Effective 4 June 2007, a foreign private issuer (FPI) that has a class of securities registered in the United States under the Exchange Act of 1934 will find it easier to terminate its reporting obligations under the Exchange Act. In response to criticism from FPIs, the US Securities and Exchange Commission (SEC) adopted new exit rules that allow FPIs to exit the Exchange Act reporting regime when they no longer have a meaningful market for their securities in the United States. Under the new exit rules, an FPI may terminate its Exchange Act reporting obligation with respect to an equity security by filing a new Form 15F if either of the following conditions are met:
- The US average daily trading volume of its US registered security has been 5 per cent or less than the average daily trading volume of that security on a worldwide basis for a recent 12-month period (the ADTV Condition).
- Within 120 days before filing the Form 15F, less than 300 record holders held the US registered security on a worldwide basis, or securities were held by less than 300 US residents (the 300 Holder Condition). Under the new rules, an FPI only has to “look through” the accounts of the brokers, bankers and other nominees in the United States, its jurisdiction of incorporation and, if different from its jurisdiction of incorporation, its primary trading market. In order to be eligible to use a Form 15F, an FPI must also satisfy the following conditions:
- The FPI has been subject to the Exchange Act reporting requirements for at least 12 months and is current with respect to its reporting obligation under the Exchange Act (the Prior Exchange Act Reporting Condition).
- Except under limited circumstances, the FPI has not conducted a Securities Act offering during the past 12 months (the One-Year Dormancy Condition).
- For the past 12 months, the FPI’s US registered security was listed on one or more exchanges in a foreign jurisdiction constituting the primary trading market for such security (the Foreign Listing Condition). In cases where an FPI has delisted its security from a US exchange but does not meet the ADTV Condition or 300 Holder Condition, it must wait at least 12 months before it may file a Form 15F.
An FPI may terminate its reporting obligation with respect to a debt security if it meets the 300 Holder Condition and Prior Exchange Act Reporting Condition.
Prior to or on the date of filing the Form 15F, an exiting FPI must broadly disseminate a notice in the United States of its intention to terminate its reporting obligation and registration under the Exchange Act. A copy of the notice must also be submitted to the SEC. Upon filing the Form 15F, all the FPI’s reporting obligations are suspended for 90 days. If, at the end of the 90-day period, the SEC does not object, an FPI will have successfully terminated its reporting obligations. The new exit rules also allow an FPI that had previously filed a Form 15 under the prior exit rules to now file a Form 15F as long as both the ADTV Condition and Foreign Listing Condition are satisfied.
By providing a means to exit the Exchange Act reporting regime, the SEC has taken a big step in restoring interest in the US capital markets while still providing meaningful protection to US investors.