting
obligations with respect to their equity
and debt securities. First, investors
could face lesser investor protection
upon Exchange Act termination.
Second, around or after the time of
Exchange Act termination, investors
may incur higher costs from trading in
the equity and debt securities.
Depending on the implementation
date of proposed Rule 12h–6, it is
possible that by quickly terminating
their Exchange Act registration and
reporting, some current foreign
registrants could avoid other recent U.S.
regulation, such as the Sarbanes-Oxley
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Act.120 If the initial costs of
implementing the Sarbanes-Oxley Act
are high, then the proposal might
induce some foreign registrants to
terminate their Exchange Act
registration and reporting under Rule
12h–6 as soon as possible. To the extent
that the Sarbanes-Oxley Act is beneficial
to investors, they would be harmed if a
current foreign registrant does not
implement the Sarbanes-Oxley Act.
Some U.S. investors might seek to
trade in the equity securities of a foreign
company following its termination of
Exchange Act reporting under proposed
Rule 12h–6. Those U.S. investors
seeking to trade the former reporting
company’s securities in the U.S.
unlisted over the counter market such as
the one administered by Pink Sheets,
LLC could encounter additional costs of
transacting as a result of the proposed
rule to the extent that brokerage fees and
other costs incurred are higher than if
the foreign company had continued to
have a class of securities registered with
the Commission.
Those U.S. investors seeking to trade
the former reporting company’s
securities in its primary trading market
could also incur additional costs. For
example, those U.S. investors who held
the securities in the form of ADRs could
incur costs associated with the
depositary’s conversion of the ADRs
into ordinary shares.121 Moreover, some
U.S. investors could incur costs
associated with finding and contracting
with a new broker-dealer who is able to
trade in the foreign reporting company’s
primary trading market. U.S. investors
may face additional costs due to cost of
currency conversion and higher
transaction costs trading the securities
in a foreign market.
Some investors who wish to make
investment decisions regarding former
Exchange Act reporting foreign
companies also may incur costs to the
extent that the information provided by
such companies pursuant to any home
country regulations is different from
that which currently is required under
the Exchange Act. Such investors could
incur costs associated with hiring an
attorney or investment adviser, to the
120 Pub.
L. 107–204, 116 Stat. 745 (2002).
foreign company could terminate its ADR
facility whether or not it is an Exchange Act
registrant, and proposed Rule 12h–6 does not
require the termination of ADR facilities. In fact, by
granting foreign private issuers the Rule 12g3–2(b)
exemption immediately upon their termination of
reporting with regard to a class of equity securities,
the rule proposal would enable foreign private
issuers to retain their ADR facilities as unlisted
facilities following their termination of reporting
under proposed Rule 12h–6. Therefore, the
proposed rule should not significantly increase
costs to investors in this area.
121 A
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extent that they have not already done
so, to explain the material differences, if
any, between a foreign company’s home
country reporting requirements, as
reflected in its home country annual
report posted on its Internet Web site,
and Exchange Act reporting
requirements.
Following termination of reporting
under proposed Rule 12h–6, a foreign
private issuer would have to publish
electronically its home country
documents in English required under
Rule 12g3–2(b) on its Internet web site
or through an electronic information
delivery system that is generally
available to the public in its primary
trading market. Since the home country
materials required under Rule 12g3–2(b)
are substantially the same as the home
country materials required to be
submitted under cover of Form 6–K on
EDGAR, we do not expect a foreign
private issuer to incur any additional
significant costs resulting from the
proposed rule’s electronic publishing
requirement.
Comment Solicited
We solicit comment on the costs and
benefits to U.S. and other investors,
foreign private issuers, and others who
may be affected by proposed Rule12h–
6, proposed Form 15F and the
associated proposed rule amendments.
We request your views on the costs and
benefits described above as well as on
any other costs and benefits that could
result from adoption of the rule
proposal. We also request data to
quantify the costs and value of the
benefits identified. In particular, we
solicit comment on:
• The number of current foreign
private issuers that are expected to
terminate their Exchange Act
registration and reporting as a result of
proposed Rule 12h–6 and the
accompanying rule proposals and the
timing of such termination;
• The number of prospective foreign
companies that are expected to join the
Exchange Act reporting regime as a
result of the rule proposals and the
timing of such intial registration and
reporting;
• Whether a U.S. investor would
incur costs by trading a foreign
company’s securities through the U.S.
unlisted over-the-counter market such
as the one administered by the Pink
Sheets, LLC following the foreign
company’s termination of reporting
under the proposed rules, and, if so,
what costs;
• Whether a U.S. investor would
incur costs by trading a foreign
company’s securities in its home
country market following the company’s
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termination of reporting under the
proposed rules and, if so, what costs;
• Whether some foreign private
issuers would choose to terminate
quickly their Exchange Act reporting
obligations under proposed Rule 12h–6
to avoid having to comply with the
Sarbanes-Oxley Act and, if so, whether
that should affect the rule proposals;
and
• Whether investors would benefit
both directly and indirectly from the
rule proposals, as discussed in this
section.
V. Consideration of Impact on the
Economy, Burden on Competition and
Promotion of Efficiency, Competition
and Capital Formation Analysis
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996 (‘‘SBREFA’’),122 we solicit data to
determine whether the proposals
constitute a ‘‘major’’ rule. Under
SBREFA, a rule is considered ‘‘major’’
where, if adopted, it results or is likely
to result in:
• An annual effect on the economy of
$100 million or more (either in the form
of an increase or a decrease);
• A major increase in costs or prices
for consumers or individual industries;
or
• Significant adverse effects on
competition, investment or innovation.
We request comment on the potential
impact of the proposals on the economy
on an annual basis. Commenters are
requested to provide empirical data and
other factual support for their views if
possible.
When adopting rules under the
Exchange Act, Section 23(a)(2) of the
Exchange Act 123 requires us to consider
the impact that any new rule would
have on competition. In addition,
Section 23(a)(2) prohibits us from
adopting any rule that would impose a
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
Furthermore, when engaging in
rulemaking that requires the
Commission to consider or determine
whether an action is necessary or
appropriate in the public interest,
Section 3(f) of the Exchange Act 124
requires the Commission to consider
whether the action will promote
efficiency, competition and capital
formation.
Proposed Rule 12h–6, proposed Form
15F and the other proposed rule
122 Pub. L. 104–121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C.
and as a note to 5 U.S.C. 601).
123 15 U.S.C. 78w(a)(2).
124 15 U.S.C. 78c(f).
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amendments would encourage foreign
private issuers to register their equity
and debt securities with the
Commission by reducing concerns of
some foreign private issuers that our
Exchange Act reporting system is
difficult to leave once one joins it. By
providing increased flexibility for
foreign private issuers regarding our
Exchange Act reporting system, the
proposed rules would encourage foreign
companies to participate in U.S. capital
markets as Exchange Act reporting
companies to the benefit of investors. In
so doing, the proposed rules should
foster increased competition between
domestic and foreign firms for investors
in U.S. capital markets. Moreover, by
requiring a foreign private issuer that
has terminated its Exchange Act
reporting under the proposed rules to
publish its home country documents
required under Exchange Act Rule
12g3–2(b) in English on its Internet web
site or through an electronic information
delivery system that is generally
available to the public in its primary
trading market, the proposed rules
would help ensure that U.S. investors
continue to have ready access to
material information in English about
the foreign private issuer. Thus, the
proposed rules should foster increased
efficiency in the trading of the issuer’s
securities for U.S. investors following
the issuer’s termination of Exchange Act
reporting.
We solicit comment on whether the
proposed rules would impose a burden
on competition or whether they would
promote efficiency, competition and
capital formation. Commenters are
requested to provide empirical data and
other factual support for their views if
possible.
VI. Regulatory Flexibility Act
Certification
The Securities and Exchange
Commission hereby certifies, pursuant
to 5 U.S.C. 605(b), that proposed Rule
12h–6 and proposed Form 15F under
the Exchange Act, the proposed
amendments to Rules 12g3–2, 12g–4
and 12h–3 under the Exchange Act, and
the proposed amendments to Rule 30–
1 of its Delegation of Authority rules
and Rule 101 of Regulation S–T, if
adopted, would not have a significant
economic impact on a substantial
number of small entities for purposes of
the Regulatory Flexibility Act. The
reason for this certification is as follows.
Proposed Rule 12h–6, proposed Form
15F and the accompanying proposed
rule amendments would permit the
termination of Exchange Act reporting
by a foreign private issuer regarding a
class of equity securities under either
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Exchange Act section 12(g) or section
15(d) for which there is little U.S.
investor interest. The proposed rules
would further permit a foreign private
issuer that seeks termination of
reporting regarding a class of equity or
debt securities to also terminate its
section 15(d) reporting obligations
regarding a class of debt securities as
long as it meets conditions similar to
those currently required for suspending
reporting obligations under section
15(d). The proposed rule amendments
would also automatically extend the
Exchange Act Rule 12g3–2(b) exemption
to a foreign private issuer that has
terminated its Exchange Act reporting
obligations with regard to a class of
equity securities pursuant to proposed
Rule 12h–6 on the condition that it
publish material information required
by its home country in English on its
Internet Web site or through an
electronic information delivery system
that is generally available to the public
in its primary trading market.
Because proposed Rule 12h–6 and the
accompanying rule amendments would
only apply to foreign private issuers,
they would directly affect only foreign
companies and not domestic companies.
Similarly, proposed Form 15F would
only affect foreign companies since only
foreign private issuers would be
permitted to use this form.
Based on an analysis of the language
and legislative history of the Regulatory
Flexibility Act, Congress did not intend
that the Act apply to foreign issuers.
Accordingly, the entities directly
affected by the proposed rule and form
amendments will fall outside the scope
of the Act. For this reason, proposed
Exchange Act Rule 12h–6, proposed
Form 15F, and the accompanying
proposed rule amendments should not
have a significant economic impact on
a substantial number of small entities.
We encourage written comments
regarding this certification. We request
in particular that commenters describe
the nature of any impact on small
entities and provide empirical data to
support the extent of the impact.
VII. Statutory Basis and Text of Rule
Amendments
We propose to amend Rule 30–1 of
Part 200, Rule 101 of Regulation S–T,
and Exchange Act Rules 12g3–2, 12g–4
and 12h–3, and to add Exchange Act
Rule 12h–6 and Form 15F under the
authority in Sections 6, 7, 10 and 19 of
the Securities Act 125 and Sections 3(b),
12, 13, 23 and 36 of the Exchange
Act.126
125 15
126 15
U.S.C. 77f, 77g, 77h, 77j, and 77s.
U.S.C. 78c, 78l, 78m, 78w, and 78mm.
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Text of Proposed Rule Amendments
List of Subjects
17 CFR Part 200
(xii) Forms 15 and 15F (§ 249.323 and
§ 249.324 of this chapter).
*
*
*
*
*
Administrative practice and
procedure, Authority delegations
(Government agencies).
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
17 CFR Parts 232, 240 and 249
5. The authority citation for part 240
continues to read in part as follows:
Reporting and recordkeeping
requirements, Securities.
In accordance with the foregoing, we
propose to amend Title 17, Chapter II of
the Code of Federal Regulations as
follows.
PART 200—ORGANIZATION;
CONDUCT AND ETHICS; AND
INFORMATION AND REQUESTS
1. The authority citation for part 200
continues to read in part as follows:
Authority: 15 U.S.C. 77s, 77o, 77sss, 78d,
78d–1, 78d–2, 78w, 78ll(d), 78mm, 79t, 80a–
37, 80b–11, and 7202, unless otherwise
noted.
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 79q,
79t, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3,
80b–4, 80b–11, and 7201 et seq.; and 18
U.S.C. 1350, unless otherwise noted.
*
*
*
*
*
6. Amend § 240.12g3–2 by revising
paragraph (d)(1) and adding paragraph
(e) to read as follows:
§ 240.12g3–2 Exemptions for American
depositary receipts and certain foreign
securities.
*
*
*
*
*
(d) * * *
(1) Securities of a foreign private
issuer that has or has had during the
prior eighteen months any securities
§ 200.30–1 Delegation of authority to
registered under section 12 of the Act or
Director of Division of Corporation Finance. a reporting obligation (suspended or
*
*
*
*
*
active) under section 15(d) of the Act
(e) * * *
(other than arising solely by virtue of
(17) At the request of a foreign private the use of Form F–7, F–8, F–9, F–10 or
issuer, pursuant to Rule 12h–6
F–80), except as provided by paragraph
(§ 240.12h–6 of this chapter), to
(e) of this section;
accelerate the termination of the
*
*
*
*
*
registration of a class of securities under
(e)(1) A foreign private issuer that has
section 12(g) of the Act (15 U.S.C. 78l(g)) filed a Form 15F (§ 249.324 of this
or the duty to file reports under section
chapter) pursuant to § 240.12h–6 shall
15(d) of the Act (15 U.S.C. 78o(d)).
receive the exemption provided by
*
*
*
*
*
paragraph (b) of this section for a class
of equity securities immediately upon
PART 232—REGULATION S–T—
the effectiveness of the termination of
GENERAL RULES AND REGULATIONS registration of that class of securities
FOR ELECTRONIC FILINGS
under section 12(g) of the Act (15 U.S.C.
78l(g)) or the termination of the duty to
3. The authority citation for part 232
file reports regarding that class of
continues to read in part as follows:
securities under section 15(d) of the Act
Authority: 15 U.S.C. 77f, 77g, 77h, 77j,
(15 U.S.C. 78o(d)), or both.
77s(a), 77sss(a), 78c(b), 78l, 78m, 78n, 78o(d),
(2) Notwithstanding any provision of
78w(a), 78ll(d), 79t(a), 80a–8, 80a–29, 80a–
§ 240.12g3–2(b), in order to satisfy the
30, 80a–37, and 7201 et seq.; and 18 U.S.C.
conditions of the § 240.12g3–2(b)
1350.
exemption received under this
*
*
*
*
*
paragraph, the issuer shall publish in
4. Amend § 232.101 by:
English the information required under
a. Removing the word ‘‘and’’ at the
paragraph (b)(1)(iii) of this section on its
end of paragraph (a)(1)(x);
b. Removing the period and adding ‘‘; Internet Web site or through an
electronic information delivery system
and’’ at the end of paragraph (a)(1)(xi);
generally available to the public in its
and
primary trading market.
c. Adding paragraph (a)(1)(xii).
(3) The § 240.12g3–2(b) exemption
The additions read as follows:
received under this paragraph will
§ 232.101 Mandated electronic
remain in effect for as long as the
submissions and exceptions.
foreign private issuer satisfies the
electronic publication condition of
(a) * * *
paragraph (e)(2) of this section or until
(1) * * *
*
*
*
*
*
2. Amend § 200.30–1 by adding
paragraph (e)(17) to read as follows:
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the issuer registers a class of securities
under section 12 of the Act or incurs
reporting obligations under section
15(d) of the Act regarding securities that
were not the subject of the Form 15F.
Notes to Paragraph (e): 1. In order to
maintain the § 240.12g3–2(b) exemption
obtained under this paragraph, at a
minimum, a foreign private issuer shall
electronically publish English
translations of the following documents
required to be furnished under
paragraph (b)(1)(iii) of this section if in
a foreign language:
a. Its annual report, including or
accompanied by annual financial
statements;
b. Interim reports that include
financial statements;
c. Press releases; and
d. All other communications and
documents distributed directly to
security holders of each class of
securities to which the exemption
relates.
2. Primary trading market has the
same meaning as under § 240.12h–6(d).
3. A foreign private issuer shall
disclose in the Form 15F the address of
its Internet Web site or of the electronic
information delivery system in its
primary trading market on which it will
publish the information required under
paragraph (b)(1)(iii) of this section. An
issuer need not update the Form 15F to
reflect a change in that address.
7. Amend § 240.12g–4 by:
a. Removing the authority citations
following the section; and
b. Revising paragraph (a) to read as
follows:
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§ 240.12g–4 Certifications of termination
of registration under section 12(g).
(a) Termination of registration of a
class of securities under section 12(g) of
the Act (15 U.S.C. 78l(g)) shall take
effect 90 days, or such shorter period as
the Commission may determine, after
the issuer certifies to the Commission
on Form 15 (17 CFR 249.323) that the
class of securities is held of record by:
(1) Less than 300 persons; or
(2) Less than 500 persons, where the
total assets of the issuer have not
exceeded $10 million on the last day of
each of the issuer’s most recent three
fiscal years.
*
*
*
*
*
8. Amend § 240.12h–3 by:
a. Removing the authority citations
following the section;
b. Adding the word ‘‘and’’ at the end
of paragraph (b)(1)(ii);
c. Removing paragraph (b)(2),
including the undesignated paragraph;
d. Redesignating paragraph (b)(3) as
(b)(2);
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e. Revising the cite ‘‘paragraphs
(b)(1)(ii) and (2)(ii)’’ to read ‘‘paragraph
(b)(1)(ii)’’ in paragraph (c); and
f. Revising the phrase ‘‘criteria (i) and
(ii) in either paragraph (b)(1) or (2)’’ to
read ‘‘either criteria (i) or (ii) of
paragraph (b)(1)’’ in paragraph (d).
9. Add § 240.12h–6 to read as follows:
§ 240.12h–6 Certification by a foreign
private issuer regarding the termination of
registration of a class of securities under
section 12(g) or the duty to file reports
under section 15(d).
(a) A foreign private issuer may
terminate the registration of a class of
securities under section 12(g) of the Act
(15 U.S.C. 78l(g)) or terminate the
obligation under section 15(d) of the Act
(15 U.S.C. 78o(d)) to file or furnish
reports required by section 13(a) of the
Act (15 U.S.C. 78m(a)) with respect to
a class of equity securities, or both, after
certifying to the Commission on Form
15F (17 CFR 249.324) that:
(1) The foreign private issuer has had
reporting obligations under section 13(a)
or 15(d) of the Act for the two years
preceding the filing of the Form 15F,
has filed or furnished all reports
required for this period, and has filed at
least two annual reports pursuant to
section 13(a) of the Act;
(2)(i) The foreign private issuer’s
securities have not been sold in the
United States in a registered offering
under the Securities Act of 1933 (15
U.S.C. 77a et seq.) during the preceding
12 months other than securities:
(A) Sold to the issuer’s employees; or
(B) Sold by selling security holders in
non-underwritten offerings;
(ii) The foreign private issuer has not
sold securities in unregistered offerings
in the United States during the
preceding 12 months other than
securities:
(A) Sold to the issuer’s employees;
(B) Exempted from registration under
section 3 of the Securities Act (15 U.S.C.
77c), except under section 3(a)(10) of
that Act; or
(C) Constituting obligations having a
maturity of less than nine months at the
time of issuance and offered and sold in
transactions exempted from registration
under section 4(2) of the Securities Act
(15 U.S.C. 77d(2));
(3) The foreign private issuer has
maintained a listing of the subject class
of securities for the preceding two years
on an exchange in its home country,
which constitutes the primary trading
market for the securities;
(4) If the foreign private issuer is a
well-known seasoned issuer, either:
(i)(A) The average daily trading
volume of the subject class of securities
in the United States during a recent 12
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month period has been no greater than
5 percent of the average daily trading
volume of that class of securities in the
issuer’s primary trading market during
the same period; and
(B) United States residents held no
more than 10 percent of the outstanding
voting and non-voting equity securities,
regarding which there is a reporting
obligation under section 13(a) or 15(d)
of the Act (15 U.S.C. 78m(a) or 78o(d)),
held by the issuer’s non-affiliates on a
worldwide basis at a date within 60
days before the end of the same 12
month period; or
(ii) United States residents held no
more than 5 percent of the outstanding
voting and non-voting equity securities,
regarding which there is a reporting
obligation under section 13(a) or 15(d)
of the Act, held by the issuer’s nonaffiliates on a worldwide basis at a date
within 120 days before the filing date of
the Form 15F;
(5) If the foreign private issuer is not
a well-known seasoned issuer, United
States residents held no more than 5
percent of the outstanding voting and
non-voting equity securities, regarding
which there is a reporting obligation
under section 13(a) or 15(d) of the Act
(15 U.S.C. 78m(a) or 78(o)(d)), held by
the issuer’s non-affiliates on a
worldwide basis at a date within 120
days before the filing date of the Form
15F; and
(6) If the foreign private issuer does
not meet the requirements of paragraph
(a)(4) or (a)(5) of this section, at a date
within 120 days before the filing date of
the Form 15F, the class of equity
securities is either held of record by:
(i) Less than 300 persons on a
worldwide basis; or
(ii) Less than 300 persons resident in
the United States.
(b) A foreign private issuer may
terminate its duty under section 15(d) of
the Act to file or furnish reports
required by section 13(a) of the Act with
respect to a class of debt securities after
certifying to the Commission on Form
15F that:
(1) The foreign private issuer has filed
or furnished all reports required under
section 15(d) of the Act, including at
least one annual report pursuant to
section 13(a) of the Act; and
(2) At a date within 120 days before
the filing date of the Form 15F, the class
of debt securities is either held of record
by:
(i) Less than 300 persons on a
worldwide basis; or
(ii) Less than 300 persons resident in
the United States.
(c) As a condition to termination of
reporting under this section, a foreign
private issuer must, not later than 15
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business days before it files its Form
15F, publish a notice in the United
States that discloses its intent to
terminate its section 13 reporting
obligations regarding each class of
securities under section 12(g) or section
15(d) of the Act or both. The issuer must
publish the notice through a means
reasonably designed to provide broad
dissemination of the information to the
public in the United States. The issuer
must also submit a copy of the notice
either under cover of a Form 6–K (17
CFR 249.306) before or at the time of
filing of the Form 15F, or as an exhibit
to the Form 15F.
(d) Definitions. For the purpose of this
section:
(1) Affiliate has the same meaning as
under § 240.12b–2).
(2) Debt security means any security
other than an equity security as defined
under § 240.3a11–1, including nonparticipatory preferred stock, which is
defined as non-convertible capital stock,
the holders of which are entitled to a
preference in payment of dividends and
in distribution of assets on liquidation,
dissolution, or winding up of the issuer,
but are not entitled to participate in
residual earnings or assets of the issuer.
(3) Equity security has the same
meaning as under § 240.3a11–1.
(4) Foreign private issuer has the same
meaning as under § 240.3b–4.
(5) Home country has the same
meaning as under § 249.220f.
(6) Primary trading market means that
at least 55 percent of the trading in the
foreign private issuer’s securities took
place in, on or through the facilities of
a securities market in a single foreign
country during a recent 12 month
period.
(7) Recent 12 month period means a
12 calendar month period that ended no
more than 60 days before the filing date
of the Form 15F.
(8) Well-known seasoned issuer
means a well-known seasoned issuer as
defined in § 230.405 of this chapter that
meets the requirements of paragraph
(1)(i)(A) of that definition; provided,
however, that the determination date of
well-known seasoned issuer status shall
be a date within 120 days of filing the
Form 15F.
(e) Counting method. When
determining under this section the
percentage of a foreign private issuer’s
outstanding equity shares held by its
non-affiliates on a worldwide basis that
are held by U.S. residents or the number
of U.S. residents holding a foreign
private issuer’s equity or debt securities:
(1) Use the method for calculating
record ownership § 240.12g3–2(a),
except that you may limit your inquiry
regarding the amount of securities
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represented by accounts of customers
resident in the United States to brokers,
dealers, banks and other nominees
located in:
(i) The United States;
(ii) The foreign private issuer’s
jurisdiction of incorporation, legal
organization or establishment; and
(iii) The jurisdiction of the foreign
private issuer’s primary trading market
if different than the issuer’s jurisdiction
of incorporation, legal organization or
establishment.
(2) If, after reasonable inquiry, you are
unable without unreasonable effort to
obtain information about the amount of
securities represented by accounts of
customers resident in the United States,
for purposes of this section, you may
assume that the customers are the
residents of the jurisdiction in which
the nominee has its principal place of
business.
(3) You must count securities as
owned by U.S. holders when publicly
filed reports of beneficial ownership or
information that is otherwise provided
to you indicates that the securities are
held by U.S. residents.
(4) When calculating the number of
your U.S. resident security holders
under this section, you may rely in good
faith on the assistance of an
independent information services
provider that in the regular course of its
business assists issuers in determining
the number of, and collecting other
information concerning, their security
holders.
(f) Suspension of a foreign private
issuer’s duty to file reports under
section 13(a) or section 15(d) of the Act
shall occur immediately upon filing the
Form 15F with the Commission. If there
are no objections from the Commission,
termination of the foreign private
issuer’s duty to file section 13 reports
under section 15(d) of the Act or
regarding a class of securities under
section 12(g) of the Act shall take effect
90 days, or such shorter period as the
Commission may determine, after the
issuer has filed its Form 15F. However,
if the Form 15F is subsequently
withdrawn or denied, the issuer shall,
within 60 days after the date of the
withdrawal or denial, file with or
submit to the Commission all reports
that would have been required had the
issuer not filed the Form 15F.
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
10. The authority citation for part 249
continues to read in part as follows:
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Fmt 4701
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Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
*
*
*
*
*
11. Add § 249.324 to read as follows:
§ 249.324 Form 15F, certification by a
foreign private issuer regarding the
termination of registration of a class of
securities under section 12(g) or the duty to
file reports under section 15(d).
This form shall be filed by a foreign
private issuer to disclose and certify the
information on the basis of which it
meets the requirements specified in
Rule 12h–6 (§ 240.12h–6 of this chapter)
to terminate a class of securities under
section 12(g) of the Act (15 U.S.C. 78l(g))
or the duty under section 15(d) of the
Act (15 U.S.C. 78(o)(d)) to file reports
required by section 13 of the Act (15
U.S.C. 78m(a)), or both. In each
instance, unless the Commission
objects, termination occurs 90 days, or
such shorter time as the Commission
may direct, after the filing of Form 15F.
12. Add Form 15F (referenced in
§ 249.324) to read as follows:
(Note: The text of Form 15F will not appear
in the Code of Federal Regulations.)
OMB APPROVAL
OMB Number: 3235–
Expires:
Estimated average burden hours per
response * * *
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 15F
CERTIFICATION OF A FOREIGN
PRIVATE ISSUER’S TERMINATION OF
REGISTRATION OF A CLASS OF
SECURITIES UNDER SECTION 12(g) OF
THE SECURITIES EXCHANGE ACT OF
1934 OR ITS TERMINATION OF THE
DUTY UNDER SECTION 15(d) TO FILE
REPORTS REQUIRED BY SECTION 13
OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number llllll
llllllllllllllllll
l
(Exact name of registrant as specified in
its charter)
llllllllllllllllll
l
(Address, including zip code, and
telephone number, including area code,
of registrant’s principal executive
offices)
llllllllllllllllll
l
(Title of each class of securities covered
by this Form)
Place an X in the appropriate box(es)
to indicate the provision(s) relied upon
to terminate the duty to file reports
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Federal Register / Vol. 70, No. 250 / Friday, December 30, 2005 / Proposed Rules
D. Other Filing Requirements
under the Securities Exchange Act of
1934:
Rule 12h–6(a) b
Rule 12h–6(b) b
GENERAL INSTRUCTIONS
A. Who May Use Form 15F and When
A foreign private issuer may file Form
15F, pursuant to Rule 12h–6(a) (17 CFR
240.12h–6(a)) under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’),
when seeking to terminate:
• The registration of a class of
securities under section 12(g) of the
Exchange Act and the corresponding
duty to file or furnish reports required
by section 13(a) of the Exchange Act;
• The obligation under section 15(d)
of the Exchange Act to file or furnish
reports required by section 13(a) of the
Act regarding a class of equity
securities; or
• Both of the above.
A foreign private issuer may also file
Form 15F, pursuant to Rule 12h–6(b)
(17 CFR 240.12h–6(b)), when seeking to
terminate its reporting obligations under
section 15(d) of the Exchange Act
regarding a class of debt securities.
B. Certification Effected by Filing Form
15F
By completing and signing this Form,
the issuer certifies that:
• It meets all of the conditions for
termination of Exchange Act reporting
specified in Rule 12h–6 (17 CFR
240.12h–6); and
• There are no classes of securities
other than those that are the subject of
this Form 15F regarding which the
issuer has Exchange Act reporting
obligations.
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C. Effective Date
The issuer’s duty to file any reports
required under section 13(a) of the
Exchange Act will be suspended
immediately upon filing the Form 15F.
If there are no objections from the
Commission, termination of registration
of a class of securities under section
12(g) of the Act, or termination of the
issuer’s duty to file or submit reports
under section 15(d) of the Act, or both,
will take effect 90 days, or a shorter
period as the Commission may
determine, after the issuer has filed its
Form 15F. An issuer that seeks an
effective date sooner than 90 days after
filing the Form 15F must submit its
request to the Commission in writing.
Grant of the Rule 12g3–2(b) exemption
will occur upon the effective date of an
issuer’s termination of Exchange Act
reporting pursuant to Rule 12h–6 (17
CFR 240.12h–6).
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You must file Form 15F and related
materials, including correspondence, in
electronic format via our Electronic Data
Gathering, Analysis, and Retrieval
(EDGAR) system in accordance with the
EDGAR rules set forth in Regulation S–
T (17 CFR part 232). The Form 15F and
related materials must be in the English
language as required by Regulation S–T
Rule 306 (17 CFR 232.306). You must
provide the signature required for Form
15F in accordance with Regulation S–T
Rule 302 (17 CFR 232.302). If you have
technical questions about EDGAR, call
the EDGAR Filer Support Office at (202)
551–8900. If you have questions about
the EDGAR rules, call the Office of
EDGAR and Information Analysis at
(202) 551–3610.
If the Form 15F is subsequently
withdrawn or denied, you must, within
60 days after the date of the withdrawal
or denial, file with or submit to the
Commission all reports that would have
been required had you not filed the
Form 15F. See Rule 12h–6(f) (17 CFR
240.12h–6(f)).
E. Rule 12g3–2(b) Exemption
A foreign private issuer that has filed
Form 15F to terminate its Exchange Act
reporting obligations regarding a class of
equity securities shall receive the
exemption under Rule 12g3–2(b) (17
CFR 240.12g3–2(b)) for the subject class
of equity securities immediately upon
the effective date of its termination of
registration and reporting under Rule
12h–6. Refer to Rule 12g3–2(e) (17 CFR
240.12g3–2(e)) for the conditions that a
foreign private issuer must meet in
order to maintain the Rule 12g3–2(b)
exemption following its termination of
Exchange Act registration and reporting.
PART I
The purpose of this part is to assist
the Commission in assessing whether
you meet the requirements for
terminating your Exchange Act
reporting under Rule 12h–6.
Item 1. Exchange Act Reporting History
A. State when you first incurred the
duty to file reports required under
section 13(a) of the Exchange Act.
B. State whether you have filed or
submitted all reports required under
Exchange Act section 13(a) and
corresponding Commission rules for the
two calendar years preceding the filing
of this form, and whether you have filed
two annual reports under section 13(a).
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77711
Item 2. Recent United States Market
Activity
State when your securities were last
sold in the United States in either a
registered or unregistered offering.
Instructions to Item 2
1. For registered offerings, do not
include securities sold to your
employees or those sold by selling
security holders in non-underwritten
offerings. If you have registered equity
securities on a shelf or other registration
statement under the Securities Act of
1933 (15 U.S.C. 77a et seq.) under which
securities remain unsold, disclose the
last sale of securities under that
registration statement. If no sale has
occurred during the preceding 12
months, disclose whether you have filed
a post-effective amendment to terminate
the registration of unsold securities
under that registration statement.
2. For unregistered offerings, do not
include securities sold to your
employees, and securities exempted
from registration under section 3 of the
Securities Act (15 U.S.C. 77c), except
that you must disclose securities sold
under section 3(a)(10) of that Act. In
addition, do not include securities
constituting obligations having a
maturity of less than nine months at the
time of issuance and offered and sold in
transactions exempted from registration
under section 4(2) of the Securities Act
(15 U.S.C. 77d(2)).
Item 3. Primary Trading Market
A. Identify the exchange in your home
country on which you have maintained
a listing of the class of securities that is
the subject of this Form. Further provide
the date of initial listing on this
exchange.
B. Explain whether this home country
exchange constitutes the primary
trading market for the class of securities
that is the subject of this Form.
Instruction to Item 3
When responding to this item, refer to
the definitions of ‘‘home country’’ and
‘‘primary trading market’’ in Rule 12h–
6(d) (17 CFR 240.12h–6(d)).
Item 4. Well-known Seasoned Issuer
Disclosure
State whether you are a well-known
seasoned issuer.
Instruction to Item 4
When responding to this item, refer to
the definition of, and time of
determination of status of, a ‘‘wellknown seasoned issuer’’ in Rule 12h–
6(d).
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Federal Register / Vol. 70, No. 250 / Friday, December 30, 2005 / Proposed Rules
Item 5. Comparative Trading Volume
Data
A. Identify the last day of the recent
12-month period used to meet the
requirements of Rule 12h–6(a)(4)(i)(A)
(17 CFR 240.12h–6(a)(4)(i)(A)).
B. For the same recent 12-month
period, disclose the average daily
trading volume of the class of securities
that is the subject of this Form both in
the United States and in your primary
trading market.
C. For the recent 12-month period,
disclose the average daily trading
volume of the subject class of securities
in the United States as a percentage of
the average daily trading volume for that
class of securities in your primary
trading market.
240.12h–6(e)) for the appropriate
counting method.
2. In your response to Item 6.B,
specify the provision under Rule 12h–
6(a)(4) or Rule 12h–6(a)(5) (17 CFR
240.12h–6(a)(4) or 240.12h–6(a)(5))
upon which you have relied when filing
this Form.
3. You need not respond to Items 6.A
and 6.B if proceeding under Rule 12h–
6(a)(6).
4. If you have relied upon the
assistance of an independent
information services provider to
determine the number of your U.S.
resident shareholders or the
comparative share ownership
information required by this item,
identify this party in your response.
Instructions to Item 5
1. ‘‘Recent 12-month period’’ means a
12-calendar-month period that ended no
more than 60 days before the filing date
of this form, as defined under Rule 12h–
6(d). You may disclose the comparative
trading volume data in response to this
item in tabular format and attached as
an exhibit to this Form.
2. If you are not relying on Rule 12h–
6(a)(4)(i), mark Item 5 as inapplicable.
Item 7. Debt Securities
Disclose whether you seek to
terminate your reporting obligations
under section 15(d) of the Exchange Act
regarding a class of debt securities. If so,
disclose the number of record holders of
your debt securities either on a
worldwide basis or who are U.S.
residents at a date within 120 days
before the date of filing of this Form.
wwhite on PROD1PC65 with PROPOSAL3
Item 6. Comparative Share Ownership
Information
A. Disclose the amount of your
outstanding voting and non-voting
equity securities, regarding which there
is an Exchange Act reporting obligation,
held by your non-affiliates on a
worldwide basis at a date within 60
days before the end of the 12-month
period identified in Item 5 of this Form,
or, if Item 5 is inapplicable, at a date
within 120 days before filing this Form.
Disclose the date utilized for purposes
of Item 6.
B. Disclose the amount and
percentage of your outstanding voting
and non-voting equity securities,
regarding which there is an Exchange
Act reporting obligation, held by your
non-affiliates on a worldwide basis that
are held by United States residents at
the date identified in Item 6.A.
C. If you are proceeding under Rule
12h–6(a)(6) (17 CFR 240.12h–6(a)(6)),
disclose the number of record holders of
the subject class of equity securities on
a worldwide basis or who are U.S.
residents at a date within 120 days
before filing this Form.
Instruction to Item 6
1. When determining the number of
record holders of your equity securities
or the percentage of your outstanding
equity shares held by non-affiliates on a
worldwide basis that are held by U.S.
residents, refer to Rule 12h–6(e) (17 CFR
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Instruction to Item 7.
1. When determining the number of
record holders of your debt securities
who are U.S. residents, refer to Rule
12h–6(e) for the appropriate counting
method.
2. If you have relied upon the
assistance of an independent
information services provider to
determine the number of record holders
of your debt securities required by this
item, identify this party in your
response.
Item 8. Notice Requirement
Disclose the date on which, pursuant
to Rule 12h–6(c) (17 CFR 240.12h–6(c)),
you have issued a notice, such as a press
release, in the United States disclosing
your intent to terminate the registration
of a class of securities under section
12(g) or your duty under section 15(d)
to file reports under section 13(a) of the
Exchange Act.
Instruction to Item 8.
If you have submitted a copy of the
notice under cover of a Form 6–K (17
CFR 249.306), disclose the submission
date of the Form 6–K. If not, you must
attach a copy of the notice as an exhibit
to this Form. See Rule 12h–6(c).
PART II
Item 9. Rule 12g3–2(b) Exemption
Disclose the address of your Internet
Web site or of the electronic information
delivery system in your primary trading
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Fmt 4701
Sfmt 4702
market on which you will publish the
information required under Rule 12g3–
2(b)(1)(iii) (17 CFR 240.12g3–
2(b)(1)(iii)).
Instruction to Item 9.
Refer to Note 1 to Rule 12g3–2(e) for
instructions regarding providing English
translations of documents published
pursuant to Rule 12g3–2(b)(1)(iii) (17
CFR 240.12g3–2(b)(1)(iii).
PART III
Item 10. Exhibits
List the exhibits attached to this
Form.
Instruction to Item 10.
In addition to exhibits specifically
mentioned on this Form, you may attach
as an exhibit any document providing
information that is material to your
eligibility to terminate your reporting
obligations under Exchange Act Rule
12h–6. You should refer to any relevant
exhibit when responding to the items on
this Form.
Item 11. Undertakings
Furnish the following undertaking:
The undersigned issuer hereby
undertakes to withdraw this Form 15F
if, at any time prior to the effectiveness
of its termination of reporting under
Rule 12h–6, it becomes aware of
information that causes it reasonably to
believe that:
(1) U.S. residents hold more than the
applicable percentage of its outstanding
voting and non-voting equity securities
held by the issuer’s non-affiliates on a
worldwide basis as determined under
Rule 12h–6(a)(4) or 12h–6(a)(5);
(2) If proceeding under Rule 12h–
6(a)(6), its subject class of equity
securities is held of record by 300 or
more U.S. residents or 300 or more
persons worldwide;
(3) Its debt securities are held of
record by 300 or more U.S. residents or
300 or more persons worldwide; or
(4) It otherwise no longer qualifies for
termination of its Exchange Act
reporting obligations under Rule 12h–6.
Instruction to Item 11.
After filing this Form, an issuer has
no continuing obligation to make
inquiries or perform other work
concerning the information contained in
this Form, including its assessment of
U.S. ownership of its securities.
Signature
Pursuant to the requirements of the
Securities Exchange Act of 1934, [name
of registrant as specified in charter] has
duly authorized the undersigned person
to sign on its behalf this certification on
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Form 15F. In so doing, [name of
registrant as specified in charter]
certifies that, as represented on this
Form, it has complied with all of the
conditions set forth in Rule 12h–6 for
terminating its registration under
section 12 of the Exchange Act, its
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77713
By the Commission.
obligation to file reports required by
section 13(a) or section 15(d) of the
Dated: December 23, 2005.
Exchange Act, or both.
Jonathan G. Katz,
By: llllllllllllllll Secretary.
Title:
lllllllllllllll [FR Doc. 05–24618 Filed 12–29–05; 8:45 am]
Date: llllllllllllllll BILLING CODE 8010–01–P
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Agencies
[Federal Register Volume 70, Number 250 (Friday, December 30, 2005)]
[Proposed Rules]
[Pages 77688-77713]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-24618]
[[Page 77687]]
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Part VI
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Parts 200, 232, 240, et al.
Termination of a Foreign Private Issuer's Registration of a Class of
Securities Under Section 12(g) and Duty To File Reports Under Section
15(d) of the Securities Exchange Act of 1934; Proposed Rule
Federal Register / Vol. 70 , No. 250 / Friday, December 30, 2005 /
Proposed Rules
[[Page 77688]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 232, 240 and 249
[Release No. 34-53020; International Series Release No. 1295; File No.
S7-12-05]
RIN 3235-AJ38
Termination of a Foreign Private Issuer's Registration of a Class
of Securities Under Section 12(g) and Duty To File Reports Under
Section 15(d) of the Securities Exchange Act of 1934
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: We propose to amend the rules allowing a foreign private
issuer to terminate the registration of a class of equity securities
under section 12(g) of the Securities Exchange Act of 1934 (and thus
stop filing reports required as a result of registration) and to cease
its reporting obligations regarding a class of equity or debt
securities under section 15(d) of the Exchange Act. Under the current
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 United States investors. Moreover, currently a foreign private
issuer can only suspend, and cannot permanently terminate, a duty to
report arising under section 15(d). The proposed rules would permit the
termination of Exchange Act reporting regarding a class of equity
securities under either section 12(g) or section 15(d) by a foreign
private issuer that meets specified criteria designed to measure U.S.
market interest for that class of securities. The proposed rules would
also permit a foreign private issuer to terminate, and not merely
suspend, its section 15(d) reporting obligations regarding a class of
debt securities as long as it meets conditions similar to the current
requirements for suspending its reporting obligations relating to that
class of debt securities. At the same time, the proposed rules would
seek to provide U.S. investors with ready access through the Internet
to material information about a foreign private issuer that is required
by its home country on an ongoing basis after it has exited the
Exchange Act reporting system.
DATES: Comments should be received on or before February 28, 2006.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/proposed.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-12-05 on the subject line; or
Use the Federal eRulemaking Portal (https://
www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number S7-12-05. This file
number should be included on the subject line if e-mail is used. To
help us process and review your comments more efficiently, please use
only one method. The Commission will post all comments on the
Commission's Internet Web site (https://www.sec.gov/rules/
proposed.shtml). Comments also are available for public inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549. All comments received will be posted without
change; we do not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly.
FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Special Counsel, at
(202) 551-3450, in the Office of International Corporate Finance,
Division of Corporation Finance, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-3628.
SUPPLEMENTARY INFORMATION: We propose to amend Commission Rule 30-1,\1\
Rule 101 \2\ of Regulation S-T,\3\ and Rules 12g3-2, 12g-4 and 12h-3
\4\ under the Securities Exchange Act of 1934 (``Exchange Act''),\5\
and to add Rule 12h-6 \6\ and Form 15F \7\ under the Exchange Act.
---------------------------------------------------------------------------
\1\ 17 CFR 200.30-1.
\2\ 17 CFR 232.101.
\3\ 17 CFR 232.10 et seq.
\4\ 17 CFR 240.12g3-2, 240.12g-4 and 240.12h-3.
\5\ 15 U.S.C. 78a et. seq.
\6\ 17 CFR 240.12h-6, as proposed.
\7\ 17 CFR 249.324, as proposed.
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I. Background
A. Overview of the Current Rules Governing Exiting the Exchange Act
Reporting Regime
Under the current Exchange Act reporting regime, whether a domestic
or foreign private issuer \8\ can terminate its reporting obligations
under section 13(a) of the Act \9\ depends on how it became subject to
those obligations. An issuer may have become subject to section 13(a)
reporting obligations by:
---------------------------------------------------------------------------
\8\ As defined in Rule 3b-4(c) (17 CFR 240.3b-4(c)), a foreign
private issuer is a corporation or other organization incorporated
or organized in a foreign country that either has 50 percent or less
of its outstanding voting securities held of record by United States
residents or, if more than 50 percent of its voting securities are
held by U.S. residents, about which none of the following are true:
(1) A majority of its executive officers or directors are U.S.
citizens or residents;
(2) More than 50 percent of its assets are located in the United
States; and
(3) The issuer's business is administered principally in the
United States.
\9\ 15 U.S.C. 78m(a).
---------------------------------------------------------------------------
Listing a class of either equity or debt securities on a
national securities exchange and registering this class under section
12(b) of the Exchange Act; \10\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78l(b).
---------------------------------------------------------------------------
Registering a class of equity securities under section
12(g) \11\ either voluntarily or because it had 500 or more security
holders of record and more than $10 million in total assets \12\ and,
if a foreign private issuer, more than 300 shareholders resident in the
United States on the last day of its most recently completed fiscal
year; \13\ or
---------------------------------------------------------------------------
\11\ This statutory section only applies to equity securities.
See Exchange Act Section 12(g)(1) [15 U.S.C. 78l(g)(1)].
\12\ Exchange Act Rule 12g-1 (17 CFR 240.12g-1).
\13\ Exchange Act Rule 12g3-2(a) (17 CFR 240.12g3-2(a)). A
foreign private issuer may avoid an Exchange Act registration
obligation under section 12(g) by establishing the exemption under
Exchange Act Rule 12g3-2(b) (17 CFR 240.12g3-2(b)).
---------------------------------------------------------------------------
Registering either equity or debt securities under a
Securities Act registration statement, which has gone effective, thus
triggering section 13(a) reporting obligations under Section 15(d) of
the Exchange Act.\14\
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78o(d). There are other methods by which an
issuer may be obliged to file reports under section 13(a), such as,
for example, under Exchange Act Rule 12g-3 (17 CFR 240.12g-3) in the
case of a successor registrant.
---------------------------------------------------------------------------
An issuer may be subject to reporting obligations under more than
one of the above statutory sections and rules. While an issuer is
deemed to have only one active set of reporting obligations, when an
issuer attempts to exit the Exchange Act reporting system, it must
consider whether there are any dormant or suspended reporting
obligations that would preclude the issuer from ceasing its Exchange
Act reporting.
For example, an issuer may have active section 13(a) reporting
obligations because it has a class of equity securities listed on a
national securities exchange and registered with the Commission
[[Page 77689]]
under section 12(b) of the Exchange Act. When attempting to exit the
Exchange Act reporting system, the registrant not only must take steps
to effect its delisting from the national securities exchange,\15\ but
also it must consider whether it has any dormant or suspended reporting
obligations under section 12(g)\16\ or 15(d) that will become operative
once its section 12(b) registration ceases.\17\
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\15\ Exchange Act Rule 12d2-2 (17 CFR 240.12d2-2) governs the
process of the delisting of a class of securities from a national
securities exchange. To effect the delisting and subsequent
termination of an issuer's registration of a class of securities
under section 12(b), the national securities exchange or issuer must
file a Form 25 with the Commission. We recently adopted amendments
to our rules and Form 25 to streamline the procedures for removing
from listing, and withdrawing from registration, securities under
section 12(b). See Release No. 34-52029 (July 14, 2005), 70 FR 42456
(July 22, 2005).
\16\ A registrant may have section 12(g) reporting obligations
following its termination of registration under section 12(b): (1)
If it had initially registered the class of securities under section
12(g) prior to listing the securities on a national securities
exchange; or (2) under Exchange Act Rule 12g-2 (17 CFR 240.12g-2).
That rule provides that any class of securities that would have been
required to be registered under section 12(g) except for the fact
that it was listed and registered on a national securities exchange
shall be deemed to be registered under section 12(g) upon the
termination of registration under section 12(b) as long as the class
of securities are not exempt from registration under section 12 and
are held of record by 300 or more persons.
\17\ Exchange Act section 15(d) automatically suspends the duty
to file reports under that section regarding securities registered
under an effective Securities Act registration statement once the
issuer has registered the class of securities under section 12 of
the Exchange Act.
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Exchange Act Rule 12g-4 currently governs whether an issuer may
terminate its registration of a class of securities under section 12(g)
of the Exchange Act and its corresponding section 13(a) reporting
obligations.\18\ Under this rule, a foreign private issuer may seek
termination of its registration of a class of securities under section
12(g) by certifying in Form 15 \19\ that the subject class of
securities is held by less than 300 residents in the United States or
by less than 500 U.S. residents when the issuer's total assets have not
exceeded $10 million on the last day of each of the issuer's most
recent three fiscal years.\20\ For the purpose of determining the
number of U.S. resident shareholders under this rule, a foreign private
issuer must use the method of counting provided under Exchange Act Rule
12g3-2(a).\21\ This method requires looking through the record
ownership of brokers, dealers, banks or other nominees on a worldwide
basis and counting the number of separate accounts of customers
resident in the United States for which the securities are held.\22\
Under this rule, issuers are required to make inquiries of all
nominees, wherever located and wherever in the chain of ownership, for
the purpose of assessing the number of U.S. resident holders.
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\18\ An issuer must look to this rule both when it has only
registered a class of securities under section 12(g) and following
the termination of registration of a class of equity securities
under section 12(b).
\19\ 17 CFR 249.323.
\20\ Exchange Act Rule 12g-4(a)(2) (17 CFR 240.12g-4(a)(2)).
Alternatively, a foreign private issuer may seek to terminate its
section 12(g) registration under the Rule 12g-4 provision that
applies to any issuer, whether domestic or foreign. Under this
provision, an issuer must certify on Form 15 that its class of
equity securities is held of record by less than 300 persons or by
less than 500 persons when the issuer's total assets have not
exceeded $10 million on the last day of each of the issuer's most
recent three fiscal years. Exchange Act Rule 12g-4(a)(1) (17 CFR
240.12g-4(a)(1)).
\21\ 17 CFR 240.12g3-2(a).
\22\ See 17 CFR 240.12g3-2(a)(1).
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An issuer that has determined that it meets the threshold
requirements for termination of registration of a class of securities
under Rule 12g-4, and has also never engaged in a registered offering
under the Securities Act, may seek termination of its Exchange Act
reporting obligations by filing the Form 15 certification.\23\ However,
an issuer that has registered securities under an effective Securities
Act registration statement must determine if it has any suspended
reporting obligations under section 15(d) that will become operative
after it has terminated the registration of a class of securities under
Exchange Act section 12(g).
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\23\ Filing this form immediately suspends the issuer's Exchange
Act reporting obligations. If, after 90 days from the date of filing
the Form 15, the Commission has not objected, the suspension becomes
a termination. See Rule 12g-4(b) (17 CFR 12g-4(b)).
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Rule 12h-3 \24\ is the Exchange Act rule governing when an issuer
may suspend its reporting obligations under section 15(d).\25\ While
Rule 12h-3's standards are substantially similar to those under Rule
12g-4,\26\ there are two important differences. First, an issuer may
generally not suspend its section 15(d) reporting obligations until it
has filed one Exchange Act annual report after the offering in
question. Second, an issuer cannot permanently terminate its reporting
obligations under section 15(d) but can only suspend those
obligations.\27\ Therefore, for as long as the subject class of
securities is outstanding, a foreign private issuer must also determine
at the end of each fiscal year whether the number of U.S. resident
security holders or total number of record holders has increased enough
to trigger anew its section 15(d) reporting obligations.
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\24\ 17 CFR 240.12h-3.
\25\ Section 15(d) itself provides that an issuer cannot suspend
its reporting obligations unless the subject class of securities is
held of record by less than 300 persons at the beginning of a fiscal
year other than the year in which the Securities Act registration
statement triggering the section 15(d) reporting obligations became
effective.
\26\ See, in particular, Rule 12h-3(b)(2) (17 CFR 240.12h-
3(b)(2)).
\27\ Exchange Act Rule 12h-3(a) (17 CFR 240.12h-3(a)).
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B. The Increased Internationalization of the U.S. Securities Markets
It has been almost four decades since the Commission first adopted
the ``300 U.S. resident shareholder'' standard as the benchmark for
determining both when a foreign private issuer must register a class of
equity securities under section 12(g) and when it may terminate that
registration.\28\ Moreover, it has been over two decades since the
Commission adopted Form 15 under Rules 12g-4 and 12h-3.\29\
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\28\ See Release No. 34-8066 (April 28, 1967).
\29\ See Release No. 34-20784 (March 22, 1984), 49 FR 12688
(March 30, 1984).
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Since then, market globalization, advances in information
technology, the increased use of American Depositary Receipt (``ADR'')
\30\ facilities by foreign companies to sell their securities in the
United States,\31\ and other factors have increased significantly the
number of foreign companies that have engaged in cross-border
activities and sought listings in U.S. securities markets, as well as
increased the amount of U.S. investor interest in the securities of
foreign companies. For example:
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\30\ An ADR is a negotiable instrument that represents an
ownership interest in a specified number of securities, which the
securities holder has deposited with a designated bank depositary.
Use of an ADR facility makes it easier for a U.S. resident to
collect dividends in U.S. dollars. Moreover, because the clearance
and settlement process for ADRs generally is the same for securities
of domestic companies that are traded in U.S. markets, a U.S. holder
of an ADR is able to hold securities of a foreign company that
trades, clears and settles within automated U.S. systems and within
U.S. time periods.
\31\ For example, the number of ADR issues traded on the NYSE
increased from 134 in 1993 to 344 in 2004. During this same period,
the market capitalization of NYSE-traded ADRs nearly quadrupled. See
``Summary Data on NYSE-Listed Non-U.S. Companies'' located at http:/
/www.nyse.com/attachment/nonussum0916.xls.
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The number of foreign companies with Exchange Act
reporting obligations increased from approximately 300 in 1985 to over
1,200 in 2004; \32\
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\32\ See ``International Registered and Reporting Companies''
located at https://www.sec.gov/divisions/corpfin/internatl/
companies.shtml; see also The New Economy Handbook, Derek C. Jones,
editor, pp. 428-429 (2003).
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The number of foreign companies listed on the New York
Stock Exchange (``NYSE'') increased from 54, or approximately 3.5% of
the total number of NYSE-listed companies in 1985, to
[[Page 77690]]
460 or over 16% of the total number of NYSE-listed companies in 2004;
\33\ and
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\33\ See ``Stocks of non-U.S. Corporate Issuers'' located at
https://www.nysedata.com/factbook; see also ``Listed Company
Directory'' located at https://www.nyse.com/about/listed/listed.html.
A similar increase occurred on Nasdaq. See The New Economy Handbook
at p. 429.
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The average daily trading value of NYSE-traded foreign
securities increased from over $350 million, or over 5% of the total
value of NYSE-traded securities in 1991, to over $4.5 billion, or over
10% of the total value of NYSE-traded securities in 2000.\34\
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\34\ See ``NYSE Value of Trading--U.S. and non-U.S. Companies''
located at https://www.nyse.com/attachment/sumdolv051005.xls. In
September 2005, the average daily trading value of NYSE-traded
foreign securities was over 9% of the total value of NYSE-traded
securities.
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C. Concerns Regarding the Exchange Act Reporting Exiting Rules for
Foreign Private Issuers
Representatives of foreign companies and foreign industry
associations have recently voiced their concerns to the Commission
about the rules that govern whether a foreign private issuer may exit
the Exchange Act registration and reporting regime.\35\ These
representatives maintain that, due to the increased
internationalization of U.S. investor interest, the ``300 U.S. resident
shareholder'' standard has become outdated and too easily exceeded by a
foreign company that may have engaged in very little recent selling
activity in the United States. According to these representatives,
after a few years of listing its securities in the United States, a
foreign company may discover that there is little U.S. market interest
in its securities. Yet because it has not been able to reduce the
number of its U.S. shareholders to below 300, it must continue to incur
the costs of being an Exchange Act reporting company.
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\35\ See, for example, the letters from the Association
Francaise Des Entreprises Privees (``AFEP'') and other European
industry group representatives, dated February 9, 2004 and March 18,
2005 (the ``AFEP letters''), which we will make publicly available
on our Web site and in the Commission's Public Reference Room in its
Washington, DC headquarters, together with comment letters received
concerning this proposed rulemaking.
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These representatives have further criticized the exit rules'
reliance on the number of U.S. resident shareholders because, with the
advent of book-entry recording,\36\ it is difficult and costly to
arrive at an accurate count of a foreign company's U.S. resident
shareholders. These representatives also are critical of Rule 12h-3
because it merely suspends rather than permanently terminates a
company's section 15(d) reporting obligations. As such, years after
filing a Form 15, a foreign company may find that it has once again
exceeded the 300 U.S. resident shareholder threshold, and thereupon
again become subject to section 15(d) reporting duties, without regard
to its U.S. market activity.
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\36\ The last three decades have seen the development of a U.S.
clearance and settlement system that relies on electronic book-entry
to settle securities transactions and transfer ownership rather than
one dependent on the use of paper certificates. For an overview of
this development, see Release No. 33-8398 (March 11, 2004), 69 FR
12922 (March 18, 2004), the text surrounding n. 104. This movement
to electronic book-entry clearance and settlement systems has taken
place on a global basis as well, as both developed and developing
securities markets have sought to improve efficiency.
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Finally, these representatives disagree with the fact that our
current rule does not permit a foreign private issuer to obtain the
Exchange Act Rule 12g3-2(b) exemption \37\ if, during the previous 18
months, it has had a class of securities registered under section 12 or
a reporting obligation, suspended or active, under section 15(d) of the
Exchange Act.\38\
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\37\ 17 CFR 240.12g3-2(b). Rule 12g3-2(b) provides an exemption
from registration under section 12(g) with respect to a foreign
private issuer that submits to the Commission, on a current basis,
the home country materials required by the rule.
\38\ Exchange Act Rule 12g3-2(d)(1) (17 CFR 12g3-2(d)(1)). This
exception to the Rule 12g3-2(b) exemption does not apply to
registered Securities Act offerings filed by Canadian companies on
certain Multijurisdictional Disclosure System (``MJDS'') forms.
Exchange Act Rule 12g3-2(d) also precludes the Rule 12g3-2(b)
exemption to a foreign private issuer's securities issued to acquire
by merger or similar transaction an issuer that had securities
registered under section 12 or a reporting obligation, suspended or
active, under section 15(d), except for a transaction registered on
specified MJDS forms. See Exchange Act Rule 12g3-2(d)(2) (17 CFR
240.12g3-2(d)(2)).
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II. Discussion
A. Summary of the Proposed Rule Amendments
In light of the increased internationalization of the U.S.
securities markets that has occurred, we believe that it is time to
reconsider the rules allowing a foreign private issuer to exit the
Exchange Act registration and reporting regime. We propose to amend
Rules 12g-4 and 12h-3 to eliminate the provisions that primarily
condition a foreign private issuer's eligibility to cease its Exchange
Act reporting obligations on whether the number of its U.S. resident
security holders has fallen below the 300 or 500 person threshold. In
their place, we propose new Exchange Act Rule 12h-6 that would permit a
foreign private issuer that meets the conditions discussed below to
achieve the following:
Termination of the registration of a class of equity
securities under section 12(g) and its resulting section 13(a)
reporting obligations;
Permanent termination of its section 15(d) reporting
obligations regarding a class of equity securities; and
Permanent termination of its section 15(d) reporting
obligations regarding a class of debt securities.
A foreign private issuer would be eligible to terminate its
Exchange Act reporting obligations regarding a class of equity
securities under proposed Rule 12h-6 if it met the following
conditions:
The issuer has been an Exchange Act reporting company for
the past two years, has filed or furnished all reports required for
this period, and has filed at least two annual reports under section
13(a);
The issuer's securities have not been sold in the United
States in either a registered or unregistered offering under the
Securities Act during the preceding 12 months other than securities:
Sold to the issuer's employees;
Sold by selling security holders in non-underwritten
offerings;
Exempt from registration under section 3 of the Securities
Act, except section 3(a)(10); \39\ and
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\39\ 15 U.S.C. 77c(a)(10).
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Constituting obligations having a maturity of less than
nine months at the time of issuance and offered and sold in
transactions exempted from registration under section 4(2) of the
Securities Act; \40\ and
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\40\ 15 U.S.C. 77d(2).
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For the preceding two years, the issuer has maintained a
listing of the subject class of securities on an exchange in its home
country, as defined in Form 20-F,\41\ which constitutes the primary
trading market for the securities.
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\41\ 17 CFR 249.220f. Form 20-F General Instruction F defines
``home country'' as the jurisdiction in which the issuer is legally
organized, incorporated or established and, if different, the
jurisdiction where it has its principal listing.
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Rule 12h-6 would further permit a foreign private issuer seeking to
terminate its registration and reporting obligations regarding a class
of equity securities to meet one of a set of alternative benchmarks,
which are not based on a record holder count, and which depend on
whether the issuer is a well-known seasoned issuer.\42\ If a
[[Page 77691]]
well-known seasoned issuer, then a foreign private issuer could
terminate its Exchange Act registration and reporting obligations as
long as either:
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\42\ For purposes of Rule 12h-6 a ``well-known seasoned issuer''
means a well-known seasoned issuer as defined in Securities Act Rule
405 (17 CFR 230.405) that meets the requirements of paragraph
(1)(i)(A) of that definition. Under Rule 12h-6, therefore, a ``well-
known seasoned issuer'' must have a worldwide market value of its
outstanding voting and non-voting common equity held by non-
affiliates of $700 million or more, and must satisfy the other
requirements of the definition in Securities Act Rule 405 (for
example, the issuer must not be an ``ineligible issuer''). The time
of determination of well-known seasoned issuer status under Rule
12h-6 would be a date within 120 days of the filing of proposed Form
15F. Although Rule 405 also defines ``well-known seasoned issuer''
alternatively to mean an issuer that has registered a specified
amount of non-convertible securities other than equity over a three-
year period, that part of the definition is inapplicable under
proposed Rule 12h-6. Only the equity prong of the definition is
relevant for purposes of termination of registration and reporting
requirements under proposed Rule 12h-6. The proposed conditions that
would permit a foreign private issuer to terminate its section 15(d)
reporting obligations regarding a class of debt securities do not
distinguish between well-known seasoned issuers and other issuers.
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The U.S. average daily trading volume of the subject class
of securities has been no greater than 5 percent of the average daily
trading volume of that class of securities in its primary trading
market during a recent 12 month period, and U.S. residents held no more
than 10 percent of the issuer's worldwide public float \43\ at a date
within 60 days before the end of that same period; or
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\43\ The term ``public float'' refers to the outstanding voting
and non-voting equity securities held by an issuer's non-affiliates.
As proposed, when calculating the percentage of its worldwide public
float held by U.S. residents, an issuer would include in its
worldwide public float only the class or classes of equity
securities regarding which there is an Exchange Act reporting
obligation.
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Regardless of U.S. trading volume, U.S. residents held no
more than 5 percent of the issuer's worldwide public float at a date
within 120 days before the filing date of the Form 15F, which is the
form that a foreign private issuer would have to file to certify that
it meets the conditions for terminating its Exchange Act registration
and reporting obligations under proposed Rule 12h-6.
If not a well-known seasoned issuer, then a foreign private issuer
could terminate its Exchange Act registration and reporting obligations
regarding a class of equity securities as long as, regardless of U.S.
trading volume, U.S. residents held no more than 5 percent of the
issuer's worldwide public float at a date within 120 days before the
filing date of the Form 15F.
Under proposed Rule 12h-6, if a foreign private issuer is unable to
meet one of these proposed benchmarks, but satisfies the other
conditions of the rule, it could still terminate its Exchange Act
registration and reporting obligations regarding a class of equity
securities as long as that class of securities is held of record by
less than 300 persons on a worldwide basis or less than 300 persons
resident in the United States at a date within 120 days before the
filing date of the Form 15F.
A foreign private issuer would be eligible to terminate its section
15(d) reporting obligations regarding a class of debt securities under
proposed Rule 12h-6 if it met the following conditions:
The issuer has filed or furnished all required reports
under section 15(d), including at least one annual report pursuant to
section 13(a) of the Act; and
At a date within 120 days before the filing date of the
Form 15F the class of debt securities is either held of record by less
than 300 persons on a worldwide basis or less than 300 persons resident
in the United States.
Rules 12g-4 and 12h-3 currently require the filing of Form 15 by
which an issuer certifies that it meets the conditions for ceasing its
Exchange Act reporting obligations. Unlike Form 15, proposed new Form
15F would require a foreign private issuer to provide specified
information regarding several items that would enable investors to
obtain information regarding the issuer's decision to terminate its
Exchange Act reporting obligations. In addition, proposed new Form 15F
would help Commission staff to assess whether the issuer qualifies for
termination of its Exchange Act reporting obligations. As under current
Rules 12g-4 and 12h-3, the filing of Form 15F would automatically
suspend an issuer's reporting duties. If the Commission has not
objected, the suspension would become a permanent termination 90 days
after the filing of the Form 15F.\44\
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\44\ The Commission is also proposing to amend its delegated
authority rules to permit the Division of Corporation Finance to
accelerate the effectiveness of a Form 15F termination of reporting
sooner than the 90th day at the request of the issuer. See the
proposed amendment to 17 CFR 200.30-1(e). This delegation of
authority currently exists with respect to Form 15, although it is
rarely used.
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Proposed Rule 12h-6 would further require a foreign private issuer,
no later than fifteen business days prior to the filing of the Form
15F, to publish a notice, such as a press release, in the United States
that discloses its intent to terminate its section 13 reporting
obligations, and to submit a copy of the press release either under
cover of a Form 6-K, before or at the time of filing of the Form 15F,
or as an exhibit to the Form 15F.
Finally, we propose to amend Exchange Act Rule 12g3-2(d) to permit
a foreign private issuer to establish the Rule 12g3-2(b) exemption for
a class of equity securities that is the subject of a Form 15F
immediately upon the effectiveness of termination of Exchange Act
reporting pursuant to Rule 12h-6. As a condition to maintaining this
exemption, a foreign private issuer would have to publish in English
the home country materials required by Rule 12g3-2(b) on its Internet
Web site or through an electronic information delivery system that is
generally available to the public in its primary trading market.
We recognize that U.S. investors benefit from the investment
opportunities provided by the registration of foreign private issuers
with the Commission and listing and publicly offering securities in the
United States. The current exit process may serve as a disincentive to
foreign private issuers accessing the U.S. public capital markets
because of the burdens and uncertainties associated with terminating
registration and reporting under the Exchange Act. We believe that
these changes to the exit process for foreign private issuers, if
adopted, should provide those issuers with a meaningful option to
terminate their Exchange Act reporting obligations when, after electing
to access the U.S. public capital markets, they find a diminished level
of U.S. investor interest in their securities. As a result, foreign
private issuers should be more willing initially to register their
securities with the Commission when there is a clearly defined process
with more appropriate benchmarks by which they can terminate their
Exchange Act reporting obligations if after a period of time U.S.
investor interest is not significant relative to non-U.S. investor
interest.
In addition, we believe the conditions under proposed Rule 12h-6
are consistent with the interests of U.S. investors in other ways. The
two-year reporting and the one-year dormancy conditions are intended to
provide sufficient time periods of Commission reporting and of not
promoting U.S. investor interest through recent capital raising. The
conditions relating to trading on a non-U.S. securities exchange and
the benchmarks based on relevant U.S. public float and (for well-known
seasoned issuers) relative U.S. trading volume support our view that
foreign private issuers that would terminate Exchange Act reporting
under proposed Rule 12h-6 should be subject to an ongoing disclosure
and financial reporting regime, and have a significant market
following, in their home market. The conditions relating to the
publication of a press release or other notice, the filing of proposed
Form 15F, and the immediate availability of the exemption under Rule
12g3-2(b) promote transparency of the exit process as well as access by
U.S. investors to ongoing home country information
[[Page 77692]]
about issuers that terminate their Exchange Act reporting obligations.
B. Proposed Exchange Act Rule 12h-6
1. Purpose and Scope of Proposed Rule 12h-6
Like current Rule 12g-4, proposed Rule 12h-6 would permit a foreign
private issuer meeting specified criteria to terminate its registration
of a class of securities under section 12(g) and its corresponding
section 13 reporting obligations after filing a certification with the
Commission. However, unlike the current Exchange Act reporting exiting
regime, proposed Rule 12h-6 would also permit a foreign private issuer
to terminate permanently, rather than merely suspend, its reporting
obligations regarding a class of equity or debt securities, or both,
under section 15(d).
As discussed below, proposed Rule 12h-6 would permit termination of
Exchange Act registration and reporting regarding a class of a foreign
private issuer's equity securities for which U.S. investor interest is
small relative to non-U.S. investor interest, and the expected risk of
harm to U.S. investors of termination of registration and reporting is
low. Once a foreign company has met the proposed Rule 12h-6 criteria,
and taken the other necessary steps to effect termination of
reporting,\45\ we believe that it is unlikely that, following
termination of its reporting obligations, U.S. trading in the subject
class of securities would increase to such an extent as to justify
reimposing Exchange Act reporting obligations, and the proposed rule
would not do so.
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\45\ For example, a section 15(d) reporting company would have
to file a post-effective amendment to terminate the registration of
its remaining unsold securities under any of its Securities Act
registration statements.
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We have proposed to require a foreign company that terminates its
Exchange Act registration and reporting under Rule 12h-6 regarding a
class of equity securities to provide material home country documents
in English under Rule 12g3-2(b) on its Internet Web site or through an
electronic information delivery system that is generally available to
the public in its primary trading market.\46\ We believe that this
proposed ``home country disclosure'' requirement should provide
continued access to issuer information for U.S. investors that continue
to own the subject class of equity securities following a foreign
company's termination of Exchange Act registration and reporting.
Merely suspending a foreign company's section 15(d) reporting
obligations could discourage foreign companies from initially
registering their securities with the Commission and joining our
Exchange Act reporting system, to the detriment of investors in U.S.
securities markets.\47\
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\46\ Proposed Rule 12g3-2(e).
\47\ Representatives of foreign industry associations have
stated that the inflexibility of the current Exchange Act reporting
regime is one reason why their member companies are reluctant to
list in the United States at the present time. As an example of this
inflexibility, these representatives have stated the risk that a
foreign company with limited U.S. interest could withdraw from the
U.S. market only to become subject to renewed U.S. reporting because
U.S. investors have acquired its shares in its home market. See the
AFEP letter, dated February 4, 2004, at pp. 3-4.
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Proposed Rule 12h-6 would further permit a foreign private issuer
to terminate permanently its section 15(d) reporting obligations
regarding a class of debt securities as long as the issuer met
conditions similar to the current requirements for suspending its
reporting obligations under Rule 12h-3. One of these conditions would
require a foreign private issuer's debt securities to be held either by
less than 300 persons on a worldwide basis or by less than 300 U.S.
residents.\48\ Once the number of a foreign private issuer's debt
holders has fallen below either of these thresholds, we believe that it
is unlikely that the number of its debt holders would increase enough
to warrant reimposing Exchange Act reporting obligations. Moreover, by
providing a definite means of exiting the Exchange Act reporting
system, we would remove one possible disincentive for foreign companies
to register their debt securities with the Commission, to the benefit
of U.S. investors.
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\48\ See Part II.B.4 of this release for a discussion regarding
the proposed methodology for counting holders of securities.
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Comment Solicited
We solicit comment on the purpose and scope of proposed Rule 12h-6.
Should we permit a foreign company to terminate
permanently its section 15(d) reporting obligations regarding a class
of equity securities, as proposed?
Should we instead merely permit a foreign company to
suspend its section 15(d) reporting obligations regarding a class of
equity securities on the condition that those obligations would resume
once it no longer meets the criteria specified under proposed Rule 12h-
6?
If so, should we also merely suspend section 12(g)
reporting on the same grounds?
Should we permit a foreign company to terminate its
section 15(d) reporting obligations regarding a class of debt
securities, as proposed?
Should we prohibit a foreign company whose sole Exchange
Act reporting obligations arise from a class of debt securities under
section 15(d) to terminate those reporting obligations under proposed
Rule 12h-6?
Should we merely permit a foreign company to suspend its
section 15(d) reporting obligations regarding certain classes of debt
securities? If so, what classes of debt securities should we exclude
from the proposed Rule 12h-6 termination process?
Should we require a foreign company that has terminated
its Exchange Act reporting obligations under proposed Rule 12h-6 to
resume Exchange Act reporting if it reaches a certain number or
percentage of U.S. resident shareholders? If so, what number or
percentage of U.S. shareholders should trigger renewed Exchange Act
reporting?
Should we add additional conditions to proposed Rule 12h-
6, such as a requirement that the issuer self-tender for securities
held by U.S. residents?
Should proposed Rule 12h-6 require issuers to establish a
share-sale facility as a condition to termination of registration,
through which U.S. holders of securities would be able to dispose of
securities without incurring brokerage or other fees? If so, for what
period of time would an issuer be required to maintain such a
facility--one month, two months, or longer or shorter?
How frequently do foreign companies find that, after
filing Form 15, the number of their U.S. resident shareholders has
increased and exceeds the 300 U.S. resident shareholder threshold?
How unlikely is it that, once a foreign company has met
the proposed Rule 12h-6 criteria and taken the other steps to effect
termination of its reporting, U.S. trading or U.S. resident holdings in
the subject class of securities would increase to an extent that could
justify reimposing Exchange Act reporting obligations? How unlikely is
it that, once the number of a foreign private issuer's debt holders
drops below 300 persons on a worldwide basis or 300 U.S. residents, the
number of its debt holders would increase to an extent that could
justify reimposing Exchange Act reporting obligations?
2. Conditions for Equity Securities Registrants
a. The Two Year Exchange Act Reporting Condition
In order to be eligible to terminate its Exchange Act reporting
obligations regarding a class of equity securities
[[Page 77693]]
under proposed Rule 12h-6, a foreign private issuer must have been an
Exchange Act reporting company for the two years preceding its filing
of the Form 15F. It also must have filed or furnished all reports
required for this period.\49\ Proposed Rule 12h-6 would also provide
that an issuer must have filed at least two Exchange Act annual
reports.\50\
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\49\ See proposed Exchange Act Rule 12h-6(a)(1).
\50\ While typically a foreign private issuer would file its
Exchange Act annual report on Form 20-F, one that filed on the
domestic Form 10-K or on the MJDS Form 40-F would also potentially
qualify for termination under proposed Rule 12h-6.
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The purpose of this Exchange Act reporting condition is to provide
investors in U.S. securities markets with a reasonable period of time
to make investment decisions regarding a foreign private issuer's
securities based on the information provided in Exchange Act annual
reports and the interim home country materials furnished in English
under cover of Form 6-K.\51\ Without this Exchange Act reporting
condition, a foreign private issuer could conduct a U.S. registered
offering of equity securities under the Securities Act and then seek to
terminate its section 15(d) reporting duties in less than a year, after
filing an Exchange Act annual report.\52\ The value of securities of a
foreign issuer may be discounted, and the level of interest among U.S.
investors in such securities may be lowered, if U.S. investors are not
confident that the foreign private issuer will be subject to Exchange
Act reporting for a sufficient period of time. In addition, without
this condition, a foreign private issuer could promote U.S. investor
interest in its equity securities by listing on a U.S. stock market and
registering a class of securities under section 12(b) or section 12(g),
and then shortly thereafter terminate its registration without even
filing one Exchange Act annual report. Once a foreign private issuer
has elected to list equity securities or otherwise sell equity
securities publicly to investors in U.S. securities markets, we believe
that the issuer should have to provide Exchange Act reports for a
reasonable period of time to enable investors to discern trends about
and to otherwise evaluate their investment in the issuer. A balance of
prudence against the burden on a foreign private issuer that has
attracted limited U.S. investor interest leads us to propose setting
this requirement at two years.
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\51\ Under cover of a Form 6-K (17 CFR 249.306), a foreign
private issuer is required to furnish in English a copy of any
document that it publishes or is required to publish under the laws
of its home country or the requirements of its local exchange or
that it has distributed to shareholders, and which is material to an
investment decision.
\52\ For example, without this condition, a foreign private
issuer with a calendar year end could complete a Securities Act
registered offering late in the year, file its Form 20-F annual
report as soon as possible in the following year, and seek
termination of its section 15(d) reporting obligations under Rule
12h-6 after only a few months of reporting under the Exchange Act.
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Comment Solicited
We solicit comment on the proposed Exchange Act reporting
requirement.
Should we require a foreign private issuer to be an
Exchange Act reporting company for a specified period and to have filed
or furnished all reports required during that period before it can
terminate its reporting obligations regarding a class of equity
securities under proposed Rule 12h-6?
If so, should we set this Exchange Act reporting
requirement at two previous years, as proposed?
Should we require an issuer to have provided two Exchange
Act annual reports, as proposed?
Should we instead adopt a longer reporting period that
requires an issuer to have provided at least three Exchange Act annual
reports?
Should we adopt an Exchange Act reporting requirement that
covers a shorter period, such as one year, and requires a foreign
private issuer to have filed at least one Exchange Act annual report?
Or should we permit a foreign private issuer to terminate
its Exchange Act reporting obligations regarding a class of equity
securities under proposed Rule 12h-6 even if it has not yet filed one
Exchange Act annual report?
If we should impose an Exchange Act reporting requirement
under proposed Exchange Act Rule 12h-6, should this requirement relate
only to annual report filings under the Exchange Act and not to filings
or submissions on Form 6-K?
Should this requirement relate only to specified materials
likely to be filed or furnished on Form 6-K (such as annual reports to
shareholders, proxy statements and other materials relating to meetings
of shareholders, earnings releases, and interim period financial
statements), and if so, what should they be?
b. The One Year Dormancy Condition
Proposed Rule 12h-6 would require a foreign private issuer not to
have sold any securities in a registered offering in the United States
during the preceding 12 months, other than securities sold to its
employees and those sold by its selling security holders in non-
underwritten offerings, before it could terminate its Exchange Act
reporting obligations regarding a class of equity securities. The
purpose of this condition is to help ensure that Rule 12h-6 would only
be available to a foreign issuer when the U.S. securities markets have
relatively little interest and the issuer is not trying to create or
take advantage of such interest. A foreign company that has actively
engaged in U.S. capital raising efforts and sold securities to U.S.
investors relatively recently should not be permitted to exit the
Exchange Act reporting regime under Rule 12h-6 on the grounds that the
U.S. securities markets no longer represent as viable an option for
capital raising.
The proposed ``one year dormancy'' condition would further prevent
a foreign company from exiting the Exchange Act reporting system within
a year after it has conducted a U.S. registered offering under the
Securities Act and garnered investors who are entitled to the
protections afforded by our Exchange Act reporting regime. We have
excluded from this proposed dormancy period securities sold to a
foreign company's U.S. employees, since such sales are undertaken
primarily for purposes other than capital formation. Similarly, we have
excluded from this proposed dormancy period securities sold by a
foreign company's selling security holders in non-underwritten
offerings registered under the Securities Act since such sales are not
undertaken primarily for the benefit of the issuer.
The proposed condition would also prohibit a foreign company from
engaging in unregistered offerings in the United States, other than
securities sold to its employees, and securities exempt from
registration under section 3 of the Securities Act, except section
3(a)(10), during the previous 12 months.\53\ Our reasoning regarding an
issuer actively seeking U.S. investors would apply equally to
unregistered offerings. In addition, if we only proscribed registered
offerings, that condition could act as a disincentive to a foreign
private issuer to conduct a registered offering in the United States.
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\53\ This proposed condition would prohibit, for example, offers
and sales under section 4(2), Rule 144A and Rules 801 and 802 under
the Securities Act. The proposed condition would not prohibit offers
and sales effected under Regulation S since such offers and sales,
which occur outside the United States, are deemed to fall outside
the scope of Securities Act section 5. See Securities Act Rule 901
(17 CFR 230.901).
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We have generally excluded from the proposed one year dormancy
requirement securities exempt from registration under section 3 of the
Securities Act \54\ because, given their
[[Page 77694]]
exemptive nature and their limited role in capital formation, they do
not raise the same concerns as other securities transactions. We also
propose to exclude from the prohibition obligations having a maturity
at the time of issuance of less than nine months and exempted from
registration under section 4(2) of the Securities Act, on the theory
that so-called ``4(2) commercial paper'' is analogous for these
purposes to commercial paper exempt from registration under section
3(a)(3) of the Securities Act.\55\
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\54\ 15 U.S.C. 77c.
\55\ 15 U.S.C. 77c(a)(3).
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However, we have proposed to preclude the issuance of securities
pursuant to a court-approved scheme of arrangement under section
3(a)(10) of the Securities Act \56\ during the one year dormancy
period. Such schemes of arrangement typically possess characteristics
of registered offerings, including the solicitation of numerous U.S.
resident security holders.
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\56\ Foreign private issuers have frequently relied on
Securities Act section 3(a)(10) to effect acquisitions and corporate
restructurings. See, for example, Anglogold Limited no-action letter
(January 15, 2004) and Constellation Brands, Inc. no-action letter
(dated January 29, 2003). Section 3(a)(10) exempts from Securities
Act registration securities issued in an exchange pursuant to terms
that have been approved by a court or other governmental authority
following a hearing regarding their fairness in which all interested
parties have been given an opportunity to be heard. The exemption
does not apply to securities issued in a U.S. federal proceeding
under Title 11 of the United States Code.
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Comment Solicited
We solicit comment on the ``one year dormancy'' condition.
Is it appropriate to prohibit an issuer from selling
securities in the United States for a period preceding its termination
of Exchange Act reporting regarding a class of equity securities under
Rule 12h-6?
If so, should we adopt a one year dormancy period, as
proposed? Should the period be more than one year, for example, 18
months or two years? Should it be less than one year, for example,
three or six months?
If it is appropriate to adopt a dormancy condition, should
it prohibit both registered and unregistered offerings, as proposed?
Should it prohibit only registered offerings? If so, why should the
rule distinguish between registered and unregistered offerings?
Should the dormancy condition exclude from its prohibition
securities sold to an issuer's employees and those sold by its selling
security holders in registered, non-underwritten offerings, as
proposed? Should we distinguish between smaller security holders and
those who may have control or have other significant interests and sell
without ending their relationship with the issuer?
Should the dormancy condition exclude from its prohibition
securities exempted under Securities Act section 3 other than section
3(a)(10), as proposed? Should we exclude from the one year prohibition
securities issued under Securities Act section 3(a)(10) as well?
Should we exclude ``4(2) commercial paper'' from the
prohibition, as proposed?
Are there any other types of securities offerings that
should be excluded from the prohibition, for example, rights offers,
certain exchange offers, and offers under Securities Act Rule 144A?\57\
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\57\ 17 CFR 230.144A.
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Should the dormancy period for unregistered offerings only
extend to equity securities?
c. The Home Country Listing Condition
Proposed Rule 12h-6 would require a foreign private issuer to have
maintained a listing of the subject class of equity securities for the
preceding two years on an exchange in its home country. As proposed,
the term ``home country'' would have the same meaning as under Form 20-
F, which defines ``home country'' as the jurisdiction in which the
issuer is legally organized, incorporated or established and, if
different, the jurisdiction where it has its principal listing.\58\
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\58\ See Form 20-F General Instruction F.
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Proposed Rule 12h-6 would further require that a foreign private
issuer's home country constitutes its primary trading market. As
proposed, the term ``primary trading market'' would mean that at least
55 percent of the trading in the foreign private issuer's securities
took place in, on or through the facilities of a securities market in a
single foreign country during a recent 12 month period.\59\ Proposed
Rule 12h-6 would define ``recent 12 month period'' to mean a 12
calendar month period that ended no more than 60 days before the filing
date of the Form 15F.\60\
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\59\ Proposed Rule 12h-6(d)(6). We similarly used ``55 percent
of trading through the securities market facilities of a single
foreign country'' as one of the benchmarks for determining whether
there is substantial U.S. market interest for a foreign private
issuer's securities under Regulation S. See Securities Act Rule
902(j)(1)(ii) (17 CFR 230.902(j)(1)(ii)).
\60\ Proposed Rule 12h-6(d)(7).
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The purpose of this condition is to provide for a non-U.S.
jurisdiction that principally regulates and oversees the issuance and
trading of the issuer's securities and disclosure obligations by the
issuer to its investors. If the United States was the sole or principal
market for the foreign private issuer's securities, then the Commission
would have a greater regulatory interest in continuing to subject the
foreign company to the Exchange Act reporting regime. In contrast, if
55 percent or more of the average daily trading volume of the company's
securities occurred through the facilities of its home country
securities market, then there is a greater likelihood that the
principal pricing determinants for the company's securities are within
the jurisdiction of its home country regulator.\61\ There also is a
greater likelihood that the foreign company will be subject to a body
of reporting and other securities regulatory requirements in its home
jurisdiction. Consequently, for a company meeting these requirements,
there should be less interruption in the flow of material information
about the company once it exits the Exchange Act reporting system.
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\61\ This ``primary trading market'' requirement would also help
ensure that an issuer's foreign listing represents a significant
trading market for its equity securities rather than a listing on a
non-trading market such as the Luxembourg Stock Exchange.
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Comment Solicited
We solicit comment on the proposed ``home country listing''
condition.
Should we require that a company have maintained a listing
of the subject class of equity securities on an exchange in its home
country for the last two years, as proposed?
Do other countries have markets or facilities that are not
an ``exchange''? If so, should the listing requirement be satisified by
means of quoting the subject class of securities on foreign markets
operated other than as an exchange?
Should we impose a home country listing requirement that
is shorter than two years, say, one year? Should we impose a home
country listing requirement that is longer than two years? Should we
not impose a home country listing requirement at all?
Should the Commission's rule be sensitive to particular
characteristics of the listing market or the home country? If so, how
should this be accomplished?
Should we require that a foreign private issuer represent
that it is in compliance with the rules of, or otherwise in good
standing with, its home country securities regulator or listing
authority?
Should we require that a foreign private issuer's home
country constitutes its primary trading market, as proposed?
If so, should we require that 55 percent or more of the
average daily
[[Page 77695]]
trading volume of a foreign company's securities occurred through the
facilities of a single foreign country securities market during a
recent 12 month period, as proposed?
Should we require that a higher percentage, for example,
60 or 75 percent or a lower percentage, for example, 50 percent of the
average daily trading volume of a foreign company's equity securities
occurred through the facilities of its home country securities market
during a recent 12 month period?
Should we permit a foreign company to terminate its
Exchange Act reporting obligations regarding a class of equity
securities if the percentage of the average daily trading volume of its
securities that occurred in its home country market is less than 50
percent as long as that percentage when ag