Termination of a Foreign Private Issuer's Registration of a Class of Securities Under Section 12(g) and Duty To File Reports Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, 16934-16960 [E7-5947]

Download as PDF 16934 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 200, 232, 240 and 249 [Release No. 34–55540; International Series Release No. 1301; 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 13(a) or 15(d) of the Securities Exchange Act of 1934 Securities and Exchange Commission. ACTION: Final rule. pwalker on PROD1PC71 with RULES3 AGENCY: SUMMARY: We are adopting amendments to the rules that govern when a foreign private issuer may terminate the registration of a class of equity securities under section 12(g) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) and the corresponding duty to file reports required under section 13(a) of the Exchange Act, and when it may 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 U.S.-registered securities among United States investors. Moreover, currently a foreign private issuer can only suspend, and cannot terminate, a duty to report arising under section 15(d) of the Exchange Act. New Exchange Act Rule 12h–6 will permit a foreign private issuer of equity securities to terminate its reporting obligations under either section 13(a) or section 15(d) of the Exchange Act by meeting a quantitative benchmark designed to measure relative U.S. market interest for its equity securities that does not depend on a head count of the issuer’s U.S. security holders. The new rule will permit a foreign private issuer to compare the average daily trading volume of its securities in the United States with its worldwide average daily trading volume, using a 5 percent benchmark. The accompanying rule amendments will also help provide U.S. investors with ready access through the Internet on an ongoing basis to material information about a foreign private issuer of equity securities that is required by its home country after it has exited the Exchange Act reporting system. The new rule will also permit a foreign private issuer of debt securities to terminate, rather than merely VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 suspend, its section 15(d) reporting obligations. DATES: Effective Date: June 4, 2007. 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 are adopting amendments to 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 Exchange Act,5 and adding new Rule 12h–6 6 and Form 15F 7 under the Exchange Act. Table of Contents I. Executive Summary and Background A. Introduction B. Principal Comments Regarding the Reproposed Rule Amendments C. Summary of the Adopted Rule Amendments II. Discussion A. Conditions for Equity Securities Issuers 1. Quantitative Benchmarks a. Trading Volume Benchmark i. Calculation of the U.S. Trading Volume Benchmark as a Percentage of Worldwide Trading Volume Instead of Primary Trading Market Trading Volume ii. Inclusion of Off-Market Transactions in the Trading Volume Calculation iii. The 5 Percent Trading Volume Measure iv. Definition of Equity Securities v. One Year Ineligibility Period After Delisting vi. One Year Ineligibility Period After Termination of Sponsored ADR Facility vii. Transition Period b. Alternative 300-Holder Condition 2. Prior Exchange Act Reporting Condition 3. The One Year Dormancy Condition 4. Foreign Listing Condition B. Debt Securities Provision C. Revised Counting Method D. Expanded Scope of Rule 12h–6 1. Application of Rule 12h–6 to Successor Issuers 2. Application of Rule 12h–6 to Prior Form 15 Filers E. Public Notice Requirement F. Form 15F G. Amended Rules 12g–4 and 12h–3 H. Amendment Regarding the Rule 12g3– 2(b) Exemption 1. Extension of the Rule 12g3–2(b) Exemption Under Rule 12g3–2(e) 2. Electronic Publishing of Home Country Documents I. Concerns Regarding Securities Act Rule 701 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. 7 17 CFR 249.324. 2 17 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 III. Paperwork Reduction Act Analysis IV. Cost-Benefit Analysis V. Consideration of Impact on the Economy, Burden on Competition and Promotion of Efficiency, Competition and Capital Formation Analysis VI. Regulatory Flexibility Act Certification VII. Statutory Basis and Text of Rule Amendments I. Executive Summary and Background A. Introduction In December 2005, the Commission issued proposed amendments to its current rules governing when a foreign private issuer 8 may exit the Exchange Act reporting regime.9 Under the current rules, the primary determinant regarding whether a foreign private issuer may terminate its registration of a class of securities under section 12(g) 10 or suspend its reporting obligations under section 15(d) 11 is if its subject securities are held of record by less than 300 residents in the United States.12 The Commission proposed to amend these rules out of concern that, due to the increased globalization of securities markets in recent decades as well as other trends, it has become difficult for a foreign private issuer to exit the Exchange Act reporting system even when there is relatively little U.S. investor interest in its U.S.-registered securities.13 We recognize that U.S. investors benefit from the investment opportunities provided by foreign private issuers registering their securities with the Commission and listing and publicly offering those securities in the United States. However, because of the burdens and uncertainties associated with terminating registration and reporting under the Exchange Act, the current exit process may serve as a disincentive to foreign private issuers accessing the 8 See the definition of foreign private issuer at Exchange Act Rule 3b–4(c) (17 CFR 240.3b–4(c)). 9 Release No. 34–53020 (December 23, 2005), 70 FR 77688 (December 30, 2005) (Original Proposing Release). 10 This statutory section applies to equity securities only. See Exchange Act Section 12(g)(1) [15 U.S.C. 78l (g)(1)]. 11 15 U.S.C. 78o(d). The effectiveness of a registration statement under the Securities Act of 1933 (‘‘Securities Act’’) triggers Section 15(d) reporting obligations. That section 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 became effective. Section 15(d) does not permit an issuer to terminate, but only to suspend, its reporting obligations under that section. 12 Exchange Act Rules 12g–4(a)(2)(i) (17 CFR 240.12g–4(a)(2)(i)) and 12h–3(b)(2)(i) (17 CFR 240.12h–3(b)(2)(i)). 13 See Original Proposing Release, 70 FR at 77689–77690. E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations pwalker on PROD1PC71 with RULES3 U.S. public capital markets.14 In order to remove this disincentive, we proposed to amend the current Exchange Act exit rules for foreign private issuers. As originally proposed, new Exchange Act Rule 12h–6 would have permitted a foreign private issuer of equity securities to terminate its Exchange Act registration and reporting obligations if, among other conditions, it met one of a set of alternative quantitative benchmarks that, depending on whether the issuer was a well-known seasoned issuer (‘‘WKSI’’),15 was based either on a combination of U.S. trading volume and U.S. public float criteria or just U.S. public float data.16 However, numerous commenters stated that the originally proposed rules would still unduly restrict a significant portion of U.S.registered foreign private issuers from exiting the Exchange Act reporting regime, thus making it unlikely that the proposed rules would achieve their purpose of attracting more foreign companies to U.S. public capital markets. In light of these criticisms, we reconsidered our approach and, in December 2006, we reproposed the amendments to the Exchange Act exit rules for foreign private issuers.17 As an alternative to the record holder standard for equity securities issuers, we proposed a quantitative benchmark based solely on a comparison of the average daily trading volume of a foreign private issuer’s equity securities in the United States with that in its primary trading market. We reasoned that a standard based on trading volume may in fact be superior to the originally proposed standard, which was based 14 See Part I.C of the Original Proposing Release for a discussion of the concerns raised by foreign private issuers regarding the current Exchange Act exit regime. 15 For purposes of proposed Rule 12h–6, a ‘‘wellknown seasoned issuer’’ meant a well-known seasoned issuer as defined in Securities Act Rule 405 (17 CFR 230.405), which would have required the worldwide market value of an issuer’s outstanding voting and non-voting common equity held by non-affiliates to be $700 million or more. 16 Under the original rule proposal, a WKSI would have been eligible to terminate its Exchange Act reporting obligations regarding a class of equity securities if the U.S. average daily trading volume (‘‘ADTV’’) of the subject class of securities had been no greater than 5 percent of the ADTV 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 as of a specified date. A WKSI with greater than 5 percent U.S. ADTV or a non-WKSI would have been eligible for termination of reporting regarding a class of equity securities if, regardless of U.S. trading volume, U.S. residents held no more than 5 percent of the issuer’s worldwide public float as of a specified date. See Part II.B.2.d of Release No. 34–53020. 17 Release No. 34–55005 (December 22, 2006), 72 FR 1384 (January 11, 2007) (Reproposing Release). VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 primarily on a comparison of an issuer’s U.S. public float with its worldwide public float, because it is a more direct measure of the issuer’s nexus with the U.S. market and because trading volume data is easier to obtain than public float or record holder data.18 We concluded that, in applying an exit standard based on trading volume data for the U.S. and an issuer’s primary trading market, issuers would face reduced costs when determining whether they can terminate their registration and reporting obligations under the Exchange Act, compared to the originally proposed standards that would have required an issuer to assess the U.S. residence of its security holders.19 B. Principal Comments Regarding the Reproposed Rule Amendments We received 30 comment letters in response to the reproposed rule amendments.20 These letters represented the views of over 40 distinct entities, including business, financial and legal associations, foreign companies, financial advisory and accounting firms, law firms, and one foreign government. While the commenters generally strongly supported the trading volume-based approach and other aspects of the reproposed rules, many offered suggestions designed primarily to finetune those rules. We received the most comments concerning the reproposed trading volume benchmark for equity securities issuers. Numerous commenters urged us to adopt a quantitative benchmark that would require an issuer to measure its U.S. ADTV as a percentage of its ADTV for the same class of securities on a worldwide basis, rather than against its ADTV in its primary trading market, as reproposed. Many commenters also requested that we permit an issuer to include off-market transactions when calculating its worldwide ADTV for a class of equity securities, rather than only when calculating its U.S. ADTV, as reproposed. Some commenters further urged us to permit an issuer to include trades conducted through alternative trading systems when determining whether it meets the proposed trading volume benchmark. Still others 18 We reproposed the rule amendments primarily because the Commission did not fully address this trading volume approach in the Original Proposing Release. 19 See Parts II.A.1.a and IV of the Reproposing Release. 20 These comment letters, along with the letters received at the proposing stage, are available on the Commission’s Internet Web site, located at https:// www.sec.gov/rules/proposed/s71205.shtml, and in the Commission’s Public Reference Room in its Washington, DC headquarters. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 16935 requested that we increase the percentage in the trading volume-based measure to a percentage greater than 5 percent, as reproposed, particularly if we did not move to a worldwide ADTV standard. Commenters expressed concern or requested guidance regarding a number of other issues, including: • the appropriateness of the proposed provision that would prohibit reliance on the trading volume standard if an issuer has delisted its securities from a U.S. exchange during the preceding 12 months when its U.S. ADTV exceeded the 5 percent threshold; • the appropriateness of the proposed provision that would prohibit reliance on the trading volume standard if an issuer has terminated a sponsored American Depositary Receipts (ADR) facility 21 during the preceding 12 months, regardless of whether the issuer met the trading volume benchmark at the time of termination; • whether to include convertible debt and other equity-linked securities in the definition of equity security for purposes of the new exit rule; • whether a special financial report filed pursuant to Exchange Act Rule 15d–2 22 would constitute an Exchange Act annual report for the purpose of the reproposed prior reporting condition; • the appropriateness of the reproposed dormancy condition for equity securities registrants,23 including whether it would prohibit an issuer from conducting a registered offering in which an underwriter has agreed to a standby purchase commitment but only resells the purchased securities outside the United States; • the appropriateness of the reproposed foreign listing condition for equity securities registrants,24 including whether it should apply to an issuer relying on the alternative 300 holder provision of Rule 12h–6, and to an 21 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. 22 17 CFR 240.15d–2. 23 As reproposed, Rule 12h–6 would prohibit an equity securities registrant from selling its securities in the United States in a registered offering under the Securities Act, except for specified registered offerings, during the 12 months preceding the filing of its Form 15F. 24 As reproposed, Rule 12h–6 would require an equity securities issuer to have maintained a listing on an exchange in its primary trading market. E:\FR\FM\05APR3.SGM 05APR3 16936 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations issuer that delists from its non-U.S. exchange in connection with being acquired; • the role of a predecessor in determining a successor issuer’s eligibility to terminate its Exchange Act reporting obligations under reproposed Rule 12h–6, including whether, under Exchange Act Rule 12g–3(g),25 a successor issuer would have to file an Exchange Act annual report for the predecessor’s most recently completed fiscal year before it could terminate its reporting obligations under Rule 12h–6; • whether to permit a foreign company that filed a Form 15 previously to terminate or suspend its Exchange Act reporting obligations regarding a class of equity securities before the effectiveness of new Rule 12h–6 to terminate its reporting obligations under the new exit rule without having to recount its holders, as long as it meets that rule’s trading volume benchmark; • whether to increase the threshold number of record holders in the debt securities provision; and • whether an issuer that has filed a Form 15F 26 solely to terminate its reporting obligations regarding debt securities must wait until the effectiveness of that termination before it can submit an application for the Rule 12g3–2(b) exemption regarding a class of equity securities. pwalker on PROD1PC71 with RULES3 C. Summary of the Adopted Rule Amendments We have carefully considered commenters’ concerns regarding the reproposed rules, and have addressed many of them in the rule amendments that we are adopting today. As adopted, new Exchange Act Rule 12h–6 and the accompanying rule amendments will: • permit a foreign private issuer, regardless of size, to terminate its Exchange Act registration and reporting obligations regarding a class of equity securities, assuming it meets all the other conditions of Rule 12h–6, if, for a recent 12-month period, the U.S. ADTV of the subject class of securities has been no greater than 5 percent of its worldwide ADTV—rather than 5 percent of the ADTV in its primary trading market, as reproposed; • permit an issuer to include offmarket transactions, including transactions through alternative trading systems, when calculating its 25 17 CFR 240.12g–3(g). current Rules 12g–4 and 12h–3, which require the filing of Form 15, reproposed Rule 12h– 6 would require the filing of a form—Form 15F— by which an issuer would certify that it meets the conditions for ceasing its Exchange Act reporting obligations. worldwide ADTV for a class of equity securities—as discussed in connection with calculating its U.S. ADTV, as reproposed—as long as the trading volume information regarding the offmarket transactions is reasonably reliable and does not duplicate other trading volume information regarding the subject class of securities; • require an issuer to wait 12 months before filing its Form 15F in reliance on the trading volume standard if the issuer has delisted its class of equity securities from a national securities exchange or automated inter-dealer quotation system in the United States,27 or terminated a sponsored ADR facility and, at the time of delisting or termination, the U.S. ADTV of the subject class of securities exceeded 5 percent of its worldwide ADTV for the preceding 12 months; • retain the 300-holder standard as an alternative to the trading volume standard for an equity securities issuer and as the quantitative standard for a debt securities issuer, as reproposed; • exclude convertible debt and other equity-linked securities from the definition of equity security for the purpose of new Rule 12h–6’s trading volume provision; • require an equity securities registrant to have at least one year of Exchange Act reporting, be current in reporting obligations for that period, and have filed at least one Exchange Act annual report, as reproposed; • permit an issuer to count a special financial report filed pursuant to Exchange Act Rule 15d–2 as an Exchange Act annual report for the purpose of the new rule’s prior reporting condition; • prohibit an issuer of equity securities from selling securities in the United States in a registered offering under the Securities Act, except as specified, during the 12 months preceding the filing of its Form 15F (the ‘‘dormancy condition’’), substantially as reproposed; • require an issuer of equity securities to have maintained a listing of the subject class of securities for at least the 12 months preceding the filing of its Form 15F on one or more exchanges in a foreign jurisdiction that, either singly or together with the trading of the same class of the issuer’s securities in another foreign jurisdiction, constitutes the primary trading market for those securities, substantially as reproposed; • define primary trading market to mean that at least 55 percent of the trading in a foreign private issuer’s class of securities that is the subject of Form 15F took place in, on or through the facilities of a securities market or markets in a single foreign jurisdiction or in no more than two foreign jurisdictions during a recent 12-month period, as long as the trading in at least one of the two foreign jurisdictions is larger than the trading in the United States for the same class of the issuer’s securities; • permit an equity securities issuer relying on the alternative 300-holder standard, or a debt securities issuer, to use a revised counting method that limits the 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 one or two jurisdictions comprising the issuer’s primary trading market if different from the issuer’s jurisdiction of incorporation, legal organization or establishment, as reproposed; • permit an issuer of equity or debt securities to rely on the assistance of an independent information services provider when determining whether the issuer falls below the 300-holder standard, as reproposed; • permit a successor issuer meeting specified conditions to terminate its Exchange Act reporting obligations under new Rule 12h–6, as reproposed; 28 • permit a foreign private issuer that filed a Form 15 and suspended or terminated its Exchange Act reporting obligations under the current exit rules before the effective date of Rule 12h–6 to terminate its Exchange Act reporting obligations under new Exchange Act Rule 12h–6, as long as, if regarding a class of equity securities, the issuer meets Rule 12h–6’s listing condition and either the trading volume or alternative-300 holder condition or, if regarding a class of debt securities, the issuer meets the rule’s 300-holder condition for debt issuers; • extend the Rule 12g3–2(b) exemption to a foreign private issuer of equity securities, including a successor issuer and prior Form 15 filer, immediately upon its termination of reporting under Rule 12h–6, and require the issuer to maintain that exemption by publishing in English specified material home country documents required by 27 Neither the OTC Bulletin Board operated by Nasdaq nor the market operated by the Pink Sheets LLC are deemed to be automated inter–dealer quotation systems. See Release 33–6862 (April 23, 1999), n.22. 28 See Part II.D.1 of this release for clarification regarding the limited role of the predecessor in determining a successor issuer’s eligibility to terminate its Exchange Act reporting obligations under Rule 12h–6. 26 Like VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:\FR\FM\05APR3.SGM 05APR3 pwalker on PROD1PC71 with RULES3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations Rule 12g3–2(b) 29 on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market, as reproposed; • permit a non-reporting company that has received or will receive the Rule 12g3–2(b) exemption, upon application to the Commission and not pursuant to Rule 12h–6, to publish its ‘‘ongoing’’ home country documents required under Rule 12g3–2(b) on its Internet Web site or through an electronic information delivery system rather than submit them in paper to the Commission; and • permit an issuer that has filed a Form 15F to terminate its Exchange Act reporting obligations regarding a class of debt securities to establish the Rule 12g3–2(b) exemption for a class of equity securities upon the effectiveness of its termination of reporting under Rule 12h–6, by submitting an application for the Rule 12g3–2(b) exemption after filing its Form 15F. We are also adopting, as reproposed, procedural conditions that will: • require a foreign private issuer to file a Form 15F providing information with respect to whether the issuer meets the requirements for terminating its reporting obligations under Rule 12h–6; • automatically suspend an issuer’s Exchange Act reporting obligations upon the filing of its Form 15F and trigger a 90-day waiting period at the end of which, assuming the Commission has no objections, the suspension will become a termination of reporting; and • require a foreign private issuer to publish a notice, such as a press release, announcing its intention to terminate its Exchange Act reporting obligations under Rule 12h–6, before or at the time of filing its Form 15F. We believe the rules that we are adopting today provide meaningful protection of U.S. investors by permitting the termination of Exchange Act registration and reporting only by those foreign registrants with relatively low U.S. market interest in their U.S.registered securities. Compared to the current exit rules, Rule 12h–6 will establish a more clearly defined process with a more appropriate benchmark by which a foreign private issuer can terminate its Exchange Act reporting obligations. As a result, we believe foreign private issuers should be more willing initially to register their securities with the Commission, which will provide more investment choices for U.S. investors. 29 See Exchange Act Rule 12g3–2(b)(1)(iii) (17 CFR 240.12g3–2(b)(1)(iii)). VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 At the same time, we believe the conditions that determine a foreign private issuer’s eligibility to terminate its Exchange Act registration and reporting regarding a class of equity securities under new Rule 12h–6 will serve to protect U.S. investors. For example, the prior reporting condition 30 is intended to provide investors with at least one complete year’s worth of Exchange Act reports, including an annual report, upon which they can base their investment decisions about a particular foreign registrant before that registrant exits the Exchange Act reporting system. The dormancy condition is designed to deter a foreign private issuer’s promotion of U.S. investor interest through recent registered capital-raising shortly before exiting our reporting system. The one year reporting and dormancy conditions are consistent with the statutory requirements under section 15(d). The foreign listing condition and U.S. trading volume benchmark support our view that, before a foreign private issuer may terminate its Exchange Act reporting obligations under Rule 12h–6, it must have been subject to an ongoing disclosure and financial reporting regime, and have a significant market following, in its primary trading market. We have set the U.S. trading volume benchmark at such a level that, although there may be some U.S. investor interest in the subject securities of an issuer meeting the benchmark, that interest would appear to be sufficiently diminished so that a foreign private issuer should not be required to continue its Exchange Act reporting if it determines that it is no longer desirable to continue as a U.S. registrant. The condition restricting the ability of an issuer to rely on the trading volume standard under specified circumstances (U.S. delisting and termination of a sponsored ADR facility) should deter an issuer from excluding U.S. investors, particularly retail investors, from investing in their securities when U.S. market interest is still significant. The immediate availability of the exemption under Rule 12g3–2(b) will foster access by U.S. investors to ongoing home country information about an issuer after it terminates its Exchange Act registration and reporting under Rule 12h–6. Finally, the conditions relating to the filing of Form 15F and the publication of a press release or other notice will promote transparency in the exit process. 30 See PO 00000 p. 12 and Part II.A.2 of this release. Frm 00005 Fmt 4701 Sfmt 4700 16937 II. Discussion A. Conditions for Equity Securities Issuers 1. Quantitative Benchmarks a. Trading Volume Benchmark As adopted, new Exchange Act Rule 12h–6 will enable a foreign private issuer of equity securities, regardless of size, to qualify for termination of its Exchange Act reporting by meeting a quantitative benchmark provision that does not depend on the number of its U.S. record holders or the percentage of its securities held by those holders. Under new Rule 12h–6, an issuer will be able to terminate its Exchange Act registration and reporting obligations regarding a class of equity securities, assuming it meets the other conditions of Rule 12h–6, if the ADTV of the subject class of equity securities in the United States has been 5 percent or less of the ADTV of that class of securities on a worldwide basis during a recent 12-month period.31 This trading volume benchmark is substantially similar to the reproposed standard, except that the adopted benchmark requires an issuer to measure its U.S. ADTV as a percentage of its worldwide ADTV rather than the ADTV in its primary trading market. A threshold matter in this regulatory initiative has been what is the most appropriate benchmark for equity securities that would best serve the interests of investors and issuers, and most commenters addressed this issue. Most of the commenters agreed that a benchmark based solely on trading volume is superior to one based on a combination of U.S. public float and trading volume criteria or just U.S. public float data, as under the originally proposed Rule 12h–6, or one based on the number of record holders in the United States or on a worldwide basis, as under the current exit rules. Most commenters stressed that trading volume data is easier to obtain and confirm than is the data required for a U.S. public float or record holder determination.32 As commenters have noted, it is difficult for a reporting foreign private issuer to determine accurately the specific country of residence of its investors.33 Because a public float benchmark would require such a determination to varying degrees, most commenters agreed with our conclusion that the reproposed trading 31 New Exchange Act Rule 12h–6(a)(4)(i) (17 CFR 240.12h–6(a)(4)(i)). 32 See, for example, the letter, dated February 12, 2007, from Cleary Gottlieb, Steen & Hamilton LLP (Cleary Gottlieb). 33 See the comment letters discussed in Part II.A.1.a of the Reproposing Release. E:\FR\FM\05APR3.SGM 05APR3 16938 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations volume-based benchmark should result in reduced costs to issuers in determining whether they can terminate their Exchange Act reporting obligations.34 Some commenters supported the reproposed trading volume measure because it would provide a simple and clear measure of the degree of U.S. market interest in an issuer’s equity securities.35 Some commenters expressed the view that basing the new exit rule on a trading volume measure would help ensure that an issuer’s termination of Exchange Act registration and reporting would not have a significant impact on the primary pricesetting determinants of an issuer’s equity securities, which would allow for U.S. investors to trade in that issuer’s securities following its U.S. deregistration.36 Commenters expressed their belief that adoption of the reproposed trading volume standard would enable significantly more foreign private issuers to exit the Exchange Act reporting regime if they so desire.37 Consequently, as one commenter indicated, by removing restrictions regarding the ability to exit U.S. securities markets, adoption of new Rule 12h–6 and the accompanying amendments will have a major impact on the perception that foreign companies have of those markets, making the U.S. capital markets ‘‘much more attractive and competitive on an international scale.’’38 For the above reasons, we are adopting a quantitative exit standard for equity securities registrants based solely on trading volume instead of one based on a combination of trading volume and public float criteria or just public float data. We also are adopting, as reproposed, one trading volume standard that will apply to all issuers of equity securities. Commenters generally supported having one benchmark applicable to any foreign private issuer, regardless of size.39 Although we originally proposed a set of quantitative benchmarks that depended primarily on whether an issuer was a WKSI, we are pwalker on PROD1PC71 with RULES3 34 See, for example, the letter, dated February 12, 2007, from the European Association for Listed Companies and other signatories (EALIC). 35 See, for example, the letter, dated February 12, 2007, from Sullivan & Cromwell LLP (Sullivan & Cromwell) and the letter, dated January 2, 2007, from Galileo Global Advisors (Galileo). 36 See, for example, the letter from Cleary Gottlieb. 37 See, for example, the letter, dated February 12, 2007, from the European Commission. 38 See the letter from Cleary Gottlieb. 39 See, most recently, the letter, dated February 23, 2007, from the American Bar Association, Section of Business Law (ABA). VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 adopting the same trading volume standard for a smaller issuer as for a larger issuer in order to provide increased flexibility and simplification to the Exchange Act deregistration regime, and for the other reasons discussed in the Reproposing Release.40 i. Calculation of the U.S. Trading Volume Benchmark as a Percentage of Worldwide Trading Volume Instead of Primary Trading Market Trading Volume Numerous commenters requested that the Commission calculate U.S. trading volume as a percentage of worldwide trading volume rather than as a percentage of ADTV in the issuer’s primary trading market,41 as reproposed.42 The primary rationale for this request is that, with the increased globalization of securities markets, many issuers now trade on multiple non-U.S. markets. According to these commenters, since the goal of the reproposed trading volume benchmark is to determine the relative importance of the U.S. trading market for an issuer’s securities, an issuer should be able to take into account all non-U.S. trading in its securities, and not just the trading that has occurred in the one or two jurisdictions comprising its primary trading market.43 Some commenters maintained that, while it is reasonable to base Rule 12h– 6’s foreign listing condition on the reproposed primary trading market definition, it is not so for the trading volume benchmark.44 As discussed below, the purpose of the foreign listing condition is to help assure that there is 40 For example, a trading volume standard that favored WKSIs could discourage smaller foreign companies from entering U.S. public capital markets, to the detriment of U.S. investors. Moreover, commenters at the proposing stage noted that the costs of continued Exchange Act reporting fall disproprotionately on smaller issuers. See Part II.A.1.a of the Reproposing Release. 41 As discussed in Part II.A.4 of this release, we define primary trading market to mean that at least 55 percent of the trading in a foreign private issuer’s subject class of securities took place in, on or through the facilities of a securities market or markets in a single foreign jurisdiction or in no more than two foreign jurisdictions during a recent 12-month period. If an issuer aggregates the trading in two foreign jurisdictions, the trading market for the issuer’s securities in at least one of the two foreign jurisdictions must be larger than the United States trading market for the same class of the issuer’s securities. We proposed a substantially similar definition at the reproposing stage. 42 See, for example, the letter, dated February 8, 2007, from BusinessEurope, the letters, dated February 12, 2007, from Davis Polk & Wardwell (Davis Polk), Linklaters, and Makinson Cowell, and the letters from Cleary Gottlieb, EALIC, and the EU. In contrast, only one commenter opposed using worldwide trading volume. See the letter from Galileo. 43 See the letters from Cleary Gottlieb and EALIC. 44 See the letter from Linklaters. PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 a non-U.S. jurisdiction that principally regulates and oversees the issuance and trading of the issuer’s securities and the issuer’s disclosure obligations to investors.45 Limiting the definition of primary trading market in this context to no more than two jurisdictions helps to further the purpose of the foreign listing condition. In contrast, the purpose of the trading volume benchmark is to measure the relative U.S. market interest in a foreign private issuer’s equity securities. Accounting for as much of the issuer’s trading as is reasonably possible would further the purpose of this rule. We agree that, in light of the number of foreign registrants that have listings in more than two jurisdictions, and given the purpose of the trading volume benchmark, measuring an issuer’s U.S. ADTV as a percentage of its worldwide ADTV would increase the likelihood of obtaining a more accurate measure of relative U.S. market interest for that issuer’s equity securities. Therefore, we are adopting a trading volume benchmark for new Rule 12h–6 that will require an issuer to use as the denominator of its trading volume calculation its worldwide ADTV for the subject class of securities.46 ii. Inclusion of Off-Market Transactions in the Trading Volume Calculation We reproposed to require an issuer to include both transactions occurring on a stock exchange and over-the-counter trades for the purpose of calculating U.S. ADTV for the numerator of the trading volume benchmark, but to include only on-exchange transactions for the purpose of calculating its ADTV for the denominator (its primary trading market, as reproposed). We did so based on our belief that trading volume information about over-the-counter trades was more readily available in the United States than in many foreign jurisdictions. Numerous commenters 47 urged the Commission to permit an issuer to include ‘‘off-market’’ transactions when determining whether it meets the 5 45 See Part II.A.4 of this release. ADTV includes U.S. ADTV. Some commenters favored a trading measure based on the dollar value of shares traded rather than on the number of shares traded. See the letter, dated February 12, 2007, from Ziegler, Ziegler and Associates (Ziegler) and the letter from Galileo. We decline to adopt a trading value measure because we believe that it would add an unnecessary level of complexity and cost to the non-record holder determination. 47 See the letters from BusinessEurope, Cleary Gottlieb, Davis Polk, EALIC, the EU, Makinson Cowell, and Sullivan & Cromwell, and the letters, dated February 12, 2007, from the International Bar Association and Skadden Arps Slate Meagher & Flom (Skadden Arps). 46 Worldwide E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations pwalker on PROD1PC71 with RULES3 percent trading volume standard, rather than just transactions occurring on a stock exchange, as reproposed. These commenters maintained that it was inappropriate to require an issuer to include both on-exchange and offexchange transactions when calculating its U.S. ADTV but not when calculating its worldwide trading volume. As noted by some of these commenters, members of Euronext markets are currently required to report off-market transactions.48 Moreover, some commenters noted that an EU Directive,49 scheduled for effectiveness in November 2007, will generally require the reporting of off-market transactions, which will make information regarding off-market transactions generally available in Europe the same way that such information is available through a transaction reporting plan in the United States.50 Some of these commenters urged the Commission to permit an issuer to include not only off-market transactions that currently occur through traditional over-the-counter means, but those that may occur through alternative trading systems.51 According to these commenters, MiFID will encourage the development of such trading systems.52 These commenters stated that, as long as trading information is credible and the sources reliable, an issuer should be able to include information about securities transactions regardless of the platform on which they occur.53 Some commenters requested that, if the Commission does not permit an issuer to include off-market transactions when determining its worldwide trading volume for the denominator of its trading volume calculation, it should also prohibit the inclusion of off-market transactions when determining its U.S. ADTV for the numerator of that calculation.54 In contrast, one commenter, which favored a worldwide trading volume measure, expressly requested that the Commission prohibit the inclusion of off-market transactions for both the numerator and denominator because of the difficulty of obtaining over-the-counter trading information.55 48 See, for example, the letter from Cleary Gottlieb. 49 Directive 2004/39/EC, also known as the Market in Financial Instruments Directive (MiFID). 50 See the letters from Cleary Gottlieb, the EU, and BusinessEurope. 51 See the letters from the EU and Davis Polk. 52 See, for example, the EU letter. 53 See, for example, the letter from Davis Polk. 54 See the letters from BusinessEurope and the EU. 55 See the letter from Skadden Arps. VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 These comments have persuaded us that, for at least some foreign private issuers, information regarding offexchange transactions in non-U.S. jurisdictions will be readily obtainable. Therefore, under adopted Rule 12h–6, when making its trading volume determination, an issuer must include in its calculation of U.S. ADTV both onexchange and off-exchange transactions, as reproposed. For both on-exchange and off-exchange transactions in the United States, we expect an issuer to be able to obtain relevant trading volume information as reported pursuant to an effective transaction reporting plan,56 pursuant to NASD rules,57 or reported by a national securities exchange otherwise than pursuant to an effective transaction reporting plan. In addition, an issuer may include in its calculation of worldwide ADTV off-market transactions, including transactions conducted through alternative trading systems, in addition to transactions occurring on an exchange, as long as an issuer has obtained the information concerning the off-market transactions from publicly available sources or thirdparty information service providers, upon which the issuer has reasonably relied in good faith, and as long as the off-market transaction information does not duplicate any other trading volume information obtained. In response to our request for comments on whether issuers should be required to obtain trading volume data from particular sources, a number of commenters advocated that the final rules provide issuers with sufficient flexibility to use such data sources as they deem reliable and appropriate.58 The adopted rules do not specify any particular data sources that issuers must use to determine either its U.S. or worldwide trading volume. In this respect, when obtaining information concerning either onexchange or off-exchange transactions, issuers will have the latitude to use market data vendors or other commercial service providers and publicly available sources of market information that they reasonably believe 56 Rule 601 of Regulation NMS (17 CFR 242.601) requires every national securities exchange to file a transaction reporting plan regarding transactions in listed equity and Nasdaq securities. 57 See, for example, NASD Manual Rule 6600 et seq. for rules regarding recording and reporting transactions in OTC Equity Securities. A member broker-dealer must report information concerning OTC trades not involving a listed security, including a Nasdaq security, under the NASD rules rather than pursuant to a transaction reporting plan since the latter only covers unlisted transactions involving listed (and Nasdaq) securities. 58 See, for example, the letters from Cleary Gottlieb and EALIC. PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 16939 to be reliable and that do not duplicate trading volume information obtained from other sources, such as various exchanges or markets.59 Issuers will be required to disclose their trading volume data sources on Form 15F, which will inform investors of the data sources used.60 iii. The 5 Percent Trading Volume Measure Commenters expressed a variety of views on whether 5 percent U.S. ADTV was the appropriate threshold for the trading volume benchmark. Although some commenters requested that the Commission increase the percentage to 10 percent ADTV,61 many others supported the 5 percent threshold.62 Moreover, some of the commenters that requested an increase to 10 percent did so only if the Commission decided not to adopt a world-wide trading based benchmark.63 We believe that adoption of the ‘‘5 percent of worldwide trading volume’’ standard will permit foreign companies with relatively little U.S. market interest to deregister.64 Moreover, by permitting an issuer to include both on-exchange and off-exchange transactions when calculating its worldwide ADTV, we have addressed the concerns of commenters who suggested the 5 percent threshold could be too low to achieve the rule’s purpose of reducing the disincentive to U.S. registration that may be caused by the current exit regime. iv. Definition of Equity Securities We reproposed that, for purposes of new Rule 12h–6, an issuer would use the definition of equity security provided in Exchange Act Rule 3a11– 1.65 That provision includes equitylinked securities, such as convertible debt securities and warrants, within the definition of equity security. Several commenters 66 requested that the Commission exclude equity-linked securities from the definition of equity 59 See Instruction 3.c to Item 4 of Form 15F. Item 4.F of Form 15F. 61 See the letter, dated February 9, 2007, from SGL Carbon, the letter, dated February 12, 2007, from Fried Frank Harris Shriver & Jacobson (Fried Frank), and the letter from Skadden Arps. Another commenter requested an increase to 15 percent. See the letter from i-CABLE Communications Ltd. (iCABLE). 62 See the letters from Cleary Gottlieb, EALIC, Galileo, Sullivan & Cromwell, and the New York State Society of Certified Public Accountants (NYSSCPA). 63 See the letters from the ABA, BusinessEurope, and Linklaters. 64 See Part III, n. 191 of this release. 65 17 CFR 240.3a11–1. 66 See the letters from BusinessEurope, the EU, EALIC and Cleary Gottlieb. 60 See E:\FR\FM\05APR3.SGM 05APR3 16940 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations security on the grounds that trading volume information for equity-linked securities is difficult to obtain. One commenter suggested using instead the definition of equity security provided in the Securities Act cross-border rules, which explicitly excludes convertible debt and other equity-linked securities.67 We agree with those commenters that, because trading volume information concerning convertible debt and other equity-linked securities is more difficult to obtain than trading volume information for the underlying equity securities, an issuer should not have to include equity-linked securities when determining whether it meets the trading volume benchmark. The same reasoning applies to an issuer’s determination concerning the foreign listing condition, which requires an issuer to meet the definition of primary trading market, which is a trading volume-based definition.68 Therefore, we are adopting a definition of equity security that is based on Rule 3a11–1, except that, for purposes of the trading volume and foreign listing provisions of Rule 12h–6, the definition explicitly excludes: • any debt security that is convertible into an equity security, with or without consideration; • any debt security that includes a warrant or right to subscribe to or purchase an equity security; • any such warrant or right; or • any put, call, straddle, or other option or privilege that gives the holder the option of buying or selling a security but does not require the holder to do so.69 v. One Year Ineligibility Period After Delisting pwalker on PROD1PC71 with RULES3 We are adopting, substantially as proposed, a condition to the use of Rule 12h–6’s trading volume standard and corresponding eligibility to file Form 15F. This condition provides that if a foreign private issuer has had its equity securities delisted from a registered national securities exchange or automated inter-dealer quotation system within one year before filing the Form 15F, it must have satisfied the trading volume percentage as of the date of delisting, as measured over the 12 67 See the letter from Cleary Gottlieb, which cites Securities Act Rule 800(b) (17 CFR 230.800(b)). 68 See Part II.A.4 of this release. 69 New Exchange Act Rule 12h–6(f)(3) (17 CFR 240.12h–6(f)(3)). These are the same categories of securities excluded from the definition of equity security under Securities Act Rule 800(b). VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 months preceding the date of delisting.70 Under this condition: • a listed foreign private issuer that satisfied the trading volume condition will be able to delist from its stock exchange and terminate its Exchange Act registration and reporting obligations concurrently; and • a listed foreign private issuer that did not satisfy the trading volume condition will be able to delist but will not be eligible to file a Form 15F and terminate its Exchange Act registration and reporting obligations until one year after the date of delisting, assuming that, at that time, it meets the conditions of the rule.71 We are adopting this condition in order to prevent the new trading volume-based rule from creating an incentive for a foreign private issuer to delist its securities from a U.S. exchange for the purpose of decreasing its U.S. trading volume. As one commenter suggested early on, if we were to adopt a standard based solely on trading volume, a foreign private issuer that delisted its securities from a U.S. exchange before its trading volume fell below the applicable percentage should not be eligible to terminate its registration under such a standard.72 A few commenters requested that the Commission remove this delisting condition on the grounds that it imposed a restraint on the use of the new exit rule that was not necessary for the protection of U.S. investors.73 We agree that companies should not be unnecessarily restricted in choosing the markets on which their securities are listed. Thus, we do not believe that delisting from a U.S. exchange should result in an automatic bar against a foreign private issuer from using the new exit rule. Nonetheless, we share the 70 New Exchange Act Rule 12h–6(b)(1) (17 CFR 240.12h–6(b)(1)). We previously proposed to codify this delisting requirement, along with a similar requirement concerning termination of a sponsored ADR facility, as Notes to paragraph (a)(4) of reproposed Rule 12h–6. We have restructured final Rule 12h–6 to provide for these requirements in a separate paragraph and have changed the paragraph numbering of the adopted rule accordingly. As adopted, Rule 12h–6(b) does not apply to issuers terminating their reporting obligations under either Rule 12h–6(d) (the successor issuer provision) or Rule 12h–6(i) (the prior Form 15 filer provision). 71 For example, an issuer that failed to meet the trading volume standard at the date of delisting would have to meet the trading volume standard one year later when filing its Form 15F. If, notwithstanding its delisting, an active U.S. overthe-counter market in the company’s securities continued, the company would not be eligible to use Rule 12h–6 and file a Form 15F in reliance on the trading volume benchmark. 72 See the letter, dated February 9, 2004, from Cleary Gottlieb. 73 See the letters from Galileo, Makinson Cowell and SGL Carbon. PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 concern about possible negative impacts on U.S. investors stemming from a measure based solely on trading volume. Moreover, by requiring companies to remain registered and reporting under the Exchange Act for a period of time after delisting when, before delisting, the company had a relatively active U.S. market for its securities, U.S. investors will have access to information prepared in accordance with the Commission’s financial reporting and disclosure requirements for a period of time during which, most likely, the U.S. market will be diminishing. Accordingly, we are adopting the delisting condition substantially as proposed.74 vi. One Year Ineligibility Period After Termination of Sponsored ADR Facility As part of the rule reproposal, we proposed an additional condition to an issuer’s use of Rule 12h–6 and eligibility to file Form 15F in reliance on the trading volume provision. That condition provided that a foreign private issuer must not have terminated any sponsored ADR facility within the 12 month period before filing its Form 15F. We proposed that condition in order to encourage foreign private issuers to maintain their ADR facilities, even after they delist from a U.S. market and terminate their Exchange Act reporting obligations. After a foreign private issuer delists and deregisters, investors will benefit if its ADRs continue to be traded in the over-the-counter market in the United States. The termination of ADR facilities has a detrimental impact on holders, imposing fees and other charges on investors and, when investors are cashed out, subjecting investors to unplanned tax consequences and limiting their investment choices.75 In addition, the termination of ADR facilities will limit the ability of many U.S. investors to effect transactions in 74 Some commenters requested that we exempt from the delisting condition an issuer that has been involuntarily delisted. See, for example, the letter, dated February 22, 2007, from Cravath, Swaine & Moore (Cravath). We decline to do so since such an exemption could encourage an issuer not to comply with exchange standards in order to get delisted. 75 When an issuer terminates its ADR facility, the holders of ADRs generally have the option to make arrangements to hold the underlying securities directly. However, if holders are unable or unwilling to make these arrangements, or to pay the costs associated with these arrangements, the holders will have their investment cashed out, that is, the underlying securities will generally be sold into the home market and the net proceeds (after deducting fees and expenses of the selling broker and the depositary bank) remitted to the former ADR holders. E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations the securities of the subject foreign company. Some commenters opposed the ADR facility termination condition on grounds similar to those raised against the delisting condition. However, these commenters also objected to the fact that, unlike the delisting condition, the proposed ADR facility condition applied regardless of whether, at the time of termination of its ADR facility, an issuer met the trading volume threshold measured for the previous 12 months.76 One commenter stated that adoption of the reproposed condition could dissuade issuers from sponsoring ADR programs, to the detriment of U.S. investors.77 We continue to believe that, due to the importance of ADR facilities for U.S. investors, a sponsored ADR facility termination condition is appropriate. However, we agree with commenters that the importance of this concern significantly diminishes if, at the time of its termination of a sponsored ADR facility, an issuer’s U.S. ADTV has already fallen below the trading volume threshold. Therefore, we are adopting a condition providing that, if an issuer has terminated a sponsored ADR facility, and at the time of termination the average daily trading volume in the United States of the ADRs exceeded 5 percent of the average daily trading volume of the underlying class of securities on a worldwide basis for the preceding 12 months, the issuer must wait 12 months before it may file a Form 15F to terminate its Exchange Act reporting obligations in reliance on Rule 12h–6’s trading volume provision.78 We are also clarifying that, for purposes of Rule 12h–6’s trading volume provision, an issuer must calculate the trading volume of its ADRs in terms of the number of securities represented by those ADRs.79 pwalker on PROD1PC71 with RULES3 vii. Transition Period In connection with our reproposal of Rule 12h–6, we solicited comment on whether the proposed delisting and ADR termination conditions should apply to a foreign private issuer that delisted its equity securities from a U.S. exchange or terminated a sponsored 76 See, for example, the letter, dated February 12, 2007, from the New York State Bar Association (N.Y. State Bar), and the letters from the ABA and Linklaters. 77 See the letter from the N.Y. State Bar. 78 New Exchange Act Rule 12h–6(b)(2) (17 CFR 240.12h–6(b)(2)). 79 Note to paragraph (a)(4) of Rule 12h–6. Typically the ratio defining the number of common or ordinary shares underlying each ADR is included as part of the deposit agreement or in an exhibit to that agreement. VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 ADR facility before the effective date of the new exit rule. One commenter 80 requested that neither provision apply to an issuer that delisted or terminated a sponsored ADR facility before December 13, 2006, which is the date of the open meeting at which the Commission voted to repropose Rule 12h–6 and the accompanying rule amendments. We agree that, in the interests of fairness, an issuer should not be precluded from relying on Rule 12h–6’s trading volume provision because it delisted or terminated a sponsored ADR facility before the Commission had even proposed to make those acts meaningful to the application of Rule 12h–6. However, we believe that March 21, 2007 should be the dispositive date since, on that date, the Commission voted to adopt the delisting and ADR termination conditions, thus making definite its intent that those conditions apply to Rule 12h–6’s trading volume provision. Therefore, a foreign private issuer that, before March 21, 2007, delisted a class of equity securities from a national securities exchange or inter-dealer quotation system in the United States or terminated a sponsored ADR facility, may file a Form 15F in reliance on Rule 12h–6’s trading volume provision even if, at the time of delisting or termination, its U.S. ADTV exceeded 5 percent of the ADTV of that class of securities on a worldwide basis for the preceding 12 months. b. Alternative 300-Holder Condition We are adopting, substantially as reproposed, an alternative to the trading volume benchmark provision, which will permit a foreign private issuer to terminate its Exchange Act reporting obligations regarding a class of equity securities if it has less than 300 record holders on a worldwide basis or who are U.S. residents as long as the issuer meets the rule’s other conditions.81 The purpose of this alternative 300-holder condition is to enable an issuer to terminate its Exchange Act reporting obligations if it cannot satisfy the new trading volume benchmark but does meet the current 300-holder standard. Otherwise, an issuer could find itself worse off under Rule 12h–6 than under the current exit rules.82 80 See the letter from the ABA. Exchange Act Rule 12h–6(a)(4)(ii) (17 CFR 240.12h–6(a)(4)(ii)). 82 We did not originally propose or repropose a similar 500 record holder condition, although one exists in the current rules for a small issuer with total assets that have not exceeded $10 million for its most recent three fiscal years. Based on current experience, most foreign private issuers have not 81 New PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 16941 The adopted alternative record holder condition is substantially the same as the proposed and reproposed condition. Although at the proposing stage, some commenters requested that the Commission significantly raise the 300holder threshold in both the Exchange Act exit and entrance rules, and a few made a similar request at the reproposing stage,83 we decline to adopt an increase to the 300-holder threshold for foreign private issuers either in the exit or entrance rules at this time. As we previously stated, the limited purpose for retaining the 300-holder provision in the new exit rule is to preclude disadvantaging those companies that could terminate their Exchange Act reporting obligations under the current exit rules but not under the new trading volume condition.84 Moreover, since domestic registrants are subject to a substantially similar record holder standard, we believe any change would be more appropriately considered as part of a comprehensive evaluation of the record holder provisions in both the Exchange Act entrance and exit rules for both domestic and foreign registrants.85 In addition, issuers relying on the alternative holder provision will be able to use the revised counting method that we are adopting today, which should make the U.S. holder determination easier for those issuers.86 2. Prior Exchange Act Reporting Condition We are adopting, substantially as reproposed, a prior Exchange Act reporting condition that a foreign private issuer must meet before it can terminate its section 12(g) registration or its section 15(d) reporting obligations regarding a class of equity securities under Rule 12h–6.87 This condition will require an issuer of equity securities to have had reporting obligations under section 13(a) or section 15(d) of the Exchange Act for at least the 12 months preceding the filing of Form 15F, to have filed or furnished all reports required for this period, and to have filed at least one annual report pursuant relied on that provision due to the difficulty in meeting the asset test. 83 See the letters from the ABA and the Organization for International Investment. 84 See Part II.A.1.b of the Reproposing Release. 85 In this regard, we note that the Advisory Committee on Smaller Public Companies has made recommendations relating to Exchange Act registration and termination of registration. See the Final Report of the Advisory Committee on Smaller Public Companies, dated April 23, 2006, which is available at https://www.sec.gov/info/smallbus/ acspc/acspc-finalreport.pdf. 86 See Part II.C of this release. 87 New Exchange Act Rule 12h–6(a)(1) (17 CFR 240.12h–6(a)(1)). E:\FR\FM\05APR3.SGM 05APR3 16942 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations to section 13(a) of the Exchange Act. The purpose of this prior Exchange Act reporting condition is to provide investors in U.S. securities markets with a minimum period of time to make investment decisions regarding a foreign private issuer’s securities based on the information provided in an Exchange Act annual report and the interim home country materials furnished in English under cover of Form 6–K.88 Originally proposed Rule 12h–6 would have required a foreign private issuer to have had Exchange Act reporting obligations for the two years preceding the filing of its Form 15F and to have filed at least two Exchange Act annual reports before it could terminate its Exchange Act reporting obligations regarding a class of equity securities. As previously noted, several commenters objected to this two year reporting condition primarily on the grounds that it would impose a stricter reporting requirement than is the case under the current exit rules.89 In response to those commenters, when reproposing Rule 12h–6, we reduced the required prior reporting period to at least 12 months and proposed to require only one Exchange Act annual report. We received only a few comments on the reproposed prior reporting condition for equity security issuers. One commenter supported the revisions made to the proposed prior reporting condition but urged the Commission to permit an issuer to terminate its Exchange Act reporting obligations regarding a class of equity securities even if it has not submitted all required Form 6–Ks.90 That commenter pointed to the difficulties that a foreign private issuer may experience when determining whether a Form 6–K submission is required under foreign reporting and U.S. materiality requirements. As adopted, Rule 12h–6 will require a foreign private issuer to have submitted all Form 6–Ks required during the 12 months preceding the filing of its Form 15F in order to be eligible to terminate its reporting obligations regarding a class of equity securities. This requirement will help ensure that a U.S. investor is able to access through EDGAR 91 and in English all material interim information about a foreign private issuer as required by its home country. We continue to believe that our rules should provide appropriate incentives for companies to stay current with their Exchange Act reporting obligations. From a practical point of view, the 12month prior reporting requirement should not be problematic since, based on current experience, most foreign companies that register securities with the Commission, including solely under Exchange Act section 12(g), stay in the U.S. market for at least a year and file at least one Exchange Act annual report.92 Moreover, the prior reporting condition will require that a foreign private issuer must be current in its reporting obligations, not that it must have timely filed all reports required during the 12 month period. In the event that an issuer determines that it should have filed a Form 6–K during this period, it can do so before it files its Form 15F. Another commenter 93 requested that we permit an issuer to satisfy the prior Exchange Act annual report requirement by filing a special financial report required under Exchange Act Rule 15d– 2.94 We agree that it would be appropriate to have the special financial report satisfy the annual report filing requirement under new Rule 12h– 6(a)(1). In this situation, an issuer will have recently sold securities under an effective Securities Act registration statement with non-financial information as current as the date of the prospectus, and the information in the special financial report will provide financial statements and other information as of and for the most recent fiscal year end, thus serving the same purpose as an Exchange Act annual report. In addition, this approach is consistent with our recent implementation rules for the internal control over financial reporting requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002.95 Accordingly, we are clarifying that a special financial report, filed with the Commission pursuant to Rule 15d–2, constitutes an Exchange Act annual report for the purpose of complying 92 See, for example, the letter from Galileo. the letter from Sullivan & Cromwell. 94 17 CFR 240.15d–2. This rule requires an issuer that filed a Securities Act registration statement, which did not contain audited financial statements for the last full fiscal year preceding the year in which the registration statement became effective, to file a special financial report with the Commission that includes audited financials for that last full fiscal year. 95 15 U.S.C. 7262. See Release No. 33–8760 (December 15, 2006), 71 FR 76580 (December 21, 2006). pwalker on PROD1PC71 with RULES3 93 See 88 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. 89 See Part II.A.2 of the Reproposing Release. 90 See the letter from the ABA. 91 EDGAR is the Commission’s Electronic Data Gathering, Analysis and Retrieval System. VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 with Rule 12h–6’s prior reporting condition. 3. One Year Dormancy Condition We are adopting, as reproposed, a one year dormancy condition with which a foreign private issuer must comply before it can terminate its Exchange Act registration and reporting obligations regarding a class of equity securities under Rule 12h–6.96 New Rule 12h–6 will prohibit sales of a foreign private issuer’s securities in the United States in a registered offering under the Securities Act during the 12 months preceding the filing of its Form 15F other than securities issued: • to the issuer’s employees; • by selling security holders in nonunderwritten offerings; • upon the exercise of outstanding rights granted by the issuer if the rights are granted pro rata to all existing security holders of the class of the issuer’s securities to which the rights attach; • pursuant to a dividend or interest reinvestment plan; or • upon the conversion of outstanding convertible securities or upon the exercise of outstanding transferable warrants issued by the issuer. The primary purpose of the dormancy condition’s prohibition of registered offerings is to preclude a foreign private issuer from exiting the Exchange Act reporting system shortly after it has engaged in U.S. public capital raising. We received relatively few comments on the reproposed dormancy condition.97 Most welcomed the revisions made to the originally proposed dormancy condition.98 For example, the originally proposed rule would have prohibited sales of unregistered securities, with limited exceptions. We removed this prohibition when reproposing Rule 12h–6 after commenters convinced us that adoption of the originally proposed dormancy condition could well drive many private placement financings and other unregistered offerings by foreign companies offshore, to the detriment of U.S. investors and U.S. broker-dealers, since many companies might prefer to finance outside the United States under Regulation S in order to avoid triggering the dormancy condition. Consequently, as reproposed, the adopted rule will permit the unregistered sale of securities that are exempted under the Securities 96 New Exchange Act Rule 12h–6(a)(2) (17 CFR 240.12h–6(a)(2)). 97 See the letters from the ABA, Linklaters, the N.Y. State Bar, Sullivan & Cromwell, and Skadden Arps. 98 See the letters from the ABA, Skadden Arps, and Sullivan & Cromwell. E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations Act during the dormancy period. The permitted category of securities will include sales pursuant to section 4(2),99 Regulation D,100 Rule 144A,101 Rules 801 and 802,102 and exempt securities under section 3, including section 3(a)(10) of the Securities Act.103 Some of the comments pertained to additional proposed exceptions to the dormancy condition. As originally proposed, Rule 12h–6 would have excepted from the dormancy condition’s prohibition of sales of an issuer’s registered securities in the United States only securities sold to an issuer’s employees and those sold by selling security holders in non-underwritten offerings. When reproposing Rule 12h– 6, we proposed three additional exceptions to the dormancy condition’s prohibition of sales of an issuer’s registered securities: the issuance of registered securities pursuant to pro rata rights offerings, dividend or interest reinvestment plans, and the conversion of outstanding convertible securities.104 Like the earlier proposed exceptions, these transactions often occur for reasons unrelated to capital raising or for the benefit of the issuer, for example, to benefit current security holders or for the convenience of investors. We also reproposed that these additional exceptions would not apply to securities issued pursuant to a standby underwritten offering or other similar arrangement in the United States. As we explained, this limitation is consistent with the Commission’s previous treatment of these types of registered offerings.105 Two commenters requested that we clarify that an issuer would not trigger the dormancy condition if it conducted a registered offering involving, for example, a rights offering, in the United States, with a standby underwriting arrangement according to which the underwriter only resold the securities purchased in the offering outside the United States pursuant to Regulation S.106 We agree that this type of standby underwritten arrangement would not trigger the dormancy condition since it would not increase an issuer’s involvement in public capital raising in the United States. Also as reproposed, the adopted rule includes under the dormancy condition 99 15 U.S.C. 77d(2). CFR 230.501 et seq. 101 17 CFR 230.144A. 102 17 CFR 230.801 and 230.802. 103 15 U.S.C. 77c and 77c(a)(10). 104 See Part II.A.3 of the Reproposing Release. 105 Instruction 2 to Item 8 of Form 20–F imposes a similar limitation. 106 See the letters from Linklaters and the N.Y. State Bar. pwalker on PROD1PC71 with RULES3 100 17 VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 sales of an issuer’s securities by its selling security holders in an underwritten registered offering because there is a greater likelihood of issuer involvement in a U.S. underwritten offering than in a non-underwritten offering of selling security holders. New Exchange Act Rule 12h–6 will use the definition of ‘‘employee’’ under Form S–8 107 for the purpose of applying the dormancy condition under Rule 12h–6, as reproposed.108 That definition includes any employee, director, general partner, certain trustees, certain insurance agents, and former employees as well as executors, administrators or beneficiaries of the estates of deceased employees, and a family member of an employee who has received shares through a gift or domestic relations order.109 Otherwise, a narrow interpretation of the term ‘‘employee’’ could result in an issuer being disqualified from terminating its Exchange Act registration and reporting obligations under Rule 12h–6 because it engaged in a sale of securities during the dormancy period to an employee’s family member or other relationship permitted under Form S–8 but not explicitly allowed under the new rule. 4. Foreign Listing Condition We are adopting a foreign listing condition under Rule 12h–6, which will require that, with respect to equity securities, for at least the 12 months preceding the filing of its Form 15F, a foreign private issuer must have maintained a listing of the subject class of securities on one or more exchanges in a foreign jurisdiction that, either singly or together with the trading of the same class of the issuer’ s securities in another foreign jurisdiction, constitutes the primary trading market for the issuer’s subject class of securities.110 The new rule defines ‘‘primary trading market’’ to mean that at least 55 percent of the trading in the foreign private issuer’s subject class of securities took place in, on or through the facilities of a securities market or markets in no more than two foreign jurisdictions during a recent 12-month period.111 107 17 CFR 239.16b. Form S–8 is the form used by an Exchange Act reporting company to register securities for issuance to its employees or those of its subsidiaries or parent under an employee benefit plan. 108 New Exchange Act Rule 12h–6(f)(2) (17 CFR 240.12h–6(f)(2)). 109 See General Instruction A.1 to Form S–8. 110 New Exchange Act Rule 12h–6(a)(3) (17 CFR 240.12h–6(a)(3)). 111 New Exchange Act Rule 12h–6(f)(5)(i) (17 CFR 240.12h–6(f)(5)(i)). Rule 12h–6 defines ‘‘recent 12month period’’ to mean a 12-calendar month period that ended no more than 60 days before the filing date of the Form 15F. New Exchange Act Rule 12h– 6(f)(6) (17 CFR 240.12h–6(f)(6)). PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 16943 That definition further provides that if an issuer aggregates the trading of its securities in two foreign jurisdictions for the purpose of Rule 12h–6’s foreign listing condition, the trading for the issuer’s securities in at least one of the two foreign jurisdictions must be larger than the trading in the United States for the same class of the issuer’s securities.112 The purpose of this foreign listing condition is to help assure that there is a non-U.S. jurisdiction that principally regulates and oversees the issuance and trading of the issuer’s securities and the issuer’s disclosure obligations to investors. This foreign listing condition increases the likelihood that the principal pricing determinants for a foreign private issuer’s securities are located outside the United States, and makes more likely the availability of a set of non-U.S. securities disclosure documents to which a U.S. investor may turn for material information when making investment decisions about the issuer’s securities following the termination of its disclosure obligations under Rule 12h–6. 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. The adopted foreign listing condition is substantially the same as the reproposed condition, except that, at the request of commenters, we have modified the rule to reflect that an issuer may be listed on multiple exchanges within a single jurisdiction.113 Thus, the new rule provides that an issuer may aggregate trading in the same class of its equity securities on all of its exchanges within a single foreign jurisdiction or in no more than two foreign jurisdictions for the purpose of the foreign listing condition, as long as the trading in one of the foreign jurisdictions is greater than the trading in the United States.114 112 New Exchange Act Rule 12h–6(f)(5)(ii) (17 CFR 240.12h–6(f)(5)(ii)). As proposed and as adopted, measurement under this condition is by reference to average daily trading volume (ADTV) as reported by the relevant market. Although the proposing and reproposing releases noted that there are differences concerning how various markets measure and report trading volume (for example, dealer markets versus auction markets), no commenter supported a trading volume standard that would take such differences into account. 113 See, for example, the letter from Cravath. 114 For the purpose of the primary trading market determination, an issuer would measure the ADTV of on-exchange transactions in its securities aggregated over one or two foreign jurisdictions against its worldwide trading volume. The issuer could include in this measure off-exchange E:\FR\FM\05APR3.SGM Continued 05APR3 16944 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations pwalker on PROD1PC71 with RULES3 We received relatively few comments on the reproposed foreign listing condition.115 Three commenters generally approved of the changes made to the originally proposed foreign listing condition.116 These changes included shortening the proposed foreign listing requirement from two years to one year and permitting an issuer to aggregate its trading on an exchange in one foreign jurisdiction with that in a second foreign jurisdiction.117 These commenters agreed that the reproposed foreign listing condition would increase the flexibility of the new rule for foreign private issuers while serving to protect investors. New Rule 12h–6’s foreign listing condition will apply to any issuer of equity securities, whether that issuer is relying on the trading volume benchmark or the alternative holder provision, as reproposed. Some commenters requested that the Commission not apply the foreign listing condition to an issuer that has delisted in its primary trading market as a result of being acquired. According to these commenters, that issuer would not be able to terminate its Exchange Act reporting obligations under the 300holder provision because it could not meet the foreign listing requirement.118 The foreign listing condition is an important component of the new exit regime because it increases the likelihood that U.S. investors will have a set of material disclosure documents about an issuer to which they may turn following that issuer’s exit from the Exchange Act reporting system. Therefore, we decline to create an exception from this condition for any issuer at this time.119 We note that, under most circumstances, a foreign private issuer that has been acquired may exit the Exchange Act reporting regime under the provisions of the current exit rules that permit any issuer, transactions in those jurisdictions comprising the numerator only if it includes those off-exchange transactions when calculating worldwide trading volume in the denominator. This denominator would be the same as the denominator used for the trading volume benchmark. Thus, this denominator would consist of U.S. ADTV, which must include both on-exchange and off-exchange transactions, and non-U.S. ADTV, which must include onexchange transactions, but could also include offexchange transactions. See Part II.A.1.a.ii of this release. 115 See the letters from the ABA, BusinessEurope, Cravath, Davis Polk, Linklaters, and Skadden Arps. 116 See the letters from the ABA, Linklaters, and Skadden Arps. 117 See Part II.A.4 of the Reproposing Release. 118 See the letters from BusinessEurope and Davis Polk. 119 For this reason, we decline to adopt a general exception from the foreign listing condition for equity securities issuers proceeding under the alternative 300-holder provision. VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 whether domestic or foreign, or listed or unlisted, to file a Form 15 if its securities are held by less than 300 holders of record.120 B. Debt Securities Provision As adopted, Rule 12h–6 will enable a foreign private issuer to terminate its Exchange Act reporting obligations regarding a class of debt securities as long as the issuer has filed or furnished all reports required under Exchange Act section 13(a) or section 15(d), including at least one Exchange Act annual report, and has its class of debt securities held of record by less than 300 holders either on a worldwide basis or who are U.S. residents.121 This provision reflects the minimum reporting requirement and current 300 holder standard under section 15(d) and Rule 12h–3. Moreover, it is the same as the reproposed debt securities provision.122 Some commenters requested that we revise the 300-holder standard for termination of a foreign private issuer’s Exchange Act reporting obligations under Exchange Act Section 15(d) regarding a class of debt securities that had been offered and sold pursuant to an effective registration statement under the Securities Act.123 In the view of most of these commenters, an increase to at least 1,000 holders would be appropriate in light of the changes in the global securities markets since the 300-holder standard was adopted by Congress in the 1960s.124 We are not revising the 300-holder standard as it applies to debt securities. While we agree that there have been substantial changes in the global capital markets, no commenter has presented us with data or other information that supports raising the threshold from that adopted by Congress. In addition, the problems associated with determining the ownership of equity securities do not appear to apply to debt securities, as to which there is generally a single U.S.120 Exchange Act Rules 12g–4(a)(1)(i) and 12h– 3(b)(1)(i) (17 CFR 240.12g–4(a)(1)(i) and 240.12h– 3(b)(1)(i)). 121 New Exchange Act Rule 12h–6(c) (17 CFR 240.12h–6(c)). 122 As originally proposed and reproposed, the adopted exit rule for debt securities does not include a provision comparable to Rule 12h–3’s 500 record holder provision because most foreign private issuers that are debt securities registrants would likely exceed the $10 million asset threshold that accompanies the 500 record holder standard. No commenter has ever requested that we incorporate the 500 record holder and $10 million asset standard into Rule 12h–6’s debt securities provision, either at the proposing or reproposing stage. 123 See the letters from Cleary Gottlieb, EALIC, Davis Polk, and the EU. 124 Davis Polk favored an increase to at least 3,000. PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 based transfer agent. Further, the same 300-holder threshold applies to U.S. companies, and unlike the situation for equity securities, no commenter has addressed why it would be appropriate to treat U.S. and foreign registrants differently with respect to the termination or suspension of reporting obligations under section 15(d) as applied to debt securities.125 C. Revised Counting Method We are adopting, as reproposed, Rule 12h–6’s revised counting method, which will enable an issuer of equity securities proceeding under the alternative 300-holder provision, or a debt securities issuer, to use a modified version of the ‘‘look through’’ counting method under Rule 12g3–2(a) when determining the number of its U.S. resident security holders.126 Instead of having to look through the accounts of brokers, banks and other nominees on a worldwide basis to determine the number of its U.S. resident holders, as is required under the current rules, a foreign private issuer could limit its inquiry to brokers, banks and other nominees located in the United States, the issuer’s jurisdiction of incorporation, legal organization or establishment and, if different, the jurisidiction of its primary trading market.127 This revised counting method is substantially similar to the counting method that the Commission adopted under the exemptive rules for cross-border rights offerings, exchange offers and business combinations,128 as well as under the definition of foreign private issuer.129 Like the reproposed rule, the adopted counting method provision requires an issuer that aggregates the trading volume of its securities in two foreign jurisdictions for the purpose of meeting Rule 12h–6’s foreign listing condition to look through nominee accounts in both foreign jurisdictions, which comprise its primary trading market, and in the United States as well as in its jurisdiction of incorporation or organization, if different from the two jurisdictions that comprise its primary 125 We note that foreign private issuers that avail themselves of Rule 12h–6 will be able to terminate their reporting obligations under section 15(d) while U.S. companies will only continue to be able to suspend their reporting obligations pursuant to Rule 12h–3 and section 15(d). 126 New Exchange Act Rule 12h–6(e) (17 CFR 240.12h–6(e)). 127 New Exchange Act Rule 12h–6(e)(1) (17 CFR 240.12h–6(e)(1)). 128 Securities Act Rules 800 et seq. (17 CFR 230.800 et seq.). 129 17 CFR 230.405 and 240.3b–4(c). E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations pwalker on PROD1PC71 with RULES3 trading market.130 Also as reproposed, the adopted counting method provision permits an issuer to rely on the assistance of an independent information services provider when calculating the number of its U.S. security holders.131 We are also adopting a presumption, included in both the originally proposed and reproposed counting method provisions, that we previously adopted under the cross-border rules and definition of foreign private issuer.132 This presumption is that, if, after reasonable inquiry, an issuer is unable without unreasonable effort to obtain information about the amount of securities held by nominees for the 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.133 The reproposed rule provided 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 it indicates that the securities are held by U.S. residents. One commenter requested that we clarify that an issuer is not required to take account of U.S. ownership information provided to it if the issuer determines that it is unreliable.134 We have so clarified by revising the above provision to state that an issuer must count securities as owned by U.S. holders when publicly filed reports of beneficial ownership or other reliable information that is provided to it indicates that the securities are held by U.S. residents.135 Some foreign jurisdictions have laws that provide an established and enforceable means for a public company to obtain information about its shareholders.136 Like the reproposed rule, Rule 12h–6 does not provide that a foreign private issuer may rely solely on specified foreign statutory or code provisions when calculating the number of its U.S. resident equity or debt holders. We received only two comments in support of such a provision at the proposing stage, and none at the reproposing stage. However, 130 New Exchange Act Rule 12h–6(e)(1)(ii) (17 CFR 240.12h–6(e)(1)(ii)). 131 New Exchange Act Rule 12h–6(e)(4) (17 CFR 240.12h–6(e)(4)). 132 See Securities Act Rule 800(h)(4) (17 CFR 230.800(h)(4)) and Instruction B to Exchange Act Rule 3b–4(c)(1) (17 CFR 240.3b–4(c)(1)). 133 New Exchange Act Rule 12h–6(e)(2) (17 CFR 240.12h–6(e)(2)). 134 See the letter from Cravath. 135 New Rule 12h–6(e)(3) (17 CFR 240.12h– 6(e)(3)). 136 See, for example, section 212 of the United Kingdom Companies Act. VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 as we noted in the reproposing release, as part of its inquiry regarding whether it meets any of the quantitative benchmarks under Rule 12h–6, an issuer may refer to shareholder information obtained pursuant to those foreign statutory or code provisions to the extent that this shareholder information is reasonably reliable and accurate and furthers the purpose of the inquiry. D. Expanded Scope of Rule 12h–6 We are adopting, substantially as reproposed, an expansion of the scope of the originally proposed Rule 12h–6 in two respects. First, we are adopting a rule providing that an issuer that has succeeded to the Exchange Act reporting obligations of an acquired company may terminate those reporting obligations under Rule 12h–6 as long as it satisfies specified conditions. Second, we are extending the application of Rule 12h–6 to a foreign private issuer that previously filed a Form 15 and effected its termination of registration or suspension of reporting under the current exit rules before the effective date of Rule 12h–6, subject to conditions. 1. Application of Rule 12h–6 to Successor Issuers As adopted, Exchange Act Rule 12h– 6(d) 137 provides that, following a merger, consolidation, exchange of securities, acquisition of assets or otherwise, a foreign private issuer that has succeeded to the registration of a class of securities under Exchange Act section 12(g) pursuant to Rule 12g–3,138 or to the reporting obligations of another issuer under Exchange Act section 15(d) pursuant to Rule 15d–5,139 may file a Form 15F to terminate those reporting obligations if, regarding a class of equity securities, the successor issuer meets the conditions under Rule 12h–6(a), which applies to equity securities issuers.140 Regarding a class of debt securities, the successor issuer must meet the conditions under Rule 12h– 6(c), including the reporting condition.141 New Rule 12h–6(d) then provides that, when determining whether it meets the prior reporting condition under either the equity or debt securities provision of the final rule, a successor issuer may take into account the reporting history of the issuer whose reporting obligations it has 137 17 CFR 240.12h–6(d). CFR 240.12g–3. 139 17 CFR 240.15d–5. 140 New Exchange Act Rule 12h–6(d)(1)(i) (17 CFR 240.12h–6(d)(1)(i)). 141 New Exchange Act Rule 12h–6(d)(1)(ii) (17 CFR 240.12h–6(d)(1)(ii)). 138 17 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 16945 assumed pursuant to Rule 12g–3 or 15d–5.142 This successor issuer provision will enable a non-Exchange Act reporting foreign private issuer that acquires a reporting foreign private issuer in a transaction exempt under the Securities Act, for example, under Rule 802 or section 3(a)(10), to qualify immediately for termination of its Exchange Act reporting obligations under Rule 12h–6, without having to file an Exchange Act annual report, as long as the successor issuer meets the rule’s foreign listing, dormancy and quantitative benchmark conditions, and the acquired company’s reporting history fulfills Rule 12h–6’s prior reporting condition. Since the successor issuer will have assumed the acquired company’s Exchange Act reporting obligations, we believe it is appropriate that the issuer succeed to the acquired company’s reporting history for the purpose of Rule 12h–6. The adopted successor issuer provision is substantially similar to the reproposed provision, except that the adopted rule clarifies that, in order to qualify for deregistration under the successor issuer provision, an issuer must meet all of the conditions pertaining to equity securities registrants, including the dormancy condition. We have made this clarification in order to underscore our position, stated at the reproposing stage, that if a previously non-Exchange Act reporting foreign private issuer acquires an Exchange Act reporting company by consummating an exchange offer, merger or other business combination registered under the Securities Act, most likely on a Form F–4 registration statement, the acquiror will have to fulfill Rule 12h–6’s prior reporting condition without reference to the acquired company’s reporting history. Since the acquiror will have triggered its own section 15(d) reporting obligations upon the effectiveness of its Securities Act registration statement, it will have to meet Rule 12h–6’s full reporting condition like any other section 15(d) reporting company before it can terminate its reporting obligations under the new rule. In order to clarify that such a Securities Act registrant may not proceed under the successor issuer provision and immediately terminate its section 15(d) reporting obligations upon completion of the Form F–4 transaction, the adopted rule provides that an issuer must meet Rule 12h–6’s equity 142 New Exchange Act Rule 12h–6(d)(2) (17 CFR 240.12h–6(d)(2)). E:\FR\FM\05APR3.SGM 05APR3 16946 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations securities conditions, which includes the dormancy condition.143 Most of the parties that commented on the reproposed successor issuer provision supported it.144 However, one commenter sought clarification regarding the intended role that the predecessor company would play in satisfying Rule 12h–6’s requirements.145 More particularly, this commenter was concerned that Rule 12h–6 could be construed to require an issuer to take into account the listing and trading history of an acquired company. Such an interpretation could preclude an acquiror from terminating its Exchange Act reporting obligations immediately after succession if the acquired company was unlisted or had an active U.S. trading market. Therefore, we are clarifying that Rule 12h–6(d) permits a successor issuer to consider an acquired company’s history only when determining whether the successor meets Rule 12h–6’s prior reporting condition. Following an acquisition, a successor issuer must look only to its own foreign listing history, and consider its own U.S. and worldwide trading volume, when determining whether it satisfies Rule 12h–6’s foreign listing and trading volume conditions. This commenter also sought clarification regarding whether, as a condition to deregistration under Rule 12h–6, a successor issuer would have an obligation under Exchange Act Rule 12g–3(g)146 to file an Exchange Act annual report for the predecessor’s last full fiscal year prior to succession. As with the filing of a Form 15 under the current exit rules, under Rule 12h– 6(g),147 the suspension of a foreign private issuer’s duty to file reports under section 13(a) or 15(d) occurs immediately upon filing a Form 15F. This suspension extends to an annual report that would be required under Rule 12g–3(g). A successor issuer would only have to file an annual report on behalf of its predecessor under Rule 12g–3(g) if, at the time of filing its Form 15F, that annual report was past due. pwalker on PROD1PC71 with RULES3 143 Because some commenters stated that the dormancy condition should not apply to a foreign private issuer that filed a Securities Act registration statement solely to effect an acquisition or business combination (see, for example, the letter from Sullivan & Cromwell), we believe it is necessary to state explicitly in Rule 12h–6 that the dormancy condition applies to a successor issuer. 144 See, for example, the letters from Cleary Gottlieb and PricewaterhouseCoopers. 145 See the letter from Latham & Watkins. 146 17 CFR 240.12g–3(g). This provision requires a successor issuer to file an Exchange Act annual report for the last full fiscal year of the predecessor before the issuer’s succession if the predecessor has not done so. 147 17 CFR 240.12h–6(g). VerDate Aug<31>2005 18:35 Apr 04, 2007 Jkt 211001 This is consistent with the current practice involving Form 15. 2. Application of Rule 12h–6 to Prior Form 15 Filers As adopted, Rule 12h–6(i) will extend termination of Exchange Act reporting under the new exit rule to a foreign private issuer that, before the effective date of Rule 12h–6, already effected the suspension or termination of its Exchange Act reporting obligations after filing a Form 15.148 A prior Form 15 filer will have to meet the following conditions in order to obtain the benefits of Rule 12h–6 with respect to a class of equity securities: • the issuer must satisfy Rule 12h–6’s foreign listing condition regarding the class of equity securities that was the subject of its Form 15; • the issuer must satisfy either Rule 12h–6’s trading volume or alternative holder provision; and • the issuer must file a Form 15F.149 An equity securities issuer will not have to satisfy Rule 12h–6’s prior reporting or dormancy provisions since it will already be a non-reporting entity. A prior Form 15 filer will have to meet the following conditions in order to obtain the benefits of Rule 12h–6 with respect to a class of debt securities: • the issuer must meet Rule 12h–6’s record holder provision for debt securities; and • the issuer must file a Form 15F.150 As reproposed, the prior Form 15 filer provision was substantially similar to the adopted rule, except that we proposed to establish, as a condition of eligibility, that an issuer not be required to register a class of securities under section 12(g) or be required to file reports under section 15(d).151 While the parties that commented on the reproposed provision supported extending the benefits of Rule 12h–6 to a prior Form 15 filer, most also opposed requiring that filer to determine that it had not assumed or resumed Exchange Act reporting obligations.152 Those commenters noted that, since under the reproposed rule, a former equity 148 New Exchange Act Rule 12h–6(i)(1) (17 CFR 240.12h–6(i)(1)). A former section 15(d) reporting company would benefit from proceeding under Rule 12h–6 by obtaining termination, rather than mere suspension, of its reporting obligations with respect to a class of equity or debt securities. As discussed below, a former section 12(g) company also would benefit from proceeding under Rule 12h–6 by being able to claim the Rule 12g3–2(b) exemption immediately upon the effectiveness of its Rule 12h–6 termination. 149 Rule 12h–6(i)(2)(i) (17 CFR 240.12h–6(i)(2)(i)). 150 Rule 12h–6(i)(2)(ii) (17 CFR 240.12h– 6(i)(2)(ii)). 151 See Part II.D.2 of the Reproposing Release. 152 See the letters from the ABA, BusinessEurope, Cleary Gottlieb, EALIC, the EU, the N.Y. State Bar, and Sullivan & Cromwell. PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 securities registrant could not have relied on the trading volume condition, that registrant would have had once more to undertake the costly task of counting its U.S. resident holders. We agree that, as suggested by some of those commenters, a more equitable approach would be to place former equity securities registrants in as good a position as current registrants by permitting them to meet the trading volume benchmark as an alternative to the record holder standard.153 The adopted rule takes this approach. E. Public Notice Requirement We are adopting, as reproposed, a public notice requirement as a condition to termination of reporting under Rule 12h–6, except for prior Form 15 filers.154 Pursuant to this requirement, an issuer of equity or debt securities, including a successor issuer, will have to publish, either before or on the date that it files its Form 15F, a notice in the United States that discloses its intent to terminate its section 13(a) or 15(d) reporting obligations. The issuer must publish the notice, such as a press release, through a means reasonably designed to provide broad dissemination of the information to the public in the United States. The issuer also must 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. The primary purpose of this notice provision is to alert U.S. investors who have purchased the issuer’s securities about the issuer’s intended exit from the Exchange Act registration and reporting system. The notice requirement will not apply to a prior Form 15 filer that files a Form 15F to terminate its registration and reporting obligations under Rule 12h– 6(i). Since a prior Form 15 filer will already have ceased its Exchange Act reporting obligations, investors would gain little from the publishing of such a notice. One commenter requested that we clarify that an issuer may satisfy this notice provision by having the press release disseminated in the United States by one of the international wire services, such as those operated by U.S. and international financial publications.155 We have so clarified by revising Form 15F to request that the issuer identify the means, such as publication in a particular newspaper or transmission by a particular wire 153 See, for example, the letters from EALIC and Sullivan & Cromwell. 154 New Exchange Act Rule 12h–6(h) (17 CFR 240.12h–6(h)). 155 See the letter from Skadden Arps. E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations service, used to disseminate the notice in the United States.156 F. Form 15F pwalker on PROD1PC71 with RULES3 Like our current exit rules, adopted Rule 12h–6 will require a foreign private issuer to file electronically on EDGAR a form certifying that it meets the requirements for ceasing its Exchange Act reporting obligations.157 By signing and filing new Form 15F,158 a foreign private issuer will be certifying that: • it meets all of the conditions for termination of Exchange Act reporting specified in Rule 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.159 Unlike current Form 15, new Form 15F will 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. The information will also assist Commission staff in assessing the use of Rule 12h–6. The Form 15F filing requirement and the specified items of information are substantially the same as those under reproposed Rule 12h–6, except that we have modified some items to conform to the changes we have made to the reproposed rule. As with Form 15, and as originally proposed and reproposed, filing of new Form 15F will immediately suspend an issuer’s Exchange Act reporting obligations regarding the subject class of securities and commence a 90-day waiting period. If, at the end of this 90day period, the Commission has not objected to the filing, the suspension will 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 will be required to file or submit all reports that would have been required had it not filed the Form 15F.160 After filing Form 15F, an issuer will have no continuing obligation to make inquiries or perform other work concerning the information contained in the Form 15F, including its assessment of trading volume or ownership of its securities. However, Form 15F will require an issuer to undertake to 156 See Item 7.B of Form 15F. Exchange Act Rule 12h–6(a). 158 17 CFR 249.324. 159 Form 15F General Instruction B. 160 New Exchange Act Rule 12h–6(g) (17 CFR 240.12h–6(g)). 157 New VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 withdraw its Form 15F before the date of effectiveness if it has actual knowledge of information that causes it reasonably to believe that, at the date of filing the Form 15F: • the average daily trading volume of its subject class of securities in the United States exceeded 5 percent of the average daily trading volume of that class of securities on a worldwide basis for the same recent 12-month period that the issuer used for purposes of Rule 12h–6(a)(4)(i); • its subject class of securities was held of record by 300 or more United States residents or 300 or more persons worldwide, if proceeding under Rule 12h–6(a)(4)(ii) or Rule 12h–6(c); or • it otherwise did not qualify for termination of its Exchange Act reporting obligations under Rule 12h– 6.161 This undertaking is substantially the same as that required under the reproposed rule and form, except that, in the first prong of the reproposed rule’s undertaking, we referred to trading volume ‘‘during a recent 12month period.’’ At the request of a commenter,162 we have clarified that the undertaking applies to an issuer relying on the trading volume provision only when it learns that its trading volume exceeded the 5 percent threshold for the same recent 12-month period that the issuer used for purposes of Rule 12h–6’s trading volume provision. G. Amended Rules 12g–4 and 12h–3 Although similar to the current 300 record holder standard, Rule 12h–6’s alternative record holder condition for equity securities and its debt securities provision will offer advantages compared to the current exit rules. As adopted, Rule 12h–6’s revised counting method will limit the jurisdictions in which a foreign private issuer must search for records of its U.S. resident holders. Moreover, Rule 12h–6 will enable a foreign private issuer to terminate, rather than merely suspend, its section 15(d) reporting obligations regarding a class of equity or debt securities. In addition, under Rule 12h– 6, a foreign private issuer will be able to claim the benefits of the Rule 12g3– 2(b) exemption immediately upon the effectiveness of its termination of reporting regarding a class of equity securities under section 12(g) or 15(d). In each instance, once its termination of reporting becomes effective under Rule 12h–6, an issuer will no longer have to concern itself with whether the number of its U.S. resident or worldwide 161 Form 162 See PO 00000 15F Item 11. the letter from Cleary Gottlieb. Frm 00015 Fmt 4701 Sfmt 4700 16947 holders of the class of subject securities has risen above the statutory or regulatory threshold. Given these advantages, we continue to believe that, following the adoption of Rule 12h–6, few, if any, foreign private issuers will elect 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.163 Accordingly, we are adopting the amendments to eliminate these provisions in Rules 12g–4 and 12h–3, as reproposed. H. Amendment Regarding the Rule 12g3–2(b) Exemption We are adopting, substantially as reproposed, an amendment to Exchange Act Rule 12g3–2 164 that will apply the exemption under Exchange Act Rule 12g3–2(b) immediately to an issuer of equity securities upon the effectiveness of its termination of reporting under Rule 12h–6.165 As a condition to the immediate application of the Rule 12g3– 2(b) exemption upon its termination of reporting under Rule 12h–6, an issuer must publish subsequently in English material home country documents required under Rule 12g3–2(b)(1)(iii) on its Web site or through an electronic information delivery system generally available to the public in its primary trading market.166 The purpose of this condition is to provide U.S. investors with access to material information about an issuer of equity securities following its termination of reporting pursuant to Rule 12h–6.167 In addition, an issuer 163 See Exchange Act Rules 12g–4(a)(2) and 12h– 3(b)(2) (17 CFR 240.12g–4(a)(2) and 12h–3(b)(2)). 164 New Exchange Act Rule 12g3–2(e)(1) (17 CFR 240.12g3–2(e)(1)). 165 Currently, foreign private issuers that registered a class of securities under section 12 must wait at least 18 months following their termination of reporting before they would be eligible to apply for the Rule 12g3–2(b) exemption. In addition, foreign private issuers with an active or suspended reporting obligation under section 15(d) have thus far not been eligible to claim the Rule 12g3–2(b) exemption. See Rule 12g3–2(d)(1) (17 CFR 240.12g3–2(d)(1)), which currently excepts from the 18 month requirement only issuers that have filed Securities Act registration statements using the Multijurisdictional Disclosure Act (MJDS) forms. 166 New Exchange Act Rule 12g3–2(e)(2) (17 CFR 240.12g3 –2(e)(2)). 167 Any post-termination trading of a foreign private issuer’s securities in the United States E:\FR\FM\05APR3.SGM Continued 05APR3 16948 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations will be able to maintain a sponsored ADR facility with respect to its securities.168 This condition also will facilitate resales of that issuer’s securities to qualified institutional buyers under Rule 144A.169 Moreover, having a foreign private issuer’s key home country documents posted in English on its web site will assist U.S. investors who are interested in trading the issuer’s securities in its primary securities market.170 The adopted extension of Rule 12g3– 2(b) will apply both to a class of equity securities formerly registered under section 12(g) and one that formerly gave rise to section 15(d) reporting obligations, as reproposed. The Rule 12g3–2(b) exemption received under new Rule 12g3–2(e) will remain in effect for as long as the foreign private issuer satisfies the rule’s electronic publication conditions or until the issuer registers a new class of securities under section 12 or incurs section 15(d) reporting obligations by filing a new Securities Act registration statement, which has become effective.171 1. Extension of the Rule 12g3–2(b) Exemption Under Rule 12g3–2(e) pwalker on PROD1PC71 with RULES3 As adopted, because Rule 12g3–2(e) applies to any issuer that has terminated its reporting under Rule 12h–6, the rule amendment will effectively extend the Rule 12g3–2(b) exemption to: • a foreign private issuer immediately upon its termination of reporting regarding a class of equity securities pursuant to Rule 12h–6(a); • a successor issuer immediately upon its termination of reporting regarding a class of equity securities pursuant to Rule 12h–6(d); and 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). 168 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). See General Instruction I.A.3 of Form F–6. 169 See Securities Act Rule 144A(d)(4) (17 CFR 230.144A(d)(4)). 170 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). 171 See New Exchange Act Rule 12g3–2(e)(3) (17 CFR 240.12g3–2(e)(3)). VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 • a prior Form 15 filer immediately upon its termination of reporting regarding a class of equity securities pursuant to Rule 12h–6(i).172 Currently Rule 12g3–2(d)(2) precludes extending the Rule 12g3–2(b) exemption to a foreign private issuer, other than a Canadian issuer using the MJDS forms, that has issued securities in a merger or other similar transaction to acquire a company that has registered a class of securities under section 12 or has a reporting obligation under section 15(d).173 As amended, and as reproposed, Rule 12g3–2(d)(2) will effectively extend the Rule 12g3–2(b) exemption to a successor issuer that has terminated its Exchange Act reporting obligations under Rule 12h–6(d). Since we are permitting a successor issuer to rely on its predecessor’s reporting history for the purpose of Rule 12h–6, we believe the issuer should also benefit from claiming the Rule 12g3–2(b) exemption immediately upon the effectiveness of its Form 15F. Also as reproposed, we are extending the Rule 12g3–2(b) amendment immediately upon the termination of reporting pursuant to Rule 12h–6(i) to a foreign private issuer that, before the effective date of Rule 12h–6, terminated its registration or suspended its reporting obligations regarding a class of equity securities after filing a Form 15. This is consistent with our expansion of the scope of Rule 12h–6 to encompass prior Form 15 filers. Without this change, a prior Form 15 filer would find itself subject to the 18 month waiting period that currently exists under Rule 12g3–2(d), although the issuer qualified for termination of reporting under Rule 12h–6(i). We further are permitting a foreign private issuer that filed a Form 15F solely to terminate its reporting obligations regarding a class of debt securities to establish the Rule 12g3– 2(b) exemption for a class of equity securities upon the effectiveness of its termination of reporting regarding the class of debt securities.174 Since we are abolishing the 18 month ‘‘waiting period’’ for equity securities issuers that have terminated their Exchange Act reporting obligations pursuant to Rule 12h–6, it would serve no useful purpose to impose this waiting period on a debt securities issuer that determines that it will need the Rule 12g3–2(b) exemption for a class of equity securities following 172 Most parties that commented on reproposed Rule 12g3–2(e) favored the extension of the Rule 12g3–2(b) exemption to the above categories of issuers. See, for example, the letter from the ABA. 173 17 CFR 240.12g3–2(d)(2). 174 New Exchange Act Rule 12g3–2(e)(4) (17 CFR 240.12g3–2(e)(4)). PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 its termination of reporting under Rule 12h–6. The reproposed version of Rule 12g3– 2(e)(4) provided that a debt securities issuer could apply for the Rule 12g3– 2(b) exemption at any time following the effectiveness of its termination of reporting regarding the class of debt securities. One commenter pointed out that this version, if adopted, would jeopardize the legality of a sponsored ADR facility maintained by a registered debt securities issuer regarding a class of equity securities.175 A foreign private issuer that has registered only debt securities under the Securities Act may establish an ADR facility for its equity securities by filing and having become effective a Form F–6 registration statement because it is an Exchange Act reporting company.176 Such an issuer would lose the legal basis for its ADR facility if, before it could apply for the Rule 12g3–2(b) exemption, it had to wait until after the completion of the 90day waiting period, when the termination of its Exchange Act reporting obligations under Rule 12h–6 would become effective. As we have previously stated, we value the formation of ADR facilities, because they are beneficial to U.S. investors, and we encourage foreign issuers to continue to maintain their ADR facilities after terminating their Exchange Act reporting obligations. Therefore, we are clarifying that, under adopted Rule 12g3–2(e)(4), while a debt securities issuer may establish the Rule 12g3–2(b) exemption only upon the effectiveness of its termination of reporting regarding its class of debt securities under Rule 12h–6, it may apply for the Rule 12g3–2(b) exemption after it has filed its Form 15F and commenced the 90–day waiting period.177 The issuer must include in that application the date that it filed its Form 15F as well as the address of its Internet Web site or that of the electronic information delivery system on which it will publish the material home country information required under Rule 12g3–2(b). 2. Electronic Publishing of Home Country Documents Currently foreign companies claim 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 175 See the letter from MTR Corporation. General Instruction I.A.3 of Form F–6. 177 Commission staff will work with issuers to coordinate the establishment of the Rule 12g3–2(b) exemption on the same day as their termination of Exchange Act reporting. 176 See E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations pwalker on PROD1PC71 with RULES3 format.178 Because paper submissions are more difficult to access, we are adopting Rule 12g3–2(e), which relies on electronic access to a foreign company’s home country securities documents, although not through the Commission’s electronic database. As part of the condition requiring an issuer to publish its home country documents required under Rule 12g3– 2(b)(1)(iii) on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market, Rule 12g3–2(e) will require an issuer to publish English translations of the following documents: • its annual report, including or accompanied by annual financial statements; • interim reports that include financial statements; • press releases; and • all other communications and documents distributed directly to security holders of each class of securities to which the exemption relates.179 Rule 12g3–2(e) will further require a foreign private issuer of equity securities to disclose in the Form 15F the address of its Internet Web site or that of the electronic information delivery system in its primary trading market on which it will publish the information required under Rule 12g3– 2(b)(1)(iii).180 The purpose of this requirement is to alert investors and the Commission regarding where investors and others may find the company’s home country documents should a problem arise concerning the Internet location of those documents. Currently non-reporting issuers that seek the Rule 12g3–2(b) exemption must submit their letter application for the exemption and their home country documents to the Commission in paper. The same primary reason for requiring 178 A foreign private 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)). 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. 179 Note 1 to Rule 12g3–2(e). Rule 12g3–2(b) requires an exempt issuer to submit substantially the same categories of home country documents as a reporting issuer must furnish to the Commission under cover of Form 6–K. Moreover, both Rule 12g3–2(b) and Form 6–K state that only material information need be furnished under the rule and form. See Rule 12g3–2(b)(3) (17 CFR 240.12g3– 2(b)(3)) and General Instruction B to Form 6–K. 180 Note 3 to Rule 12g3–2(e). An issuer will not have to update the Form 15F to reflect a change in that address. VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 an issuer to publish its home country documents electronically after it terminates its reporting obligations under Rule 12h–6 applies equally to current Rule 12g3–2(b) exempt companies and the non-reporting companies that eventually will apply for the exemption. In each case, the electronic posting of an issuer’s home country documents will increase an investor’s ability to access those documents. Therefore, we are adopting, as proposed, an amendment to Rule 12g3– 2 to permit a foreign private issuer that, upon application to the Commission and not after filing Form 15F, has obtained or will obtain the Rule 12g3– 2(b) exemption to publish its home country documents that it is required to furnish on a continuous basis under Rule 12g3–2(b)(1)(iii) on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market.181 As a condition to this electronic posting, an issuer that wishes to use this procedure will have to comply with the English translation requirements of reproposed Rule 12g3– 2(e). It also will have to provide the Commission with the address of its Internet Web site or that of the electronic information delivery system in its primary trading market in its application for the Rule 12g3–2(b) exemption or in an amendment to that application. Currently the Commission does not have an established means for a nonreporting company to submit electronically to the Commission its initial documents under Rule 12g3– 2(b)(1)(i) and (ii).182 Therefore, an applicant will have to continue to submit its letter application and the home country documents submitted in support of its initial application to the Commission in paper.183 At both the proposing and reproposing stages, some commenters suggested that the Commission impose a specific time limit, for example three years, governing how long an issuer must keep its home country documents on its Internet Web site.184 We decline 181 New Exchange Act Rule 12g3–2(f) (17 CFR 240.12g3–2(f)). Parties that commented on the reproposed extension of Rule 12g3–2(b) supported this electronic publishing provision for issuers claiming the Rule 12g3–2(b) other than through Rule 12h–6. See, for example, the letters from the ABA and Skadden Arps. 182 17 CFR 240.12g3–2(b)(1)(i) and (ii). 183 As under current practice, the applicant should send these initial materials to the Commission’s Office of International Corporate Finance in the Division of Corporation Finance. 184 See Part II.H.2 of the Reproposing Release and, more recently, the letter from Sullivan & Cromwell. PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 16949 to adopt a specific time limit primarily because different types of home country documents may require different periods of electronic posting. While an issuer will be required to post electronically a home country document for a reasonable period of time, what constitutes a reasonable period will depend on the nature and purpose of the home country document. At a minimum, we suggest companies provide Web site access to their home country reports for at least a 12 month period. We also suggest that, if an issuer publishes its home country documents required under Rule 12g3–2(b) on an electronic information delivery system or an Internet Web site that is not in English, the issuer provide a prominent link on its Internet Web site directing investors to those home country documents in English. I. Concerns Regarding Securities Act Rule 701 Some commenters asked that we clarify the availability of Securities Act Rule 701 185 for a foreign private issuer that terminates its registration and reporting obligations under Rule 12h–6. By its terms, Rule 701 is available to any issuer that is not subject to the reporting requirements of Exchange Act section 13 or 15(d). Therefore, upon the effectiveness of termination of registration and reporting requirements under Rule 12h–6, a foreign private issuer would appear to satisfy this condition of Rule 701. As we noted when originally proposing Rule 12h–6, before the filing of a Form 15F, a foreign private issuer 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.186 This would include a Form S–8 registration statement relating to securities issuable under certain compensatory benefit plans. After the effectiveness of the Form 15F, a foreign private issuer would be able to rely on Rule 701 with respect to unsold securities that had previously been covered by the Form S–8 registration statement. III. Paperwork Reduction Act Analysis The final rule amendments contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 185 17 CFR 230.701. Rule 701 provides a Securities Act exemption for the offer and sale of securities to employees and others pursuant to certain compensatory benefit plans and contracts relating to compensation. 186 See the Original Proposing Release at n. 45. E:\FR\FM\05APR3.SGM 05APR3 16950 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations (‘‘PRA’’).187 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), new Form 15F, and submissions under Exchange Act Rule 12g3–2 (OMB Control No. 3235–0119).188 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 new Form 15F unless it displays a currently valid OMB control number. Compliance with the disclosure requirements of new Form 15F and new Rule 12h–6, which will affect the above collections of information, is 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. We 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’’). We 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. 187 44 U.S.C. 3501 et seq. 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. Accordingly, for the purpose of the Paperwork Reduction Act Analysis, these issuers do not appear likely to terminate their Exchange Act registration under new Rule 12h–6, and we have assumed that none of these companies will seek to use Rule 12h– 6. Foreign private issuers that file periodic reports using domestic issuer forms will be eligible, nonetheless, to use Rule 12h–6. pwalker on PROD1PC71 with RULES3 188 A VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 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. We 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. New Form 15F is the form that a foreign private issuer must file when terminating its Exchange Act reporting obligations under new Exchange Act Rule 12h–6. Form 15F requires a filer to disclose information that will 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 Rule 12h–6. Exchange Act Rule 12g3–2 is an exemptive rule that, under paragraph (b) of that rule, provides an exemption from Exchange Act section 12(g) registration for a foreign private issuer that, in addition to satisfying other requirements, submits copies of its material home country documents to the Commission on an ongoing basis. We adopted paragraph (b) of Rule 12g3–2 in order to provide information for U.S. investors concerning foreign private issuers with limited securities trading in U.S. capital markets. The hours and costs associated with preparing, filing and sending Forms 20– F, 40–F, 6–K and 15F, and making submissions under Exchange Act Rule 12g3–2(b) constitute reporting and cost burdens imposed by those collections of information. We based our estimates of the effects that the final rule amendments will 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, and for submissions under Rule 12g3–2(b), on the particular requirements for those forms and submissions, and on relevant information, for example, concerning comparative trading volume for numerous filers of those forms. Final Rule 12h–6 will permit a foreign private issuer to terminate permanently its Exchange Act reporting obligations, including the obligation to file an annual report on Form 20–F or 40–F and the obligation to submit Form 6–K reports, after filing a Form 15F. Final Rule 12h–6 and the accompanying rule amendments will also enable a foreign private issuer to claim the Rule 12g3– 2(b) exemption immediately upon the effectiveness of its termination of reporting pursuant to the new exit rule, PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 and to publish copies of its home country documents required by Rule 12g3–2(b) on its Internet Web site instead of submitting them in paper to the Commission. We have based the annual burden and cost estimates of the adopted rule amendments on Forms 20– F, 40–F, 6–K and 15F, and on the home country submissions required under Rule 12g3–2(b), on the following estimates and assumptions: • a foreign private issuer incurs or will incur 25% of the annual burden required to produce each Form 20–F or 40–F report or Form 15F; • outside firms, including legal counsel, accountants and other advisors, incur or will incur 75% of the burden required to produce each Form 20–F or 40–F report or Form 15F at an average cost of $400 per hour; • a foreign private issuer incurs or will incur 75% of the annual burden required to produce each Form 6–K report and Rule 12g3–2(b) submission, not including English translation work, and 25% of the annual burden required to perform the English translation work for Form 6–K reports and Rule 12g3– 2(b) submissions; and • outside firms, including legal counsel, accountants and other advisors, incur or will incur 25% of the burden required to produce each Form 6–K report and Rule 12g3–2(b) submission, not including English translation work, at an average cost of $400 per hour, and 75% of the annual burden resulting from the English translation work for Form 6–K reports and Rule 12g3–2(b) submissions, at an average cost of $125 per hour. As was the case with the originally proposed and reproposed rule amendments, the estimated effects of the adopted rule amendments reflect the initial phase-in period of the Exchange Act termination process under new Rule 12h–6 and Form 15F during the first year of availability. We expect that most 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 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. Moreover, we expect that over time, the number of foreign private issuers that are encouraged to enter the Exchange Act reporting system as a result of the rule amendments will increase so that, on an annual basis, the number of foreign companies entering the Exchange Act reporting regime will exceed the number exiting that regime. E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations We published a notice requesting comment on the collection of information requirements in the Original Proposing Release and submitted these requirements to the Office of Management and Budget (‘‘OMB’’) for review in accordance with the PRA.189 OMB subsequently approved the proposed requirements without change. We received several comment letters regarding the proposed rule amendments, although none addressed their estimated effects on the collection of information requirements. We revised and reproposed Rule 12h–6 and the accompanying rule amendments in response to these comments. We also revised the estimated reporting and cost burdens for the reproposed rules.190 Because we are adopting Rule 12h–6 and the accompanying rule amendments substantially as reproposed, the estimated reporting and cost burdens for the adopted rules remain the same as the estimated reporting and cost burdens for the reproposed rules, as discussed below. A. Form 20–F During the first year of effectiveness of reproposed Rule 12h–6, we estimate that as many as 25% of Form 20–F filers could terminate their Exchange Act reporting obligations under the new rule.191 However, we continue to believe that Rule 12h–6 will encourage some foreign companies to enter the Exchange Act registration and reporting regime for the first time. Consequently, during the first effective year of Rule 12h–6, the number of Form 20–F annual reports filed could increase by 5%, leading to a net decrease of 20% for Form 20–Fs filed over this same period. This net decrease would cause: • the number of Form 20–Fs filed to decrease to 880; 192 189 44 U.S.C. 3507(d) and 5 CFR 1320.11. Part III of the Reproposing Release. 191 191 As noted at the reproposing stage, a review by the Commission’s Office of Economic Analysis of trading volume data on a sample of foreign Exchange Act reporting companies that filed Form 20–F during 2004 suggested that approximately 30% of filers would meet the U.S. trading volume threshold of the reproposed rule. See Part III, n. 137 of the Reproposing Release. A more recent review of the Office of Economic Analysis of trading volume data on foreign Exchange Act reporting companies with common equity trading during 2005 indicates that an estimated 29% of filers would meet the U.S. trading volume threshold of the adopted rule. That percentage may vary by region. 192 1,100 Form 20–Fs filed annually (prior to this rulemaking) × .20 = 220; 1,100—220 = 880 Form 20–Fs filed annually. pwalker on PROD1PC71 with RULES3 190 See VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 • the total number of burden hours required to produce Form 20–F 193 to decrease to 2,314,400 total hours; 194 • the total number of burden hours required by foreign private issuers to produce Form 20–F to decrease to 578,600 total hours; 195 and • the cost incurred by outside firms 196 to produce Form 20–F to total $694,320,000.197 B. Form 40–F During the first year of effectiveness of Rule 12h–6, we estimate that as many as 10% of Form 40–F filers could terminate their Exchange Act reporting obligations under the new rule.198 However, the reproposed rule could 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. Consequently, over this same period, the number of Form 40–F annual reports filed could increase by approximately 3%, resulting in a net decrease of 7% for Form 40–Fs filed over this same period.199 This net decrease would cause: 193 As in the Reproposing Release, we estimate that a foreign private issuer requires on average 2,630 hours to produce each Form 20–F. 194 880 Form 20–Fs filed annually × 2,630 hours per Form 20–F = 2,314,400 hours. 195 880 Form 20–Fs × 2,630 hours per Form 20– F × .25 = 578,600 hours. Thus, we estimate that, during the first year of effectiveness of Rule 12h– 6, foreign private issuers could incur a reduction of 144,650 hours in the number of burden hours required to produce Form 20–F. 220 Form 20–Fs × 2,630 hrs. × .25 = 144,650 hours. Using an estimated hourly rate of $175 for in-house work, foreign private issuers could incur Form 20–F cost savings of $25,313,750 during Rule 12h–6’s first year of effectiveness. 144,650 hrs. × $175/hr. = $25,313,750. 196 We estimate cost savings of $173,580,000 regarding outside firms’ production of Form 20–Fs during Rule 12h–6’s first year of effectiveness. 220 Form 20–Fs × 2,630 hrs. × .75 × $400/hr. = $173,580,000. Thus, during the first year of its effectiveness, Rule 12h–6 could result in total estimated Form 20–F cost savings of $198,893,750. $25,313,750 + $173,580,000 = $198,893,750. 197 880 Form 20–Fs × 2,630 hours × .75 × $400/ hour = $694,320,000. The $108,487,500 increase reflects the increase in the estimated outside firm hourly rate from $300 to $400. 198 We do not expect the expanded scope of reproposed Rule 12h–6 to have as great an effect on MJDS filers as other foreign reporting companies since, typically, the U.S. trading volume relating to those shares is significant. Moreover, because of their close proximity to U.S. capital markets, we believe MJDS filers are less likely to seek to terminate their Exchange Act reporting obligations than other foreign private issuers. Accordingly, based on current experience, we expect no more than 10% of Form 40–F filers will terminate their Exchange Act reporting obligations under Rule 12h–6. 199 This is the same percentage previously estimated under the originally proposed rule amendments. PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 16951 • the number of Form 40–Fs filed to total 125; 200 • the number of burden hours required to produce Form 40–F 201 to total 53,375 total hours; 202 • the number of burden hours required by foreign private issuers to produce Form 40–F to total 13,344 hours; 203 and • the cost incurred by outside firms to produce Form 40–F to total $16,012,500.204 C. Form 6–K During the first year of effectiveness of Rule 12h–6, we estimate that as many as 23% of foreign private issuers that furnish Form 6–K reports could terminate their Exchange Act reporting obligations under the new rule.205 However, the adopted rule could encourage some foreign companies to enter the Exchange Act registration and reporting regime for the first time, including those that will furnish Form 6–K reports. Consequently, over this same period, the number of Form 6–K reports furnished could increase by as much as 5%,206 resulting in a net decrease of 18% for Form 6–Ks furnished over this same period. This net decrease would cause: 200 134 Form 40–Fs filed annually (prior to this rulemaking) × .07 = 9; 134¥9 = 125 Form 40–Fs filed annually. 201 As in the Reproposing Release, we estimate that it takes 427 hours on average to produce a Form 40–F report. 202 125 Form 40–Fs filed annually × 427 hours per Form 40–F = 53,375 hours. 203 125 Form 40–Fs filed annually × 427 hours per Form 40–F × .25 = 13,344 hours. Thus, we estimate that, during the first year of effectiveness of Rule 12h–6, foreign private issuers could incur a reduction of 961 hours in the number of burden hours required to produce Form 40–F. 9 Form 40– Fs × 427 hrs. × .25 = 961 hrs. This could result in estimated Form 40–F cost savings for foreign private issuers of $168,175. 961 hrs. × $175/hr. = $168,175. 204 125 Form 40–Fs filed annually × 427 hours per Form 40–F × .75 × $400/hour = $16,012,500. This estimate corresponds to estimated cost savings of $1,152,900 in connection with outside firms’ production of Form 40–F during reproposed Rule 12h–6’s first year of effectiveness. 9 × 427 hrs. × .75 × $400/hr. = $1,152,900. Thus, during the first year of its effectiveness, Rule 12h–6 could result in estimated total Form 40–F cost savings of $168,175 + $1,152,900 = $1,321,075. 205 This estimate is based on the estimated number of Form 20–F and Form 40–F filers that are expected to terminate their Exchange Act reporting obligations under 2h–6. 1,100 Form 20–Fs × .25 = 275; 134 Form 40–Fs × .10 = 13; 288 = .23 × 1,234. 206 This estimate is based on the estimated number of foreign private issuers that are expected to enter the Exchange Act reporting regime and file Form 20–Fs or Form 40–Fs as a result of this rulemaking during the first year of effectiveness. 1,100 Form 20–Fs × .05 = 55; 134 Form 40–Fs × .03 = 4; 59 = .05 × 1,234. E:\FR\FM\05APR3.SGM 05APR3 16952 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations • the number of Form 6–K reports furnished to decrease to 12,022; 207 • the total number of burden hours required to produce the Form 6–Ks 208 to decrease to 104,591 total hours; 209 • the total number of burden hours required by foreign private issuers 210 to produce Form 6–K to decrease to 65,369 hours; 211 and • the cost incurred by outside firms 212 to produce Form 6–K to total $10,295,775.213 D. Form 15F pwalker on PROD1PC71 with RULES3 During the first year of effectiveness of Rule 12h–6, we estimate that as many as 351 foreign private issuers 214 could 207 14,661 Form 6–K reports × .18 = 2,639; 14,661 – 2,639 = 12,022 Form 6–K reports. 208 In the Original and Reproposing Releases, we estimated that, prior to this rulemaking, it took a total of 127,197 annual burden hours to produce the 14,661 Form 6–Ks, or approximately 8.7 hours per Form 6–K (for work performed by foreign private issuers and outside firms). We continue to use this 8.7 hour estimate for the final rule amendments. 209 12,022 Form 6–K reports × 8.7 hours = 104,591 hours. 210 We estimate that, during the first year of effectiveness of Rule 12h–6, foreign private issuers could incur a reduction of 14,349 hours in the number of burden hours required to produce Form 6–K. 2,639 Form 6–Ks × 8.7 hours = 22,959 hours; 22,959 hours × .25 = 5,740 hours of English translation work; 5,740 hours × .25 = 1,435 hours of English translation work for foreign private issuers; 22,959 × .75 = 17,219 hours of non-English translation work; 17,219 × .75 = 12,914 hours of non-English translation work for foreign private issuers; 1,435 + 12,914 = 14,349 hours. This could result in estimated Form 6–K cost savings of $2,511,075 for foreign private issuers during the first year of Rule 12h–6’s effectiveness. 14,349 hrs. × $175/hr. = $2,511,075. 211 104,591 hours × .25 = 26,148 hours for English translation work; 104,591 hours—26,148 hours = 78,443 hours for non-English translation work; 78,443 hours × .75 = 58,832 hours for non-English translation work performed by foreign private issuers; 26,148 hours × .25 = 6,537 hours of English translation work performed by foreign private issuers; 58,832 hours + 6,537 hours = 65,369 total hours for Form 6–K work performed by foreign private issuers, or 5.4 hours for foreign private issuer work per Form 6–K. 212 We estimate cost savings of $2,260,025 in connection with outside firms’ production of Form 6–K during Rule 12h–6’s first year of effectiveness. 5,740 hrs. × .75 × $125/hour = $538,125 for English translation work; 17,219 × .25 × $400/hour = $1,721,900 for non-English translation work. $538,125 + $1,721,900 = $2,260,025 in Form 6–K cost savings for outside firms. Thus, Rule 12h–6 could result in total estimated Form 6–K cost savings of $4,771,100. $2,511,075 + $2,260,025 = $4,771,100. 213 78,443 hours × .25 = 19,611 hours × $400/hour = $7,844,400 for non-translation work; 26,148 hours × .75 = 19,611 hours × $125/hour = $2,451,375 for English translation work; $7,844,400 + $2,451,375 = $10,295,775 for total work performed by outside firms. The $2,078,475 increase reflects the increase in the estimated outside firm hourly rate from $300 to $400 and the increase in the estimated outside firm rate for English translation work from $75 to $125/hour based on current information provided by financial printer representatives. 214 We derived this estimate from the number of Form 20–F filers (275) and Form 40–F filers (13) VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 file a Form 15F to terminate their Exchange Act reporting obligations, which would cause: • the number of burden hours required to produce Form 15F 215 to total 10,530 hours; 216 • foreign private issuers to incur a total of 2,633 hours to produce Form 15F; 217 and • outside firms to incur a total cost of $3,159,200 218 to produce Form 15F.219 E. Rule 12g3–2(b) Submissions We estimate that 685 foreign private issuers currently have obtained the Rule 12g3–2(b) exemption.220 In addition, we estimate that each Rule 12g3–2(b) exempt issuer currently makes 12 Rule 12g3–2(b) submissions per year for a total of 8,220 Rule 12g3–2(b) submissions. We further estimate that it takes a total of 32,880 annual burden hours, or 4 annual burden hours per submission (for work performed by foreign private issuers and outside firms), to produce the 8,220 Rule 12g3– 2(b) submissions.221 estimated to elect to terminate their Exchange Act reporting obligations under Rule 12h–6 during the first year of the rule’s effectiveness. We then added to this sum (288) the number of prior Form 15 filers (63) estimated to file a Form 15F during the first year of Rule 12h–6’s effectiveness in order to make their Form 15 termination or suspension of reporting obligations permanent. The latter number is based on the approximate number of foreign private issuers that filed a Form 15 from 2003 through the present. 215 In the Original and Reproposing Releases, we estimated that the production of each Form 15F would require 30 hours. We continue to use this estimate for the final rule amendments. 216 351 Form 15Fs × 30 = 10,530 hours. 217 10,530 hours × .25 = 2,633 hours. This could result in estimated Form 15F costs for foreign private issuers of $460,775 during Rule 12h–6’s first year of effectiveness. 2,633 hrs. × $175 = $460,775. 218 10,530 hours × .75 = 7,898 hours; 7,898 hours × $400/hour = $3,159,200. The $3,159,200 increase reflects the increase in the number of estimated Form 15F filers and the increase in the estimated outside firm hourly rate from $300 to $400. 219 Thus, Rule 12h–6 could result in total estimated Form 15F costs of $3,619,975 during its first year of effectiveness. $460,775 + $3,159,200 = $3,619,975. 220 This estimate is based on Commission staff’s most recent annual review of the number of current Rule 12g3–2(b) exempt companies, which will be available soon on our Internet Web site at https:// www.sec.gov/divisions/corpfin.shtml. 221 These estimates are the same as the estimates presented in the Reproposing Release. As we stated in that release, the estimates represent an adjustment of 31,080 hours from the 1,800 total hours previously reported for Rule 12g3–2(b) submissions. They reflect a re-evaluation of the number of foreign private issuers that currently claim the Rule 12g3–2(b) exemption, the number of Rule 12g3–2(b) submissions made by them, and the number of burden hours required for their production, in addition to assessing the effects on Rule 12g3–2(b) submissions expected to result from adoption of the final rule amendments. We believe these estimates more accurately reflect the current burden hours required for the collections of information submitted under Rule 12g3–2(b). PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 During the first year of effectiveness of reproposed Rule 12h–6, we estimate that as many as 351 foreign private issuers could claim the Rule 12g3–2(b) exemption immediately upon the effectiveness of their termination of reporting under new Rule 12h–6.222 This increase in the number of Rule 12g3–2(b) exempt issuers would cause: • the number of issuers claiming the Rule 12g3–2(b) exemption to total 1,036; • the number of Rule 12g3–2(b) submissions made annually to total 12,432; • the number of annual burden hours required to produce these Rule 12g3– 2(b) submissions to total 49,728 hours; • foreign private issuers to incur a total of 31,080 annual burden hours to produce these Rule 12g3–2(b) submissions, or 2.5 annual burden hours per submission; 223 and • outside firms to incur a total cost of $4,909,275 224 to produce the Rule 12g3–2(b) submissions.225 222 This amount includes the estimated 288 Form 20–F and 40–F filers expected to terminate their Exchange Act reporting obligations under Rule 12h–6 as well as the estimated 63 prior Form 15 filers expected to file a Form 15F to make their prior termination or suspension of reporting under Rule 12h–6. 223 Because the home country document submission requirement under Rule 12g3–2(b) is similar to the home country document submission requirement under Form 6–K, we have used the same assumptions regarding the English and nonEnglish translation work required under Rule 12g3– 2(b) that we adopted for Form 6–K submissions. Accordingly: 49,728 hours × .25 = 12,432 total annual burden hours for English translation work; 49,728¥12,432 = 37,296 total annual burden hours required for non-English translation work; 37,296 hours × .75 = 27,972 total annual burden hours incurred by foreign private issuers for non-English translation work; 12,432 hours × .25 = 3,108 total annual hours incurred by foreign private issuers for English translation work; 27,972 + 3,108 = 31,080 total annual burden hours incurred by foreign private issuers for Rule 12g3–2(b) submissions, or 2.5 annual burden hours per submission. Of the 31,080 hours, 10,530 hours would result from adoption of the new rules and 20,550 hours represents an adjustment from the previous PRA estimates for Rule 12g3–2 submissions. 224 49,728 hours × .25 = 12,432 hours for English translation work; 12,432 hours × .75 = 9,324 hours; 9,324 hours × $125 = $1,165,500 for English translation work; 49,728 hours¥12,432 hours = 37,296 hours for non-English translation work; 37,296 hours × .25 = 9,324 hours; 9,324 hours × $400 = $3,729,600 for non-English translation work; $1,165,500 + $3,729,600 = $4,895,100 for total work performed by outside firms. Of that total amount, $1,658,475 would result from adoption of the new rules and $3,236,625 constitutes an adjustment from the previous PRA estimates for Rule 12g3–2 submissions. 225 We further estimate that new Rule 12h–6 and the accompanying rule amendments could result in total estimated Rule 12g3–2(b) costs of $3,501,225 during the first year of their effectiveness. 351 issuers × 12 submissions/issuer × 2.5 hrs./ submission = 10,530 hours; 10,530 hours × $175/ hr. = $1,842,750 in Rule 12g3–2(b) submission costs for foreign private issuers. For outside firm costs: 351 issuers × 12 submissions/issuer × 4 hrs./ submission = 16,848 hours; 16,848 × .25 = 4,212 E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations IV. Cost-Benefit Analysis A. Expected Benefits pwalker on PROD1PC71 with RULES3 New Exchange Act Rule 12h–6 and the accompanying rule amendments will benefit U.S. investors to the extent that they remove a possible disincentive for foreign companies that are not currently Exchange Act reporting companies to register their equity and debt securities with the Commission. In response to foreign companies’ concerns about Exchange Act reporting and other obligations, these rules will expand the criteria by which a foreign company may terminate those obligations. In so doing, the adopted rule amendments should over time remove an impediment to foreign company access and participation in U.S. public capital markets while still providing U.S. investors with the protections afforded by our Exchange Act reporting regime. The adopted rule amendments should remove a disincentive for foreign firms to enter our Exchange Act reporting regime by lowering the cost of exiting from that regime. Investors are expected to benefit from the amendments by being able to purchase shares in foreign firms that have been registered with the Commission and that, therefore, provide a high level of investor protection. In addition, U.S. investors may incur lower transaction costs when trading a foreign company’s shares on a U.S. exchange relative to a foreign exchange. To remove a disincentive for foreign companies to enter U.S. public capital markets, the adopted rule amendments will benefit U.S. investors by enabling a foreign Exchange Act reporting company to lower its costs of compliance in connection with Exchange Act deregistration. This reduction in the cost of compliance will directly benefit both foreign companies and their investors, including those resident in the United States. The final rule amendments will result in foreign private issuers incurring lower costs of Exchange Act compliance in four possible ways. First, rather than require a foreign private issuer to determine the number of its U.S.holders, as is the case under the current exit rules, new Rule 12h–6 will enable a foreign private issuer to rely solely on trading volume data regarding its securities in the United States and on hours of English translation work; 4,212 × .75 × $125 = $394,875 of English translation costs for outside firms. 16,848 hours × .75 = 12,636 hours of non-English translation work; 12,636 × .25 × $400 = $1,263,600 of non-English translation costs for outside firms. $394,875 + $1,263,600 = $1,658,475 in total Rule 12g3–2(b) submission costs for outside firms. $1,842,750 + $1,658,475 = $3,501,225 in total estimated Rule 12g3–2(b) costs. VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 a worldwide basis when determining whether it may terminate its Exchange Act reporting obligations. Because trading volume data is more easily obtainable than information regarding its U.S. shareholders, the new rule should lower the costs of Exchange Act termination for foreign private issuers. Second, new Rule 12h–6 will allow a foreign firm to terminate its Exchange Act reporting obligations regarding a class of equity securities and immediately obtain the Rule 12g3–2(b) exemption. 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. Third, new Rule 12h–6 will permit an issuer to rely on the assistance of an independent information services provider when determining whether it falls below the 300-holder standard. The option to hire an independent information services provider may be a more efficient and cost-effective mechanism to make that determination. Moreover, a foreign company may save costs when assessing its eligibility to terminate its registration and reporting under the 300-holder provision of Rule 12h–6, since the rule will limit the number of jurisdictions in which a foreign private issuer must search for the amount of securities represented by accounts of customers resident in the United States held by brokers, dealers, banks and other nominees. The current rules require a foreign private issuer to conduct a worldwide search for such U.S. customer accounts. Fourth, once having terminated its reporting obligations under new Rule 12h–6, a foreign company will no longer be required to incur costs associated with producing an Exchange Act annual report or interim Form 6–K reports.226 Based on estimates and assumptions used for the purpose of the Paperwork Reduction Act, these estimated cost savings could total approximately $200,000,000 for the first year of Rule 12h–6’s effectiveness.227 226 We recognize that, as a result of terminating their Exchange Act reporting obligations under Rule 12h–6, foreign firms may accrue other cost savings that are not specifically quantified in this section. One such example is an investment in an internal control system in order to comply with the Sarbanes-Oxley Act. 227 As discussed in Part III of this release, for the first year of Rule 12h–6’s effectiveness, estimated cost savings in connection with Forms 20–F, 40–F and 6–K could amount to, respectively, $198,893,750, $1,321,075, and $4,771,100, for a total of $204,985,925. These cost savings could be less to the extent that more foreign private issuers register with the Commission over time as a result of the adoption of Rule 12h–6. PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 16953 B. Expected Costs Investors could incur costs from the adopted rule amendments to the extent that currently registered foreign companies respond to the rule changes by terminating their Exchange Act registration and reporting obligations with respect to their equity and debt securities. If Exchange Act disclosure requirements provide more information or protection to U.S. or other investors than is provided in an issuer’s primary trading market, then all investors, both U.S. and foreign, may suffer the costs of losing that information and protection upon Exchange Act termination.228 If this is the case, the announcement that a foreign firm is terminating its Exchange Act reporting may result in a loss of share value and the incurrence by investors of higher costs from trading in the firm’s equity and debt securities. There are costs associated with the filing of new Form 15F, which is a requirement for a foreign private issuer that terminates its Exchange Act registration and reporting under Rule 12h–6.229 A foreign private issuer will also incur costs in connection with having to post on its Internet Web site in English its material home country documents required to maintain the Rule 12g3–2(b) exemption that it will have received upon the effectiveness of its termination of reporting under new Rule 12h–6.230 We expect that new Rule 12h–6 will enable some foreign registrants to avoid other recent U.S. regulation, such as the Sarbanes-Oxley Act. Investors will lose the benefits afforded by the SarbanesOxley Act to the extent a current foreign registrant is not fully subject to that 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 Rule 12h–6. U.S. investors seeking to trade the former reporting company’s securities in the U.S. may be forced to trade in over-the-counter markets such as the one administered by Pink Sheets, LLC, which could result in higher transaction costs than if the foreign company had continued to have a class of securities registered with the Commission. 228 Conversely, in countries that have similar regulatory regimes and levels of investor protection, the impact of U.S. deregistration may be mitigated. 229 As discussed in Part III of this release, based on estimates and assumptions adopted for the purpose of the Paperwork Reduction Act, these costs could total $3,619,975 during the first year of the new form’s use. 230 As discussed in Part III of this release, based on estimates and assumptions adopted for the Paperwork Reduction Act, these resulting Rule 12g3–2(b) costs could amount to $3,501,225. E:\FR\FM\05APR3.SGM 05APR3 16954 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations U.S. investors seeking to trade the former reporting company’s securities in its primary trading market also could incur additional costs. For example, 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.231 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 the 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 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. V. Consideration of Impact on the Economy, Burden on Competition and Promotion of Efficiency, Competition and Capital Formation Analysis When adopting rules under the Exchange Act, Section 23(a)(2) of the Exchange Act 232 requires us to consider the impact that any new rule will have on competition. Section 23(a)(2) also prohibits us from adopting any rule that will 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 us to consider or determine whether an pwalker on PROD1PC71 with RULES3 231 A foreign company may terminate its ADR facility whether or not it is an Exchange Act registrant, and adopted 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, Rule 12h–6 will enable foreign private issuers to retain their ADR facilities as unlisted facilities following their termination of reporting under Rule 12h–6. As adopted, Rule 12h–6 will require an issuer that has terminated a sponsored ADR facility to wait a year before it may file a Form 15F in reliance on the trading volume provision of Rule 12h–6 if, on the date of termination, the issuer does not meet the trading volume benchmark. 232 15 U.S.C. 78w(a)(2). VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 action is necessary or appropriate in the public interest, Section 3(f) of the Exchange Act 233 requires the Commission to consider whether the action will promote efficiency, competition and capital formation. In the Reproposing Release, we considered reproposed Rule 12h–6 and the accompanying reproposed rule amendments in light of the standards set forth in the above statutory sections. We solicited comment on whether, if adopted, reproposed Rule 12h–6 and the other reproposed rule amendments would result in any anti-competitive effects or promote efficiency, competition and capital formation. We further encouraged commenters to provide empirical data or other facts to support their views on any anticompetitive effects or any burdens on efficiency, competition or capital formation that might result from adoption of reproposed Rule 12h–6 and the other reproposed rule amendments. We did not receive any comments or any empirical data in this regard concerning reproposed Rule 12h–6 and the accompanying rule amendments. Accordingly, since the adopted rules are substantially similar to the reproposed rules, we continue to believe the new rules will provide a foreign reporting company with a more efficient option of exiting the Exchange Act reporting system when U.S. investor interest has become relatively scarce. In so doing, new Rule 12h–6 and the other rule amendments should encourage foreign private issuers to register their equity and debt securities with the Commission by reassuring foreign private issuers that, should interest in the U.S. market for their securities decline sufficiently, they may exit the Exchange Act reporting system with little difficulty. By providing increased flexibility for foreign private issuers regarding our Exchange Act reporting system, the adopted rules should encourage foreign companies to participate in U.S. capital markets as Exchange Act reporting companies to the benefit of investors. In so doing, the adopted 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 Rule 12h–6 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 233 15 PO 00000 U.S.C. 78c(f). Frm 00022 Fmt 4701 Sfmt 4700 in its primary trading market, the adopted rules will help ensure that U.S. investors continue to have ready access to material information in English about the foreign private issuer.234 Thus, new Rule 12h–6 and the accompanying rule amendments 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. VI. Regulatory Flexibility Act Certification Under Section 605(b) of the Regulatory Flexibility Act,235 we certified that, when adopted, reproposed Rule 12h–6 and the accompanying reproposed rule amendments would not have a significant economic impact on a substantial number of small entities. We included this certification in Part VI of the Reproposing Release. While we encouraged written comments regarding this certification, no commenters responded to this request. VII. Statutory Basis and Text of Rule Amendments We are adopting the amendments to Rule 30–1 of Part 200, Rule 101 of Regulation S–T, and Exchange Act Rules 12g3–2, 12g–4 and 12h–3, new Exchange Act Rule 12h–6 and new Exchange Act Form 15F under the authority in sections 6, 7, 10 and 19 of the Securities Act 236 and sections 3(b), 12, 13, 23 and 36 of the Exchange Act.237 List of Subjects 17 CFR Part 200 Administrative practice and procedure, Authority delegations (Government agencies). 17 CFR Parts 232, 240 and 249 Reporting and recordkeeping requirements, Securities. Text of Rule Amendments For the reasons set out in the preamble, we are amending Title 17, Chapter II of the Code of Federal Regulations as follows. I 234 Similarly, by expanding the scope of the originally proposed Rule 12h–6 to permit prior Form 15 filers to terminate their Exchange Act reporting obligations under the new exit rule and claim the Rule 12g3–2(b) exemption immediately upon such termination, the adopted rules will help promote the availability of material home country information in English about those issuers for U.S. investors. 235 5 U.S.C. 605(b). 236 15 U.S.C. 77f, 77g, 77j, and 77s. 237 15 U.S.C. 78c, 78l, 78m, 78w, and 78mm. E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations 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. PART 200—ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS * 1. The general authority citation for Part 200 is revised to read as follows: I * * * * 6. Amend § 240.12g3–2 by revising paragraphs (d)(1) and (d)(2) and adding paragraphs (e) and (f) to read as follows: I Authority: 15 U.S.C. 77o, 77s, 77sss, 78d, 78d–1, 78d–2, 78w, 78ll(d), 78mm, 80a–37, 80b–11, and 7202, unless otherwise noted. * I § 240.12g3–2 Exemptions for American depositary receipts and certain foreign securities. * pwalker on PROD1PC71 with RULES3 * * * * 2. Amend § 200.30–1 by adding paragraph (e)(17) to read as follows: * * * * (d) * * * (1) Securities of a foreign private § 200.30–1 Delegation of authority to Director of Division of Corporation Finance. issuer that has or has had during the prior eighteen months any securities * * * * * registered under section 12 of the Act or (e) * * * a reporting obligation (suspended or (17) At the request of a foreign private active) under section 15(d) of the Act issuer, pursuant to Rule 12h–6 (other than arising solely by virtue of (§ 240.12h–6 of this chapter), to the use of Form F–7, F–8, F–9, F–10 or accelerate the termination of the F–80), except as provided by paragraph registration of a class of securities under (e) of this section; section 12(g) of the Act (15 U.S.C. 78l(g)) (2) Securities of a foreign private or the duty to file reports under section issuer issued in a transaction (other than 13(a) of the Act (15 U.S.C. 78m(a)) or a transaction registered on Form F–8, F– section 15(d) of the Act (15 U.S.C. 9, F–10 or F–80) to acquire by merger, 78o(d)). consolidation, exchange of securities or * * * * * acquisition of assets, another issuer that had securities registered under section PART 232—REGULATION S–T— 12 of the Act or a reporting obligation GENERAL RULES AND REGULATIONS (suspended or active) under section FOR ELECTRONIC FILINGS 15(d) of the Act, except as provided by paragraph (e) of this section; and I 3. The authority citation for Part 232 * * * * * continues to read in part as follows: (e)(1) A foreign private issuer that has Authority: 15 U.S.C. 77f, 77g, 77h, 77j, filed a Form 15F (§ 249.324 of this 77s(a), 77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), chapter) pursuant to § 240.12h–6 shall 78w(a), 78ll(d), 80a–8, 80a–29, 80a–30, 80a– receive the exemption provided by 37, and 7201 et seq.; and 18 U.S.C. 1350. paragraph (b) of this section for a class * * * * * of equity securities immediately upon I 4. Amend § 232.101 by: the effectiveness of the termination of I a. Removing the word ‘‘and’’ at the registration of that class of securities end of paragraph (a)(1)(x); under section 12(g) of the Act (15 U.S.C. I b. Removing the period and adding ‘‘; 78l(g)) or the termination of the duty to and’’ at the end of paragraph (a)(1)(xi); file reports regarding that class of and securities under section 15(d) of the Act I c. Adding paragraph (a)(1)(xii). (15 U.S.C. 78o(d)), or both. The addition reads as follows: (2) Notwithstanding any provision of § 240.12g3–2(b), in order to satisfy the § 232.101 Mandated electronic conditions of the § 240.12g3–2(b) submissions and exceptions. exemption received under this (a) * * * paragraph (e), the issuer shall publish in (1) * * * (xii) Forms 15 and 15F (§ 249.323 and English the information required under paragraph (b)(1)(iii) of this section on its § 249.324 of this chapter). Internet Web site or through an * * * * * electronic information delivery system generally available to the public in its PART 240—GENERAL RULES AND primary trading market, rather than REGULATIONS, SECURITIES furnish that information to the EXCHANGE ACT OF 1934 Commission. (3) The § 240.12g3–2(b) exemption I 5. The general authority citation for received under this paragraph (e) will Part 240 continues to read in part as remain in effect for as long as the follows: foreign private issuer satisfies the Authority: 15 U.S.C. 77c, 77d, 77g, 77j, electronic publication condition of 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, paragraph (e)(2) of this section or until 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, the issuer registers a class of securities 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, under section 12 of the Act or incurs 78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a– VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 16955 reporting obligations under section 15(d) of the Act. (4) Notwithstanding the time period specified in § 240.12g3–2(d)(1), a foreign private issuer that filed a Form 15F solely with respect to a class of debt securities under section 15(d) of the Act (15 U.S.C. 78o(d)) may establish the exemption provided by paragraph (b) of this section for a class of equity securities upon the effectiveness of its termination of reporting regarding the class of debt securities. 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. As used in paragraph (e)(2) of this section, primary trading market has the same meaning as under § 240.12h–6(f). 3. A foreign private issuer that files a Form 15F regarding a class of equity securities shall disclose in the Form 15F the address of its Internet Web site or that 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. 4. A foreign private issuer that has filed a Form 15F solely with respect to a class of debt securities may establish the exemption under § 240.12g3–2(b) regarding a class of equity securities by submitting an application to the Commission after filing its Form 15F. The issuer must provide in that application the date that it filed its Form 15F as well as the address of its Internet Web site or that 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. (f)(1) A foreign private issuer that, upon application to the Commission and not after filing a Form 15F, has obtained or will obtain the exemption under § 240.12g3–2(b), may publish the information required under paragraph (b)(1)(iii) of this section on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market, rather than furnish that information to the Commission, as long as it complies with the English translation requirements provided in paragraph (e) of this section. E:\FR\FM\05APR3.SGM 05APR3 16956 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations (2) Before a foreign private issuer may publish information electronically pursuant to this paragraph, it must provide the Commission with the address of its Internet Web site or that of the electronic information delivery system in its primary trading market in its application for the exemption under § 240.12g3–2(b) or in an amendment to that application. I 7. Amend § 240.12g–4 by: I a. Removing the authority citations following the section; and I b. Revising paragraph (a) to read as follows: § 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. * * * * * I 8. Amend § 240.12h–3 by: I a. Removing the authority citations following the section; I b. Adding the word ‘‘and’’ at the end of paragraph (b)(1)(ii); I c. Removing paragraph (b)(2), including the undesignated paragraph; I d. Redesignating paragraph (b)(3) as (b)(2); I e. Revising the cite ‘‘paragraphs (b)(1)(ii) and (2)(ii)’’ to read ‘‘paragraph (b)(1)(ii)’’ in paragraph (c); and I 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). I 9. Add § 240.12h–6 to read as follows: pwalker on PROD1PC71 with RULES3 § 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 13(a) or 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) VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 or section 15(d) of the Act for at least the 12 months preceding the filing of the Form 15F, has filed or furnished all reports required for this period, and has filed at least one annual report pursuant to section 13(a) of the Act; (2) 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 12 months preceding the filing of the Form 15F, other than securities issued: (i) To the issuer’s employees; (ii) By selling security holders in nonunderwritten offerings; (iii) Upon the exercise of outstanding rights granted by the issuer if the rights are granted pro rata to all existing security holders of the class of the issuer’s securities to which the rights attach; (iv) Pursuant to a dividend or interest reinvestment plan; or (v) Upon the conversion of outstanding convertible securities or upon the exercise of outstanding transferable warrants issued by the issuer; Note to Paragraph (a)(2): The exceptions in paragraphs (a)(2)(iii) through (v) do not apply to securities issued pursuant to a standby underwritten offering or other similar arrangement in the United States. (3) The foreign private issuer has maintained a listing of the subject class of securities for at least the 12 months preceding the filing of the Form 15F on one or more exchanges in a foreign jurisdiction that, either singly or together with the trading of the same class of the issuer’ s securities in another foreign jurisdiction, constitutes the primary trading market for those securities; and (4)(i) The average daily trading volume of the subject class of securities in the United States for a recent 12month period has been no greater than 5 percent of the average daily trading volume of that class of securities on a worldwide basis for the same period; or (ii) On a date within 120 days before the filing date of the Form 15F, a foreign private issuer’s subject class of equity securities is either held of record by: (A) Less than 300 persons on a worldwide basis; or (B) Less than 300 persons resident in the United States. Note to Paragraph (a)(4): If an issuer’s equity securities trade in the form of American Depositary Receipts in the United States, for purposes of paragraph (a)(4)(i), it must calculate the trading volume of its American Depositary Receipts in terms of the number of securities represented by those American Depositary Receipts. PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 (b) A foreign private issuer must wait at least 12 months before it may file a Form 15F to terminate its section 13(a) or 15(d) reporting obligations in reliance on paragraph (a)(4)(i) of this section if: (1) The issuer has delisted a class of equity securities from a national securities exchange or inter-dealer quotation system in the United States, and at the time of delisting, the average daily trading volume of that class of securities in the United States exceeded 5 percent of the average daily trading volume of that class of securities on a worldwide basis for the preceding 12 months; or (2) The issuer has terminated a sponsored American Depositary Receipts facility, and at the time of termination the average daily trading volume in the United States of the American Depositary Receipts exceeded 5 percent of the average daily trading volume of the underlying class of securities on a worldwide basis for the preceding 12 months. (c) A foreign private issuer may terminate its duty to file or furnish reports pursuant to section 13(a) or section 15(d) 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 by section 13(a) or section 15(d) of the Act, including at least one annual report pursuant to section 13(a) of the Act; and (2) On 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. (d)(1) Following a merger, consolidation, exchange of securities, acquisition of assets or otherwise, a foreign private issuer that has succeeded to the registration of a class of securities under section 12(g) of the Act of another issuer pursuant to § 240.12g–3, or to the reporting obligations of another issuer under section 15(d) of the Act pursuant to § 240.15d–5, may file a Form 15F to terminate that registration or those reporting obligations if: (i) Regarding a class of equity securities, the successor issuer meets the conditions under paragraph (a) of this section; or (ii) Regarding a class of debt securities, the successor issuer meets the conditions under paragraph (c) of this section. (2) When determining whether it meets the prior reporting requirement under paragraph (a)(1) or paragraph (c)(1) of this section, a successor issuer E:\FR\FM\05APR3.SGM 05APR3 pwalker on PROD1PC71 with RULES3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations may take into account the reporting history of the issuer whose reporting obligations it has assumed pursuant to § 240.12g–3 or § 240.15d–5. (e) Counting method. When determining under this section the number of United States residents holding a foreign private issuer’s equity or debt securities: (1)(i) Use the method for calculating record ownership § 240.12g3–2(a), except that you may limit your 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: (A) The United States; (B) The foreign private issuer’s jurisdiction of incorporation, legal organization or establishment; and (C) The foreign private issuer’s primary trading market, if different from the issuer’s jurisdiction of incorporation, legal organization or establishment. (ii) If you aggregate the trading volume of the issuer’s securities in two foreign jurisdictions for the purpose of complying with paragraph (a)(3) of this section, you must include both of those foreign jurisdictions when conducting your inquiry under paragraph (e)(1)(i) of this section. (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 United States holders when publicly filed reports of beneficial ownership or other reliable information that is provided to you indicates that the securities are held by United States residents. (4) When calculating under this section the number of your United States resident security holders, 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) Definitions. For the purpose of this section: (1) Debt security means any security other than an equity security as defined under § 240.3a11–1, including: (i) Non-participatory preferred stock, which is defined as non-convertible capital stock, the holders of which are VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 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; and (ii) Notwithstanding § 240.3a11–1, any debt security described in paragraph (f)(3)(i) and (ii) of this section; (2) Employee has the same meaning as the definition of employee provided in Form S–8 (§ 239.16b of this chapter). (3) Equity security means the same as under § 240.3a11–1, but, for purposes of paragraphs (a)(3) and (a)(4)(i) of this section, does not include: (i) Any debt security that is convertible into an equity security, with or without consideration; (ii) Any debt security that includes a warrant or right to subscribe to or purchase an equity security; (iii) Any such warrant or right; or (iv) Any put, call, straddle, or other option or privilege that gives the holder the option of buying or selling a security but does not require the holder to do so. (4) Foreign private issuer has the same meaning as under § 240.3b–4. (5) Primary trading market means that: (i) At least 55 percent of the trading in a foreign private issuer’s class of securities that is the subject of Form 15F took place in, on or through the facilities of a securities market or markets in a single foreign jurisdiction or in no more than two foreign jurisdictions during a recent 12-month period; and (ii) If a foreign private issuer aggregates the trading of its subject class of securities in two foreign jurisdictions for the purpose of paragraph (a)(3) of this section, the trading for the issuer’s securities in at least one of the two foreign jurisdictions must be larger than the trading in the United States for the same class of the issuer’s securities. (6) 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. (g)(1) 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 filing pursuant to paragraph (a), (c) or (d) of this section. If there are no objections from the Commission, 90 days, or such shorter period as the Commission may determine, after the issuer has filed its Form 15F, the effectiveness of any of the following shall occur: (i) The termination of registration of a class of securities under section 12(g); and PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 16957 (ii) The termination of a foreign private issuer’s duty to file reports under section 13(a) or section 15(d) of the Act. (2) 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. (h) As a condition to termination of registration or reporting under paragraph (a), (c) or (d) of this section, a foreign private issuer must, either before or on the date that it files its Form 15F, publish a notice in the United States that discloses its intent to terminate its registration of a class of securities under section 12(g) of the Act, or its reporting obligations under section 13(a) 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 to the Commission, 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. (i)(1) A foreign private issuer that, before the effective date of this section, terminated the registration of a class of securities under section 12(g) of the Act or suspended its reporting obligations regarding a class of equity or debt securities under section 15(d) of the Act may file a Form 15F in order to: (i) Terminate under this section the registration of a class of equity securities that was the subject of a Form 15 (§ 249.323 of this chapter) filed by the issuer pursuant to § 240.12g–4; or (ii) Terminate its reporting obligations under section 15(d) of the Act, which had been suspended by the terms of that section or by the issuer’s filing of a Form 15 pursuant to § 240.12h–3, regarding a class of equity or debt securities. (2) In order to be eligible to file a Form 15F under this paragraph: (i) If a foreign private issuer terminated the registration of a class of securities pursuant to § 240.12g–4 or suspended its reporting obligations pursuant to § 240.12h–3 or section 15(d) of the Act regarding a class of equity securities, the issuer must meet the requirements under paragraph (a)(3) and paragraph (a)(4)(i) or (a)(4)(ii) of this section; or (ii) If a foreign private issuer suspended its reporting obligations pursuant to § 240.12h–3 or section 15(d) of the Act regarding a class of debt securities, the issuer must meet the E:\FR\FM\05APR3.SGM 05APR3 16958 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations requirements under paragraph (c)(2) of this section. (3)(i) If the Commission does not object, 90 days after the filing of a Form 15F under this paragraph, or such shorter period as the Commission may determine, the effectiveness of any of the following shall occur: (A) The termination under this section of the registration of a class of equity securities, which was the subject of a Form 15 filed pursuant to § 240.12g–4, and the duty to file reports required by section 13(a) of the Act regarding that class of securities; or (B) The termination of a foreign private issuer’s reporting obligations under section 15(d) of the Act, which had previously been suspended by the terms of that section or by the issuer’s filing of a Form 15 pursuant to § 240.12h–3, regarding a class of equity or debt securities. (ii) If the Form 15F is subsequently withdrawn or denied, the foreign private 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: I Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted. * I * * * * 11. Add § 249.324 to read as follows: pwalker on PROD1PC71 with RULES3 § 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 13(a) or 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 the registration of a class of securities under section 12(g) of the Act (15 U.S.C. 78l(g)) or the duty to file reports under section 13(a) of the Act (15 U.S.C. 78m(a)) or section 15(d) of the Act (15 U.S.C. 78(o)(d)). 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. I 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: 3235–0621 VerDate Aug<31>2005 18:19 Apr 04, 2007 Jkt 211001 Expires: Estimated average burden hours per response—30.0 United States Securities and Exchange Commission Washington, DC 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 to File Reports Under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 Commission File Number llllllll lllllllllllllllllllll (Exact name of registrant as specified in its charter) lllllllllllllllllllll (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) lllllllllllllllllllll (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 under the Securities Exchange Act of 1934: Rule 12h–6(a) b (for equity securities) Rule 12h–6(c) b (for debt securities) Rule 12h–6(d) b (for successor registrants) Rule 12h–6(i) b (for prior Form 15 filers) General Instructions A. Who May Use Form 15F and When 1. 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; or • 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. 2. A foreign private issuer may file Form 15F, pursuant to Rule 12h–6(c) (17 CFR 240.12h–6(c)), when seeking to terminate its reporting obligations under section 13(a) or section 15(d) of the Exchange Act regarding a class of debt securities. 3. A foreign private issuer may file Form 15F, pursuant to Rule 12h–6(d) (17 CFR 240.12h–6(d)), when seeking to terminate the registration of a class of securities under section 12(g), or reporting obligations under section 13(a) or section 15(d) of the Exchange Act, to which it has succeeded pursuant to Rule 12g–3 (17 CFR 240.12g–3) or Rule 15d– 5 (17 CFR 240.15d–5). PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 4. A foreign private issuer may file Form 15F, pursuant to Rule 12h–6(i) (17 CFR 240.12h–6(i)), if, before the effective date of Rule 12h–6, it terminated the registration of a class of securities under section 12(g) of the Act, or suspended its reporting obligations regarding a class of equity or debt securities under section 15(d) of the Act, in order to: • Terminate under Rule 12h–6 the registration of a class of equity securities that was the subject of a Form 15 (§ 249.323 of this chapter) filed by the issuer pursuant to § 240.12g–4; or • Terminate its reporting obligations under section 15(d) of the Act, which had been suspended by the terms of that section or by the issuer’s filing of a Form 15 pursuant to § 240.12h–3, regarding a class of equity or 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. C. Effective Date For an issuer filing Form 15F under Rule 12h–6(a), (c) or (d), the duty to file any reports required under section 13(a) or 15(d) of the Exchange Act will be suspended immediately upon filing the Form 15F. If there are no objections from the Commission, 90 days, or within a shorter period as the Commission may determine, after the issuer has filed its Form 15F, there shall take effect: • the termination of registration of a class of securities under section 12(g) of the Act; • the termination of the issuer’s duty to file or submit reports under section 13(a) or section 15(d) of the Act; or • both. For an issuer that has already terminated its registration of a class of equity securities pursuant to Rule 12g–4 or suspended its reporting obligations under section 15(d) or Rule 12h–3, the effectiveness of its termination of section 12(g) registration under Rule 12h–6 and the corresponding duty to file reports required by section 13(a) of the Act, or the termination of its previously suspended reporting obligations under section 15(d) of the Act, shall also occur 90 days after the issuer has filed its Form 15F under Rule 12h–6(i), or within a shorter period as the Commission may determine, if there are no objections from the Commission. D. Other Filing Requirements 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– E:\FR\FM\05APR3.SGM 05APR3 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations 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(g)(2) (17 CFR 240.12h–6(g)(2)) and Rule 12h–6(i)(3)(ii) (17 CFR 240.12h–6(i)(3)(ii)). E. Rule 12g3–2(b) Exemption Regardless of the particular Rule 12h–6 provision under which it is proceeding, a foreign private issuer that has filed a Form 15F 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 provide information to investors and to assist the Commission in assessing whether you meet the requirements for terminating your Exchange Act reporting under Rule 12h–6. If, pursuant to Rule 12h–6, there is an item that does not apply to you, mark that item as inapplicable. pwalker on PROD1PC71 with RULES3 Item 1. Exchange Act Reporting History A. State when you first incurred the duty to file reports under section 13(a) or section 15(d) of the Exchange Act. B. State whether you have filed or submitted all reports required under Exchange Act section 13(a) or section 15(d) and corresponding Commission rules for the 12 months preceding the filing of this form, and whether you have filed at least one annual report under section 13(a). Instruction to Item 1. If you are a successor issuer that has filed this Form 15F pursuant to Rule 12h–6(d), and are relying on the reporting history of the issuer to which you have succeeded under Rule 12g–3 (17 CFR 12g–3) or Rule 15d–5 (17 CFR 240.15d–5), identify that issuer and provide the information required by this section for that issuer. Item 2. Recent United States Market Activity State when your securities were last sold in the United States in a registered offering under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (‘‘Securities Act’’). Instructions to Item 2. 1. Do not include registered offerings involving the issuance of securities: a. to your employees, as that term is defined in Form S–8 (17 CFR 239.16b); b. by selling security holders in nonunderwritten offerings; VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 c. upon the exercise of outstanding rights granted by the issuer if the rights are granted pro rata to all existing security holders of the class of the issuer’s securities to which the rights attach; d. pursuant to a dividend or interest reinvestment plan; or e. upon the conversion of outstanding convertible securities or upon the exercise of outstanding transferable warrants issued by the issuer. However, you must include registered offerings described in paragraphs (c) through (e) of this instruction if undertaken pursuant to a standby underwritten offering or other similar arrangement in the United States. 2. If you have registered equity securities on a shelf or other Securities Act registration statement 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. Item 3. Foreign Listing and Primary Trading Market A. Identify the exchange or exchanges outside the United States, and the foreign jurisdiction in which the exchange or exchanges are located, on which you have maintained a listing of the class of securities that is the subject of this Form, and which, either singly or together with the trading of the same class of the issuer’s securities in another foreign jurisdiction, constitutes the primary trading market for those securities. B. Provide the date of initial listing on the foreign exchange or exchanges identified in response to Item 3.A. In addition, disclose whether you have maintained a listing of the subject class of securities on one or more of those foreign exchanges for at least the 12 months preceding the filing of this Form. C. Disclose the percentage of trading in the subject class of securities that occurred in the identified jurisdiction or jurisdictions of your foreign listing as of a recent 12-month period. Instructions to Item 3 1. When responding to this item, refer to the definition of ‘‘primary trading market’’ in Rule 12h–6(f) (17 CFR 240.12h–6(f)). In accordance with that definition, if your primary trading market consists of two foreign jurisdictions, provide the information required by this section for both foreign jurisdictions. In addition, disclose whether the trading market for your securities in at least one of those two foreign jurisdictions is larger than the trading market for your securities in the United States as of the same recent 12-month period. Disclose the first and last days of that recent 12-month period. 2. For the purpose of the primary trading market determination, you must measure the average daily trading volume of on-exchange transactions in the subject securities aggregated over one or two foreign jurisdictions against your worldwide trading volume. You may include in this measure off-exchange transactions in those jurisdictions comprising the numerator only if you include those off-exchange transactions when calculating worldwide PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 16959 trading volume in the denominator. This denominator should be the same as the denominator used for the trading volume benchmark under Rule 12h–6(a)(4)(i) (17 CFR 240.12h–6(a)(4)(i)) and Item 4 of this Form. Item 4. Comparative Trading Volume Data If relying on Rule 12h–6(a)(4)(i), provide the following information: A. Identify the first and last days of the recent 12-month period used to meet the requirements of that rule provision. 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 on a worldwide basis. C. For the same 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 on a worldwide basis. D. Disclose whether you have delisted the subject class of securities from a national securities exchange or inter-dealer quotation system in the United States. If so, provide the date of delisting, and, as of that date, 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 on a worldwide basis for the preceding 12-month period. E. Disclose whether you have terminated a sponsored American depositary receipt (ADR) facility regarding the subject class of securities. If so, provide the date of the ADR facility termination, and, as of that date, 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 on a worldwide basis for the preceding 12month period. F. Identify the sources of the trading volume information used for determining whether you meet the requirements of Rule 12h–6. If you used more than one source, disclose the reasons why you used each source. Instructions to Item 4 1. ‘‘Recent 12-month period’’ means a 12calendar-month period that ended no more than 60 days before the filing date of this form, as defined under Rule 12h–6(f). 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. An issuer is ineligible to rely on paragraph (a)(4)(i) of Rule 12h–6 if, as of the date of delisting or termination of an ADR facility, the average daily trading volume of the subject class of securities in the United States exceeded 5 percent of the average daily trading volume of that class of securities on a worldwide basis, as measured over the preceding 12 months, and 12 months has not elapsed from the date of delisting or termination of the ADR facility. See Rule 12h–6(b) (17 CFR 240.12h–6(b)). 3. For purposes of paragraph (a)(4)(i) of Rule 12h–6: a. when determining your U.S. average daily trading volume, you must include all E:\FR\FM\05APR3.SGM 05APR3 16960 Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules and Regulations transactions, whether on-exchange or offexchange; b. when determining your worldwide average daily trading volume, in addition to on-exchange transactions, which you must include, you may include off-exchange transactions; and c. the sources of your trading volume information may include publicly available sources, market data vendors or other commercial information service providers upon which you have reasonably relied in good faith, and as long as the information does not duplicate any other trading volume information obtained from exchanges or other sources. Item 5. Alternative Record Holder Information If relying on Rule 12h–6(a)(4)(ii) (17 CFR 240.12h–6(a)(4)(ii)): Disclose the number of record holders of the subject class of equity securities on a worldwide basis or who are United States residents at a date within 120 days before filing this Form. Disclose the date used for the purpose of Item 5. Item 6. Debt Securities If relying on Rule 12h–6(c) (17 CFR 240.12h–6(c)): Disclose the number of record holders of your debt securities either on a worldwide basis or who are United States residents at a date within 120 days before the date of filing of this Form. Disclose the date used for the purpose of Item 6. Instructions to Items 5 and 6 1. When determining the number of record holders of your equity or debt securities who are United States residents, refer to Rule 12h–6(e) (17 CFR 240.12h–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 your United States equity or debt securities holders, identify this party in your response. pwalker on PROD1PC71 with RULES3 Item 7. Notice Requirement If filing Form 15F pursuant to Rule 12h– 6(a), (c) or (d): A. Disclose the date of publication of the notice, required by Rule 12h–6(h) (17 CFR 240.12h–6(h)), disclosing your intent to terminate your duty to file reports under section 13(a) or 15(d) of the Exchange Act or both. B. Identify the means, such as publication in a particular newspaper or transmission by a particular wire service, used to disseminate the notice in the United States. Instruction to Item 7 If you have submitted a copy of the notice under cover of a Form 6–K (17 CFR 249.306), VerDate Aug<31>2005 17:23 Apr 04, 2007 Jkt 211001 disclose the submission date of the Form 6– K. If not, attach a copy of the notice as an exhibit to this Form. See Rule 12h–6(h). Item 8. Prior Form 15 Filers If relying on Rule 12h–6(i): A. Disclose whether, before the effective date of Rule 12h–6, you filed a Form 15 (17 CFR 249.323) to terminate the registration of a class of equity securities pursuant to Rule 12g–4 (17 CFR 240.12g–4) or to suspend your reporting obligations under section 15(d) of the Act regarding a class of equity or debt securities pursuant to Rule 12h–3 (17 CFR 240.12h–3). If so, disclose the date that you filed the Form 15. If you suspended your reporting obligations by the terms of section 15(d), disclose the effective date of that suspension as well as the date that you filed a Form 15 to notify the Commission of that suspension pursuant to Rule 15d–6 (17 CFR 240.15d–6). B. If you terminated the registration of a class of securities pursuant to Rule 12g–4 or suspended your reporting obligations pursuant to Rule 12h–3 or by the terms of section 15(d) of the Act regarding a class of equity securities, provide the disclosure required by Item 3 of this Form, ‘‘Primary Trading Market.’’ Further provide the disclosure required by Item 4 of this Form, ‘‘Comparative Trading Volume Data,’’ or the disclosure required by Item 5 of the Form, ‘‘Alternative Record Holder Information.’’ C. If you suspended your reporting obligations pursuant to Rule 12h–3 or by the terms of section 15(d) of the Act regarding a class of debt securities, provide the disclosure required by Item 6 of this Form, ‘‘Debt Securities.’’ 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 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 PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 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 before the effectiveness of its termination of reporting under Rule 12h–6, it has actual knowledge of information that causes it reasonably to believe that, at the time of filing the Form 15F: (1) The average daily trading volume of its subject class of securities in the United States exceeded 5 percent of the average daily trading volume of that class of securities on a worldwide basis for the same recent 12month period that the issuer used for purposes of Rule 12h–6(a)(4)(i); (2) Its subject class of securities was held of record by 300 or more United States residents or 300 or more persons worldwide, if proceeding under Rule 12h–6(a)(4)(ii) or Rule 12h–6(c); or (3) It otherwise did not qualify 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 trading volume or ownership of its securities in the United States. 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 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(g) of the Exchange Act, or its duty to file reports under section 13(a) or section 15(d) of the Exchange Act, or both. Dated: March 27, 2007. By the Commission. Nancy M. Morris, Secretary. [FR Doc. E7–5947 Filed 4–4–07; 8:45 am] BILLING CODE 8010–01–P E:\FR\FM\05APR3.SGM 05APR3

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 65 (Thursday, April 5, 2007)]
[Rules and Regulations]
[Pages 16934-16960]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-5947]



[[Page 16933]]

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Part III





Securities and Exchange Commission





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17 CFR Parts 200, 232, 240 and 249



Termination of a Foreign Private Issuer's Registration of a Class of 
Securities Under Section 12(g) and Duty To File Reports Under Section 
13(a) or 15(d) of the Securities Exchange Act of 1934; Final Rule

Federal Register / Vol. 72, No. 65 / Thursday, April 5, 2007 / Rules 
and Regulations

[[Page 16934]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 232, 240 and 249

[Release No. 34-55540; International Series Release No. 1301; 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 13(a) or 15(d) of the Securities Exchange Act of 1934

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to the rules that govern when a 
foreign private issuer may terminate the registration of a class of 
equity securities under section 12(g) of the Securities Exchange Act of 
1934 (``Exchange Act'') and the corresponding duty to file reports 
required under section 13(a) of the Exchange Act, and when it may 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 U.S.-
registered securities among United States investors. Moreover, 
currently a foreign private issuer can only suspend, and cannot 
terminate, a duty to report arising under section 15(d) of the Exchange 
Act. New Exchange Act Rule 12h-6 will permit a foreign private issuer 
of equity securities to terminate its reporting obligations under 
either section 13(a) or section 15(d) of the Exchange Act by meeting a 
quantitative benchmark designed to measure relative U.S. market 
interest for its equity securities that does not depend on a head count 
of the issuer's U.S. security holders. The new rule will permit a 
foreign private issuer to compare the average daily trading volume of 
its securities in the United States with its worldwide average daily 
trading volume, using a 5 percent benchmark. The accompanying rule 
amendments will also help provide U.S. investors with ready access 
through the Internet on an ongoing basis to material information about 
a foreign private issuer of equity securities that is required by its 
home country after it has exited the Exchange Act reporting system. The 
new rule will also permit a foreign private issuer of debt securities 
to terminate, rather than merely suspend, its section 15(d) reporting 
obligations.

DATES: Effective Date: June 4, 2007.

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 are adopting amendments to 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 Exchange Act,\5\ and adding new Rule 12h-6 
\6\ and Form 15F \7\ under the Exchange Act.
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    \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.
    \7\ 17 CFR 249.324.
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Table of Contents

I. Executive Summary and Background
    A. Introduction
    B. Principal Comments Regarding the Reproposed Rule Amendments
    C. Summary of the Adopted Rule Amendments
II. Discussion
    A. Conditions for Equity Securities Issuers
    1. Quantitative Benchmarks
    a. Trading Volume Benchmark
    i. Calculation of the U.S. Trading Volume Benchmark as a 
Percentage of Worldwide Trading Volume Instead of Primary Trading 
Market Trading Volume
    ii. Inclusion of Off-Market Transactions in the Trading Volume 
Calculation
    iii. The 5 Percent Trading Volume Measure
    iv. Definition of Equity Securities
    v. One Year Ineligibility Period After Delisting
    vi. One Year Ineligibility Period After Termination of Sponsored 
ADR Facility
    vii. Transition Period
    b. Alternative 300-Holder Condition
    2. Prior Exchange Act Reporting Condition
    3. The One Year Dormancy Condition
    4. Foreign Listing Condition
    B. Debt Securities Provision
    C. Revised Counting Method
    D. Expanded Scope of Rule 12h-6
    1. Application of Rule 12h-6 to Successor Issuers
    2. Application of Rule 12h-6 to Prior Form 15 Filers
    E. Public Notice Requirement
    F. Form 15F
    G. Amended Rules 12g-4 and 12h-3
    H. Amendment Regarding the Rule 12g3-2(b) Exemption
    1. Extension of the Rule 12g3-2(b) Exemption Under Rule 12g3-
2(e)
    2. Electronic Publishing of Home Country Documents
    I. Concerns Regarding Securities Act Rule 701
III. Paperwork Reduction Act Analysis
IV. Cost-Benefit Analysis
V. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation Analysis
VI. Regulatory Flexibility Act Certification
VII. Statutory Basis and Text of Rule Amendments

I. Executive Summary and Background

A. Introduction

    In December 2005, the Commission issued proposed amendments to its 
current rules governing when a foreign private issuer \8\ may exit the 
Exchange Act reporting regime.\9\ Under the current rules, the primary 
determinant regarding whether a foreign private issuer may terminate 
its registration of a class of securities under section 12(g) \10\ or 
suspend its reporting obligations under section 15(d) \11\ is if its 
subject securities are held of record by less than 300 residents in the 
United States.\12\ The Commission proposed to amend these rules out of 
concern that, due to the increased globalization of securities markets 
in recent decades as well as other trends, it has become difficult for 
a foreign private issuer to exit the Exchange Act reporting system even 
when there is relatively little U.S. investor interest in its U.S.-
registered securities.\13\
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    \8\ See the definition of foreign private issuer at Exchange Act 
Rule 3b-4(c) (17 CFR 240.3b-4(c)).
    \9\ Release No. 34-53020 (December 23, 2005), 70 FR 77688 
(December 30, 2005) (Original Proposing Release).
    \10\ This statutory section applies to equity securities only. 
See Exchange Act Section 12(g)(1) [15 U.S.C. 78l (g)(1)].
    \11\ 15 U.S.C. 78o(d). The effectiveness of a registration 
statement under the Securities Act of 1933 (``Securities Act'') 
triggers Section 15(d) reporting obligations. That section 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 became effective. 
Section 15(d) does not permit an issuer to terminate, but only to 
suspend, its reporting obligations under that section.
    \12\ Exchange Act Rules 12g-4(a)(2)(i) (17 CFR 240.12g-
4(a)(2)(i)) and 12h-3(b)(2)(i) (17 CFR 240.12h-3(b)(2)(i)).
    \13\ See Original Proposing Release, 70 FR at 77689-77690.
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    We recognize that U.S. investors benefit from the investment 
opportunities provided by foreign private issuers registering their 
securities with the Commission and listing and publicly offering those 
securities in the United States. However, because of the burdens and 
uncertainties associated with terminating registration and reporting 
under the Exchange Act, the current exit process may serve as a 
disincentive to foreign private issuers accessing the

[[Page 16935]]

U.S. public capital markets.\14\ In order to remove this disincentive, 
we proposed to amend the current Exchange Act exit rules for foreign 
private issuers.
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    \14\ See Part I.C of the Original Proposing Release for a 
discussion of the concerns raised by foreign private issuers 
regarding the current Exchange Act exit regime.
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    As originally proposed, new Exchange Act Rule 12h-6 would have 
permitted a foreign private issuer of equity securities to terminate 
its Exchange Act registration and reporting obligations if, among other 
conditions, it met one of a set of alternative quantitative benchmarks 
that, depending on whether the issuer was a well-known seasoned issuer 
(``WKSI''),\15\ was based either on a combination of U.S. trading 
volume and U.S. public float criteria or just U.S. public float 
data.\16\ However, numerous commenters stated that the originally 
proposed rules would still unduly restrict a significant portion of 
U.S.-registered foreign private issuers from exiting the Exchange Act 
reporting regime, thus making it unlikely that the proposed rules would 
achieve their purpose of attracting more foreign companies to U.S. 
public capital markets.
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    \15\ For purposes of proposed Rule 12h-6, a ``well-known 
seasoned issuer'' meant a well-known seasoned issuer as defined in 
Securities Act Rule 405 (17 CFR 230.405), which would have required 
the worldwide market value of an issuer's outstanding voting and 
non-voting common equity held by non-affiliates to be $700 million 
or more.
    \16\ Under the original rule proposal, a WKSI would have been 
eligible to terminate its Exchange Act reporting obligations 
regarding a class of equity securities if the U.S. average daily 
trading volume (``ADTV'') of the subject class of securities had 
been no greater than 5 percent of the ADTV 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 as of a specified date. A WKSI with 
greater than 5 percent U.S. ADTV or a non-WKSI would have been 
eligible for termination of reporting regarding a class of equity 
securities if, regardless of U.S. trading volume, U.S. residents 
held no more than 5 percent of the issuer's worldwide public float 
as of a specified date. See Part II.B.2.d of Release No. 34-53020.
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    In light of these criticisms, we reconsidered our approach and, in 
December 2006, we reproposed the amendments to the Exchange Act exit 
rules for foreign private issuers.\17\ As an alternative to the record 
holder standard for equity securities issuers, we proposed a 
quantitative benchmark based solely on a comparison of the average 
daily trading volume of a foreign private issuer's equity securities in 
the United States with that in its primary trading market. We reasoned 
that a standard based on trading volume may in fact be superior to the 
originally proposed standard, which was based primarily on a comparison 
of an issuer's U.S. public float with its worldwide public float, 
because it is a more direct measure of the issuer's nexus with the U.S. 
market and because trading volume data is easier to obtain than public 
float or record holder data.\18\ We concluded that, in applying an exit 
standard based on trading volume data for the U.S. and an issuer's 
primary trading market, issuers would face reduced costs when 
determining whether they can terminate their registration and reporting 
obligations under the Exchange Act, compared to the originally proposed 
standards that would have required an issuer to assess the U.S. 
residence of its security holders.\19\
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    \17\ Release No. 34-55005 (December 22, 2006), 72 FR 1384 
(January 11, 2007) (Reproposing Release).
    \18\ We reproposed the rule amendments primarily because the 
Commission did not fully address this trading volume approach in the 
Original Proposing Release.
    \19\ See Parts II.A.1.a and IV of the Reproposing Release.
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B. Principal Comments Regarding the Reproposed Rule Amendments

    We received 30 comment letters in response to the reproposed rule 
amendments.\20\ These letters represented the views of over 40 distinct 
entities, including business, financial and legal associations, foreign 
companies, financial advisory and accounting firms, law firms, and one 
foreign government. While the commenters generally strongly supported 
the trading volume-based approach and other aspects of the reproposed 
rules, many offered suggestions designed primarily to fine-tune those 
rules.
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    \20\ These comment letters, along with the letters received at 
the proposing stage, are available on the Commission's Internet Web 
site, located at https://www.sec.gov/rules/proposed/s71205.shtml, and 
in the Commission's Public Reference Room in its Washington, DC 
headquarters.
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    We received the most comments concerning the reproposed trading 
volume benchmark for equity securities issuers. Numerous commenters 
urged us to adopt a quantitative benchmark that would require an issuer 
to measure its U.S. ADTV as a percentage of its ADTV for the same class 
of securities on a worldwide basis, rather than against its ADTV in its 
primary trading market, as reproposed. Many commenters also requested 
that we permit an issuer to include off-market transactions when 
calculating its worldwide ADTV for a class of equity securities, rather 
than only when calculating its U.S. ADTV, as reproposed. Some 
commenters further urged us to permit an issuer to include trades 
conducted through alternative trading systems when determining whether 
it meets the proposed trading volume benchmark. Still others requested 
that we increase the percentage in the trading volume-based measure to 
a percentage greater than 5 percent, as reproposed, particularly if we 
did not move to a worldwide ADTV standard.
    Commenters expressed concern or requested guidance regarding a 
number of other issues, including:
     the appropriateness of the proposed provision that would 
prohibit reliance on the trading volume standard if an issuer has 
delisted its securities from a U.S. exchange during the preceding 12 
months when its U.S. ADTV exceeded the 5 percent threshold;
     the appropriateness of the proposed provision that would 
prohibit reliance on the trading volume standard if an issuer has 
terminated a sponsored American Depositary Receipts (ADR) facility \21\ 
during the preceding 12 months, regardless of whether the issuer met 
the trading volume benchmark at the time of termination;
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    \21\ 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.
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     whether to include convertible debt and other equity-
linked securities in the definition of equity security for purposes of 
the new exit rule;
     whether a special financial report filed pursuant to 
Exchange Act Rule 15d-2 \22\ would constitute an Exchange Act annual 
report for the purpose of the reproposed prior reporting condition;
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    \22\ 17 CFR 240.15d-2.
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     the appropriateness of the reproposed dormancy condition 
for equity securities registrants,\23\ including whether it would 
prohibit an issuer from conducting a registered offering in which an 
underwriter has agreed to a standby purchase commitment but only 
resells the purchased securities outside the United States;
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    \23\ As reproposed, Rule 12h-6 would prohibit an equity 
securities registrant from selling its securities in the United 
States in a registered offering under the Securities Act, except for 
specified registered offerings, during the 12 months preceding the 
filing of its Form 15F.
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     the appropriateness of the reproposed foreign listing 
condition for equity securities registrants,\24\ including whether it 
should apply to an issuer relying on the alternative 300 holder 
provision of Rule 12h-6, and to an

[[Page 16936]]

issuer that delists from its non-U.S. exchange in connection with being 
acquired;
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    \24\ As reproposed, Rule 12h-6 would require an equity 
securities issuer to have maintained a listing on an exchange in its 
primary trading market.
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     the role of a predecessor in determining a successor 
issuer's eligibility to terminate its Exchange Act reporting 
obligations under reproposed Rule 12h-6, including whether, under 
Exchange Act Rule 12g-3(g),\25\ a successor issuer would have to file 
an Exchange Act annual report for the predecessor's most recently 
completed fiscal year before it could terminate its reporting 
obligations under Rule 12h-6;
---------------------------------------------------------------------------

    \25\ 17 CFR 240.12g-3(g).
---------------------------------------------------------------------------

     whether to permit a foreign company that filed a Form 15 
previously to terminate or suspend its Exchange Act reporting 
obligations regarding a class of equity securities before the 
effectiveness of new Rule 12h-6 to terminate its reporting obligations 
under the new exit rule without having to recount its holders, as long 
as it meets that rule's trading volume benchmark;
     whether to increase the threshold number of record holders 
in the debt securities provision; and
     whether an issuer that has filed a Form 15F \26\ solely to 
terminate its reporting obligations regarding debt securities must wait 
until the effectiveness of that termination before it can submit an 
application for the Rule 12g3-2(b) exemption regarding a class of 
equity securities.
---------------------------------------------------------------------------

    \26\ Like current Rules 12g-4 and 12h-3, which require the 
filing of Form 15, reproposed Rule 12h-6 would require the filing of 
a form--Form 15F--by which an issuer would certify that it meets the 
conditions for ceasing its Exchange Act reporting obligations.
---------------------------------------------------------------------------

C. Summary of the Adopted Rule Amendments

    We have carefully considered commenters' concerns regarding the 
reproposed rules, and have addressed many of them in the rule 
amendments that we are adopting today. As adopted, new Exchange Act 
Rule 12h-6 and the accompanying rule amendments will:
     permit a foreign private issuer, regardless of size, to 
terminate its Exchange Act registration and reporting obligations 
regarding a class of equity securities, assuming it meets all the other 
conditions of Rule 12h-6, if, for a recent 12-month period, the U.S. 
ADTV of the subject class of securities has been no greater than 5 
percent of its worldwide ADTV--rather than 5 percent of the ADTV in its 
primary trading market, as reproposed;
     permit an issuer to include off-market transactions, 
including transactions through alternative trading systems, when 
calculating its worldwide ADTV for a class of equity securities--as 
discussed in connection with calculating its U.S. ADTV, as reproposed--
as long as the trading volume information regarding the off-market 
transactions is reasonably reliable and does not duplicate other 
trading volume information regarding the subject class of securities;
     require an issuer to wait 12 months before filing its Form 
15F in reliance on the trading volume standard if the issuer has 
delisted its class of equity securities from a national securities 
exchange or automated inter-dealer quotation system in the United 
States,\27\ or terminated a sponsored ADR facility and, at the time of 
delisting or termination, the U.S. ADTV of the subject class of 
securities exceeded 5 percent of its worldwide ADTV for the preceding 
12 months;
---------------------------------------------------------------------------

    \27\ Neither the OTC Bulletin Board operated by Nasdaq nor the 
market operated by the Pink Sheets LLC are deemed to be automated 
inter-dealer quotation systems. See Release 33-6862 (April 23, 
1999), n.22.
---------------------------------------------------------------------------

     retain the 300-holder standard as an alternative to the 
trading volume standard for an equity securities issuer and as the 
quantitative standard for a debt securities issuer, as reproposed;
     exclude convertible debt and other equity-linked 
securities from the definition of equity security for the purpose of 
new Rule 12h-6's trading volume provision;
     require an equity securities registrant to have at least 
one year of Exchange Act reporting, be current in reporting obligations 
for that period, and have filed at least one Exchange Act annual 
report, as reproposed;
     permit an issuer to count a special financial report filed 
pursuant to Exchange Act Rule 15d-2 as an Exchange Act annual report 
for the purpose of the new rule's prior reporting condition;
     prohibit an issuer of equity securities from selling 
securities in the United States in a registered offering under the 
Securities Act, except as specified, during the 12 months preceding the 
filing of its Form 15F (the ``dormancy condition''), substantially as 
reproposed;
     require an issuer of equity securities to have maintained 
a listing of the subject class of securities for at least the 12 months 
preceding the filing of its Form 15F on one or more exchanges in a 
foreign jurisdiction that, either singly or together with the trading 
of the same class of the issuer's securities in another foreign 
jurisdiction, constitutes the primary trading market for those 
securities, substantially as reproposed;
     define primary trading market to mean that at least 55 
percent of the trading in a foreign private issuer's class of 
securities that is the subject of Form 15F took place in, on or through 
the facilities of a securities market or markets in a single foreign 
jurisdiction or in no more than two foreign jurisdictions during a 
recent 12-month period, as long as the trading in at least one of the 
two foreign jurisdictions is larger than the trading in the United 
States for the same class of the issuer's securities;
     permit an equity securities issuer relying on the 
alternative 300-holder standard, or a debt securities issuer, to use a 
revised counting method that limits the 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 one or two 
jurisdictions comprising the issuer's primary trading market if 
different from the issuer's jurisdiction of incorporation, legal 
organization or establishment, as reproposed;
     permit an issuer of equity or debt securities to rely on 
the assistance of an independent information services provider when 
determining whether the issuer falls below the 300-holder standard, as 
reproposed;
     permit a successor issuer meeting specified conditions to 
terminate its Exchange Act reporting obligations under new Rule 12h-6, 
as reproposed; \28\
---------------------------------------------------------------------------

    \28\ See Part II.D.1 of this release for clarification regarding 
the limited role of the predecessor in determining a successor 
issuer's eligibility to terminate its Exchange Act reporting 
obligations under Rule 12h-6.
---------------------------------------------------------------------------

     permit a foreign private issuer that filed a Form 15 and 
suspended or terminated its Exchange Act reporting obligations under 
the current exit rules before the effective date of Rule 12h-6 to 
terminate its Exchange Act reporting obligations under new Exchange Act 
Rule 12h-6, as long as, if regarding a class of equity securities, the 
issuer meets Rule 12h-6's listing condition and either the trading 
volume or alternative-300 holder condition or, if regarding a class of 
debt securities, the issuer meets the rule's 300-holder condition for 
debt issuers;
     extend the Rule 12g3-2(b) exemption to a foreign private 
issuer of equity securities, including a successor issuer and prior 
Form 15 filer, immediately upon its termination of reporting under Rule 
12h-6, and require the issuer to maintain that exemption by publishing 
in English specified material home country documents required by

[[Page 16937]]

Rule 12g3-2(b) \29\ on its Internet Web site or through an electronic 
information delivery system generally available to the public in its 
primary trading market, as reproposed;
---------------------------------------------------------------------------

    \29\ See Exchange Act Rule 12g3-2(b)(1)(iii) (17 CFR 240.12g3-
2(b)(1)(iii)).
---------------------------------------------------------------------------

     permit a non-reporting company that has received or will 
receive the Rule 12g3-2(b) exemption, upon application to the 
Commission and not pursuant to Rule 12h-6, to publish its ``ongoing'' 
home country documents required under Rule 12g3-2(b) on its Internet 
Web site or through an electronic information delivery system rather 
than submit them in paper to the Commission; and
     permit an issuer that has filed a Form 15F to terminate 
its Exchange Act reporting obligations regarding a class of debt 
securities to establish the Rule 12g3-2(b) exemption for a class of 
equity securities upon the effectiveness of its termination of 
reporting under Rule 12h-6, by submitting an application for the Rule 
12g3-2(b) exemption after filing its Form 15F.
    We are also adopting, as reproposed, procedural conditions that 
will:
     require a foreign private issuer to file a Form 15F 
providing information with respect to whether the issuer meets the 
requirements for terminating its reporting obligations under Rule 12h-
6;
     automatically suspend an issuer's Exchange Act reporting 
obligations upon the filing of its Form 15F and trigger a 90-day 
waiting period at the end of which, assuming the Commission has no 
objections, the suspension will become a termination of reporting; and
     require a foreign private issuer to publish a notice, such 
as a press release, announcing its intention to terminate its Exchange 
Act reporting obligations under Rule 12h-6, before or at the time of 
filing its Form 15F.
    We believe the rules that we are adopting today provide meaningful 
protection of U.S. investors by permitting the termination of Exchange 
Act registration and reporting only by those foreign registrants with 
relatively low U.S. market interest in their U.S.-registered 
securities. Compared to the current exit rules, Rule 12h-6 will 
establish a more clearly defined process with a more appropriate 
benchmark by which a foreign private issuer can terminate its Exchange 
Act reporting obligations. As a result, we believe foreign private 
issuers should be more willing initially to register their securities 
with the Commission, which will provide more investment choices for 
U.S. investors.
    At the same time, we believe the conditions that determine a 
foreign private issuer's eligibility to terminate its Exchange Act 
registration and reporting regarding a class of equity securities under 
new Rule 12h-6 will serve to protect U.S. investors. For example, the 
prior reporting condition \30\ is intended to provide investors with at 
least one complete year's worth of Exchange Act reports, including an 
annual report, upon which they can base their investment decisions 
about a particular foreign registrant before that registrant exits the 
Exchange Act reporting system. The dormancy condition is designed to 
deter a foreign private issuer's promotion of U.S. investor interest 
through recent registered capital-raising shortly before exiting our 
reporting system. The one year reporting and dormancy conditions are 
consistent with the statutory requirements under section 15(d).
---------------------------------------------------------------------------

    \30\ See p. 12 and Part II.A.2 of this release.
---------------------------------------------------------------------------

    The foreign listing condition and U.S. trading volume benchmark 
support our view that, before a foreign private issuer may terminate 
its Exchange Act reporting obligations under Rule 12h-6, it must have 
been subject to an ongoing disclosure and financial reporting regime, 
and have a significant market following, in its primary trading market. 
We have set the U.S. trading volume benchmark at such a level that, 
although there may be some U.S. investor interest in the subject 
securities of an issuer meeting the benchmark, that interest would 
appear to be sufficiently diminished so that a foreign private issuer 
should not be required to continue its Exchange Act reporting if it 
determines that it is no longer desirable to continue as a U.S. 
registrant.
    The condition restricting the ability of an issuer to rely on the 
trading volume standard under specified circumstances (U.S. delisting 
and termination of a sponsored ADR facility) should deter an issuer 
from excluding U.S. investors, particularly retail investors, from 
investing in their securities when U.S. market interest is still 
significant. The immediate availability of the exemption under Rule 
12g3-2(b) will foster access by U.S. investors to ongoing home country 
information about an issuer after it terminates its Exchange Act 
registration and reporting under Rule 12h-6. Finally, the conditions 
relating to the filing of Form 15F and the publication of a press 
release or other notice will promote transparency in the exit process.

II. Discussion

A. Conditions for Equity Securities Issuers

1. Quantitative Benchmarks
a. Trading Volume Benchmark
    As adopted, new Exchange Act Rule 12h-6 will enable a foreign 
private issuer of equity securities, regardless of size, to qualify for 
termination of its Exchange Act reporting by meeting a quantitative 
benchmark provision that does not depend on the number of its U.S. 
record holders or the percentage of its securities held by those 
holders. Under new Rule 12h-6, an issuer will be able to terminate its 
Exchange Act registration and reporting obligations regarding a class 
of equity securities, assuming it meets the other conditions of Rule 
12h-6, if the ADTV of the subject class of equity securities in the 
United States has been 5 percent or less of the ADTV of that class of 
securities on a worldwide basis during a recent 12-month period.\31\ 
This trading volume benchmark is substantially similar to the 
reproposed standard, except that the adopted benchmark requires an 
issuer to measure its U.S. ADTV as a percentage of its worldwide ADTV 
rather than the ADTV in its primary trading market.
---------------------------------------------------------------------------

    \31\ New Exchange Act Rule 12h-6(a)(4)(i) (17 CFR 240.12h-
6(a)(4)(i)).
---------------------------------------------------------------------------

    A threshold matter in this regulatory initiative has been what is 
the most appropriate benchmark for equity securities that would best 
serve the interests of investors and issuers, and most commenters 
addressed this issue. Most of the commenters agreed that a benchmark 
based solely on trading volume is superior to one based on a 
combination of U.S. public float and trading volume criteria or just 
U.S. public float data, as under the originally proposed Rule 12h-6, or 
one based on the number of record holders in the United States or on a 
worldwide basis, as under the current exit rules. Most commenters 
stressed that trading volume data is easier to obtain and confirm than 
is the data required for a U.S. public float or record holder 
determination.\32\ As commenters have noted, it is difficult for a 
reporting foreign private issuer to determine accurately the specific 
country of residence of its investors.\33\ Because a public float 
benchmark would require such a determination to varying degrees, most 
commenters agreed with our conclusion that the reproposed trading

[[Page 16938]]

volume-based benchmark should result in reduced costs to issuers in 
determining whether they can terminate their Exchange Act reporting 
obligations.\34\
---------------------------------------------------------------------------

    \32\ See, for example, the letter, dated February 12, 2007, from 
Cleary Gottlieb, Steen & Hamilton LLP (Cleary Gottlieb).
    \33\ See the comment letters discussed in Part II.A.1.a of the 
Reproposing Release.
    \34\ See, for example, the letter, dated February 12, 2007, from 
the European Association for Listed Companies and other signatories 
(EALIC).
---------------------------------------------------------------------------

    Some commenters supported the reproposed trading volume measure 
because it would provide a simple and clear measure of the degree of 
U.S. market interest in an issuer's equity securities.\35\ Some 
commenters expressed the view that basing the new exit rule on a 
trading volume measure would help ensure that an issuer's termination 
of Exchange Act registration and reporting would not have a significant 
impact on the primary price-setting determinants of an issuer's equity 
securities, which would allow for U.S. investors to trade in that 
issuer's securities following its U.S. deregistration.\36\
---------------------------------------------------------------------------

    \35\ See, for example, the letter, dated February 12, 2007, from 
Sullivan & Cromwell LLP (Sullivan & Cromwell) and the letter, dated 
January 2, 2007, from Galileo Global Advisors (Galileo).
    \36\ See, for example, the letter from Cleary Gottlieb.
---------------------------------------------------------------------------

    Commenters expressed their belief that adoption of the reproposed 
trading volume standard would enable significantly more foreign private 
issuers to exit the Exchange Act reporting regime if they so 
desire.\37\ Consequently, as one commenter indicated, by removing 
restrictions regarding the ability to exit U.S. securities markets, 
adoption of new Rule 12h-6 and the accompanying amendments will have a 
major impact on the perception that foreign companies have of those 
markets, making the U.S. capital markets ``much more attractive and 
competitive on an international scale.''\38\
---------------------------------------------------------------------------

    \37\ See, for example, the letter, dated February 12, 2007, from 
the European Commission.
    \38\ See the letter from Cleary Gottlieb.
---------------------------------------------------------------------------

    For the above reasons, we are adopting a quantitative exit standard 
for equity securities registrants based solely on trading volume 
instead of one based on a combination of trading volume and public 
float criteria or just public float data. We also are adopting, as 
reproposed, one trading volume standard that will apply to all issuers 
of equity securities. Commenters generally supported having one 
benchmark applicable to any foreign private issuer, regardless of 
size.\39\ Although we originally proposed a set of quantitative 
benchmarks that depended primarily on whether an issuer was a WKSI, we 
are adopting the same trading volume standard for a smaller issuer as 
for a larger issuer in order to provide increased flexibility and 
simplification to the Exchange Act deregistration regime, and for the 
other reasons discussed in the Reproposing Release.\40\
---------------------------------------------------------------------------

    \39\ See, most recently, the letter, dated February 23, 2007, 
from the American Bar Association, Section of Business Law (ABA).
    \40\ For example, a trading volume standard that favored WKSIs 
could discourage smaller foreign companies from entering U.S. public 
capital markets, to the detriment of U.S. investors. Moreover, 
commenters at the proposing stage noted that the costs of continued 
Exchange Act reporting fall disproprotionately on smaller issuers. 
See Part II.A.1.a of the Reproposing Release.
---------------------------------------------------------------------------

i. Calculation of the U.S. Trading Volume Benchmark as a Percentage of 
Worldwide Trading Volume Instead of Primary Trading Market Trading 
Volume
    Numerous commenters requested that the Commission calculate U.S. 
trading volume as a percentage of worldwide trading volume rather than 
as a percentage of ADTV in the issuer's primary trading market,\41\ as 
reproposed.\42\ The primary rationale for this request is that, with 
the increased globalization of securities markets, many issuers now 
trade on multiple non-U.S. markets. According to these commenters, 
since the goal of the reproposed trading volume benchmark is to 
determine the relative importance of the U.S. trading market for an 
issuer's securities, an issuer should be able to take into account all 
non-U.S. trading in its securities, and not just the trading that has 
occurred in the one or two jurisdictions comprising its primary trading 
market.\43\
---------------------------------------------------------------------------

    \41\ As discussed in Part II.A.4 of this release, we define 
primary trading market to mean that at least 55 percent of the 
trading in a foreign private issuer's subject class of securities 
took place in, on or through the facilities of a securities market 
or markets in a single foreign jurisdiction or in no more than two 
foreign jurisdictions during a recent 12-month period. If an issuer 
aggregates the trading in two foreign jurisdictions, the trading 
market for the issuer's securities in at least one of the two 
foreign jurisdictions must be larger than the United States trading 
market for the same class of the issuer's securities. We proposed a 
substantially similar definition at the reproposing stage.
    \42\ See, for example, the letter, dated February 8, 2007, from 
BusinessEurope, the letters, dated February 12, 2007, from Davis 
Polk & Wardwell (Davis Polk), Linklaters, and Makinson Cowell, and 
the letters from Cleary Gottlieb, EALIC, and the EU. In contrast, 
only one commenter opposed using worldwide trading volume. See the 
letter from Galileo.
    \43\ See the letters from Cleary Gottlieb and EALIC.
---------------------------------------------------------------------------

    Some commenters maintained that, while it is reasonable to base 
Rule 12h-6's foreign listing condition on the reproposed primary 
trading market definition, it is not so for the trading volume 
benchmark.\44\ As discussed below, the purpose of the foreign listing 
condition is to help assure that there is a non-U.S. jurisdiction that 
principally regulates and oversees the issuance and trading of the 
issuer's securities and the issuer's disclosure obligations to 
investors.\45\ Limiting the definition of primary trading market in 
this context to no more than two jurisdictions helps to further the 
purpose of the foreign listing condition. In contrast, the purpose of 
the trading volume benchmark is to measure the relative U.S. market 
interest in a foreign private issuer's equity securities. Accounting 
for as much of the issuer's trading as is reasonably possible would 
further the purpose of this rule.
---------------------------------------------------------------------------

    \44\ See the letter from Linklaters.
    \45\ See Part II.A.4 of this release.
---------------------------------------------------------------------------

    We agree that, in light of the number of foreign registrants that 
have listings in more than two jurisdictions, and given the purpose of 
the trading volume benchmark, measuring an issuer's U.S. ADTV as a 
percentage of its worldwide ADTV would increase the likelihood of 
obtaining a more accurate measure of relative U.S. market interest for 
that issuer's equity securities. Therefore, we are adopting a trading 
volume benchmark for new Rule 12h-6 that will require an issuer to use 
as the denominator of its trading volume calculation its worldwide ADTV 
for the subject class of securities.\46\
---------------------------------------------------------------------------

    \46\ Worldwide ADTV includes U.S. ADTV. Some commenters favored 
a trading measure based on the dollar value of shares traded rather 
than on the number of shares traded. See the letter, dated February 
12, 2007, from Ziegler, Ziegler and Associates (Ziegler) and the 
letter from Galileo. We decline to adopt a trading value measure 
because we believe that it would add an unnecessary level of 
complexity and cost to the non-record holder determination.
---------------------------------------------------------------------------

ii. Inclusion of Off-Market Transactions in the Trading Volume 
Calculation
    We reproposed to require an issuer to include both transactions 
occurring on a stock exchange and over-the-counter trades for the 
purpose of calculating U.S. ADTV for the numerator of the trading 
volume benchmark, but to include only on-exchange transactions for the 
purpose of calculating its ADTV for the denominator (its primary 
trading market, as reproposed). We did so based on our belief that 
trading volume information about over-the-counter trades was more 
readily available in the United States than in many foreign 
jurisdictions.
    Numerous commenters \47\ urged the Commission to permit an issuer 
to include ``off-market'' transactions when determining whether it 
meets the 5

[[Page 16939]]

percent trading volume standard, rather than just transactions 
occurring on a stock exchange, as reproposed. These commenters 
maintained that it was inappropriate to require an issuer to include 
both on-exchange and off-exchange transactions when calculating its 
U.S. ADTV but not when calculating its worldwide trading volume. As 
noted by some of these commenters, members of Euronext markets are 
currently required to report off-market transactions.\48\ Moreover, 
some commenters noted that an EU Directive,\49\ scheduled for 
effectiveness in November 2007, will generally require the reporting of 
off-market transactions, which will make information regarding off-
market transactions generally available in Europe the same way that 
such information is available through a transaction reporting plan in 
the United States.\50\
---------------------------------------------------------------------------

    \47\ See the letters from BusinessEurope, Cleary Gottlieb, Davis 
Polk, EALIC, the EU, Makinson Cowell, and Sullivan & Cromwell, and 
the letters, dated February 12, 2007, from the International Bar 
Association and Skadden Arps Slate Meagher & Flom (Skadden Arps).
    \48\ See, for example, the letter from Cleary Gottlieb.
    \49\ Directive 2004/39/EC, also known as the Market in Financial 
Instruments Directive (MiFID).
    \50\ See the letters from Cleary Gottlieb, the EU, and 
BusinessEurope.
---------------------------------------------------------------------------

    Some of these commenters urged the Commission to permit an issuer 
to include not only off-market transactions that currently occur 
through traditional over-the-counter means, but those that may occur 
through alternative trading systems.\51\ According to these commenters, 
MiFID will encourage the development of such trading systems.\52\ These 
commenters stated that, as long as trading information is credible and 
the sources reliable, an issuer should be able to include information 
about securities transactions regardless of the platform on which they 
occur.\53\
---------------------------------------------------------------------------

    \51\ See the letters from the EU and Davis Polk.
    \52\ See, for example, the EU letter.
    \53\ See, for example, the letter from Davis Polk.
---------------------------------------------------------------------------

    Some commenters requested that, if the Commission does not permit 
an issuer to include off-market transactions when determining its 
worldwide trading volume for the denominator of its trading volume 
calculation, it should also prohibit the inclusion of off-market 
transactions when determining its U.S. ADTV for the numerator of that 
calculation.\54\ In contrast, one commenter, which favored a worldwide 
trading volume measure, expressly requested that the Commission 
prohibit the inclusion of off-market transactions for both the 
numerator and denominator because of the difficulty of obtaining over-
the-counter trading information.\55\
---------------------------------------------------------------------------

    \54\ See the letters from BusinessEurope and the EU.
    \55\ See the letter from Skadden Arps.
---------------------------------------------------------------------------

    These comments have persuaded us that, for at least some foreign 
private issuers, information regarding off-exchange transactions in 
non-U.S. jurisdictions will be readily obtainable. Therefore, under 
adopted Rule 12h-6, when making its trading volume determination, an 
issuer must include in its calculation of U.S. ADTV both on-exchange 
and off-exchange transactions, as reproposed. For both on-exchange and 
off-exchange transactions in the United States, we expect an issuer to 
be able to obtain relevant trading volume information as reported 
pursuant to an effective transaction reporting plan,\56\ pursuant to 
NASD rules,\57\ or reported by a national securities exchange otherwise 
than pursuant to an effective transaction reporting plan. In addition, 
an issuer may include in its calculation of worldwide ADTV off-market 
transactions, including transactions conducted through alternative 
trading systems, in addition to transactions occurring on an exchange, 
as long as an issuer has obtained the information concerning the off-
market transactions from publicly available sources or third-party 
information service providers, upon which the issuer has reasonably 
relied in good faith, and as long as the off-market transaction 
information does not duplicate any other trading volume information 
obtained.
---------------------------------------------------------------------------

    \56\ Rule 601 of Regulation NMS (17 CFR 242.601) requires every 
national securities exchange to file a transaction reporting plan 
regarding transactions in listed equity and Nasdaq securities.
    \57\ See, for example, NASD Manual Rule 6600 et seq. for rules 
regarding recording and reporting transactions in OTC Equity 
Securities. A member broker-dealer must report information 
concerning OTC trades not involving a listed security, including a 
Nasdaq security, under the NASD rules rather than pursuant to a 
transaction reporting plan since the latter only covers unlisted 
transactions involving listed (and Nasdaq) securities.
---------------------------------------------------------------------------

    In response to our request for comments on whether issuers should 
be required to obtain trading volume data from particular sources, a 
number of commenters advocated that the final rules provide issuers 
with sufficient flexibility to use such data sources as they deem 
reliable and appropriate.\58 \The adopted rules do not specify any 
particular data sources that issuers must use to determine either its 
U.S. or worldwide trading volume. In this respect, when obtaining 
information concerning either on-exchange or off-exchange transactions, 
issuers will have the latitude to use market data vendors or other 
commercial service providers and publicly available sources of market 
information that they reasonably believe to be reliable and that do not 
duplicate trading volume information obtained from other sources, such 
as various exchanges or markets.\59\ Issuers will be required to 
disclose their trading volume data sources on Form 15F, which will 
inform investors of the data sources used.\60\
---------------------------------------------------------------------------

    \58\ See, for example, the letters from Cleary Gottlieb and 
EALIC.
    \59\ See Instruction 3.c to Item 4 of Form 15F.
    \60\ See Item 4.F of Form 15F.
---------------------------------------------------------------------------

iii. The 5 Percent Trading Volume Measure
    Commenters expressed a variety of views on whether 5 percent U.S. 
ADTV was the appropriate threshold for the trading volume benchmark. 
Although some commenters requested that the Commission increase the 
percentage to 10 percent ADTV,\61\ many others supported the 5 percent 
threshold.\62\ Moreover, some of the commenters that requested an 
increase to 10 percent did so only if the Commission decided not to 
adopt a world-wide trading based benchmark.\63\
---------------------------------------------------------------------------

    \61\ See the letter, dated February 9, 2007, from SGL Carbon, 
the letter, dated February 12, 2007, from Fried Frank Harris Shriver 
& Jacobson (Fried Frank), and the letter from Skadden Arps. Another 
commenter requested an increase to 15 percent. See the letter from 
i-CABLE Communications Ltd. (i-CABLE).
    \62\ See the letters from Cleary Gottlieb, EALIC, Galileo, 
Sullivan & Cromwell, and the New York State Society of Certified 
Public Accountants (NYSSCPA).
    \63\ See the letters from the ABA, BusinessEurope, and 
Linklaters.
---------------------------------------------------------------------------

    We believe that adoption of the ``5 percent of worldwide trading 
volume'' standard will permit foreign companies with relatively little 
U.S. market interest to deregister.\64\ Moreover, by permitting an 
issuer to include both on-exchange and off-exchange transactions when 
calculating its worldwide ADTV, we have addressed the concerns of 
commenters who suggested the 5 percent threshold could be too low to 
achieve the rule's purpose of reducing the disincentive to U.S. 
registration that may be caused by the current exit regime.
iv. Definition of Equity Securities
---------------------------------------------------------------------------

    \64\ See Part III, n. 191 of this release.
---------------------------------------------------------------------------

    We reproposed that, for purposes of new Rule 12h-6, an issuer would 
use the definition of equity security provided in Exchange Act Rule 
3a11-1.\65\ That provision includes equity-linked securities, such as 
convertible debt securities and warrants, within the definition of 
equity security. Several commenters \66\ requested that the Commission 
exclude equity-linked securities from the definition of equity

[[Page 16940]]

security on the grounds that trading volume information for equity-
linked securities is difficult to obtain. One commenter suggested using 
instead the definition of equity security provided in the Securities 
Act cross-border rules, which explicitly excludes convertible debt and 
other equity-linked securities.\67\
---------------------------------------------------------------------------

    \65\ 17 CFR 240.3a11-1.
    \66\ See the letters from BusinessEurope, the EU, EALIC and 
Cleary Gottlieb.
    \67\ See the letter from Cleary Gottlieb, which cites Securities 
Act Rule 800(b) (17 CFR 230.800(b)).
---------------------------------------------------------------------------

    We agree with those commenters that, because trading volume 
information concerning convertible debt and other equity-linked 
securities is more difficult to obtain than trading volume information 
for the underlying equity securities, an issuer should not have to 
include equity-linked securities when determining whether it meets the 
trading volume benchmark. The same reasoning applies to an issuer's 
determination concerning the foreign listing condition, which requires 
an issuer to meet the definition of primary trading market, which is a 
trading volume-based definition.\68\ Therefore, we are adopting a 
definition of equity security that is based on Rule 3a11-1, except 
that, for purposes of the trading volume and foreign listing provisions 
of Rule 12h-6, the definition explicitly excludes:
---------------------------------------------------------------------------

    \68\ See Part II.A.4 of this release.
---------------------------------------------------------------------------

     any debt security that is convertible into an equity 
security, with or without consideration;
     any debt security that includes a warrant or right to 
subscribe to or purchase an equity security;
     any such warrant or right; or
     any put, call, straddle, or other option or privilege that 
gives the holder the option of buying or selling a security but does 
not require the holder to do so.\69\
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    \69\ New Exchange Act Rule 12h-6(f)(3) (17 CFR 240.12h-6(f)(3)). 
These are the same categories of securities excluded from the 
definition of equity security under Securities Act Rule 800(b).
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v. One Year Ineligibility Period After Delisting
    We are adopting, substantially as proposed, a condition to the use 
of Rule 12h-6's trading volume standard and corresponding eligibility 
to file Form 15F. This condition provides that if a foreign private 
issuer has had its equity securities delisted from a registered 
national securities exchange or automated inter-dealer quotation system 
within one year before filing the Form 15F, it must have satisfied the 
trading volume percentage as of the date of delisting, as measured over 
the 12 months preceding the date of delisting.\70\ Under this 
condition:
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    \70\ New Exchange Act Rule 12h-6(b)(1) (17 CFR 240.12h-6(b)(1)). 
We previously proposed to codify this delisting requirement, along 
with a similar requirement concerning termination of a sponsored ADR 
facility, as Notes to paragraph (a)(4) of reproposed Rule 12h-6. We 
have restructured final Rule 12h-6 to provide for these requirements 
in a separate paragraph and have changed the paragraph numbering of 
the adopted rule accordingly. As adopted, Rule 12h-6(b) does not 
apply to issuers terminating their reporting obligations under 
either Rule 12h-6(d) (the successor issuer provision) or Rule 12h-
6(i) (the prior Form 15 filer provision).
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     a listed foreign private issuer that satisfied the trading 
volume condition will be able to delist from its stock exchange and 
terminate its Exchange Act registration and reporting obligations 
concurrently; and
     a listed foreign private issuer that did not satisfy the 
trading volume condition will be able to delist but will not be 
eligible to file a Form 15F and terminate its Exchange Act registration 
and reporting obligations until one year after the date of delisting, 
assuming that, at that time, it meets the conditions of the rule.\71\
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    \71\ For example, an issuer that failed to meet the trading 
volume standard at the date of delisting would have to meet the 
trading volume standard one year later when filing its Form 15F. If, 
notwithstanding its delisting, an active U.S. over-the-counter 
market in the company's securities continued, the company would not 
be eligible to use Rule 12h-6 and file a Form 15F in reliance on the 
trading volume benchmark.
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    We are adopting this condition in order to prevent the new trading 
volume-based rule from creating an incentive for a foreign private 
issuer to delist its securities from a U.S. exchange for the purpose of 
decreasing its U.S. trading volume. As one commenter suggested early 
on, if we were to adopt a standard based solely on trading volume, a 
foreign private issuer that delisted its securities from a U.S. 
exchange before its trading volume fell below the applicable percentage 
should not be eligible to terminate its registration under such a 
standard.\72\
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    \72\ See the letter, dated February 9, 2004, from Cleary 
Gottlieb.
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    A few commenters requested that the Commission remove this 
delisting condition on the grounds that it imposed a restraint on the 
use of the new exit rule that was not necessary for the protection of 
U.S. investors.\73\ We agree that companies should not be unnecessarily 
restricted in choosing the markets on which their securities are 
listed. Thus, we do not believe that delisting from a U.S. exchange 
should result in an automatic bar against a foreign private issuer from 
using the new exit rule. Nonetheless, we share the concern about 
possible negative impacts on U.S. investors stemming from a measure 
based solely on trading volume. Moreover, by requiring companies to 
remain registered and reporting under the Exchange Act for a period of 
time after delisting when, before delisting, the company had a 
relatively active U.S. market for its securities, U.S. investors will 
have access to information prepared in accordance with the Commission's 
financial reporting and disclosure requirements for a period of time 
during which, most likely, the U.S. market will be diminishing. 
Accordingly, we are adopting the delisting condition substantially as 
proposed.\74\
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    \73\ See the letters from Galileo, Makinson Cowell and SGL 
Carbon.
    \74\ Some commenters requested that we exempt from the delisting 
condition an issuer that has been involuntarily delisted. See, for 
example, the letter, dated February 22, 2007, from Cravath, Swaine & 
Moore (Cravath). We decline to do so since such an exemption could 
encourage an issuer not to comply with exchange standards in order 
to get delisted.
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vi. One Year Ineligibility Period After Termination of Sponsored ADR 
Facility
    As part of the rule reproposal, we proposed an additional condition 
to an issuer's use of Rule 12h-6 and eligibility to file Form 15F in 
reliance on the trading volume provision. That condition provided that 
a foreign private issuer must not have terminated any sponsored ADR 
facility within the 12 month period before filing its Form 15F. We 
proposed that condition in order to encourage foreign private issuers 
to maintain their ADR facilities, even after they delist from a U.S. 
market and terminate their Exchange Act reporting obligations.
    After a foreign private issuer delists and deregisters, investors 
will benefit if its ADRs continue to be traded in the over-the-counter 
market in the United States. The termination of ADR facilities has a 
detrimental impact on holders, imposing fees and other charges on 
investors and, when investors are cashed out, subjecting investors to 
unplanned tax consequences and limiting their investment choices.\75\ 
In addition, the termination of ADR facilities will limit the ability 
of many U.S. investors to effect transactions in

[[Page 16941]]

the securities of the subject foreign company.
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    \75\ When an issuer terminates its ADR facility, the holders of 
ADRs generally have the option to make arrangements to hold the 
underlying securities directly. However, if holders are unable or 
unwilling to make these arrangements, or to pay the costs associated 
with these arrangements, the holders will have their investment 
cashed out, that is, the underlying securities will generally be 
sold into the home market and the net proceeds (after deducting fees 
and expenses of the selling broker and the depositary bank) remitted 
to the former ADR holders.
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    Some commenters opposed the ADR facility termination condition on 
grounds similar to those raised against the delisting condition. 
However, these commenters also objected to the fact that, unlike the 
delisting condition, the proposed ADR facility condition applied 
regardless of whether, at the time of termination of its ADR facility, 
an issuer met the trading volume threshold measured for the previous 12 
months.\76\ One commenter stated that adoption of the reproposed 
condition could dissuade issuers from sponsoring ADR programs, to the 
detriment of U.S. investors.\77\
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    \76\ See, for example, the letter, dated February 12, 2007, from 
the New York State Bar Association (N.Y. State Bar), and the letters 
from the ABA and Linklaters.
    \77\ See the letter from the N.Y. State Bar.
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    We continue to believe that, due to the importance of ADR 
facilities for U.S. investors, a sponsored ADR facility termination 
condition is appropriate. However, we agree with commenters that the 
importance of this concern significantly diminishes if, at the time of 
its termination of a sponsored ADR facility, an issuer's U.S. ADTV has 
already fallen below the trading volume threshold.
    Therefore, we are adopting a condition providing that, if an issuer 
has terminated a sponsored ADR facility, and at the time of termination 
the average daily trading volume in the United States of the ADRs 
exceeded 5 percent of the average daily trading volume of the 
underlying class of securities on a worldwide basis for the preceding 
12 months, the issuer must wait 12 months before it may file a Form 15F 
to terminate its Exchange Act reporting obligations in reliance on Rule 
12h-6's trading volume provision.\78\ We are also clarifying that, for 
purposes of Rule 12h-6's trading volume provision, an issuer must 
calculate the trading volume of its ADRs in terms of the number of 
securities represen

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