The U.S. Securities and Exchange Commission ("SEC") recently adopted amendments to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act") and to various other foreign issuer reporting requirements.[1] The SEC also adopted revisions to its cross-border tender offer, exchange offer, and business combination rules, as well as beneficial ownership reporting rules for certain foreign institutions.[2] The proposed amendments and revisions, which were the subject of two prior Jones Day Commentaries,[3] were adopted substantially as proposed, except for the significant changes noted below. 

Rule 12g3-2(b) Amendments

The amendments to Rule 12g3-2(b) eliminate the current written application and paper submission requirements under Rule 12g3-2(b) by automatically exempting from Section 12(g) a foreign private issuer that maintains a listing on a stock exchange in its primary non-U.S. trading market, posts on its internet web site or a publicly available electronic information delivery system information required under the rule, and meets other specified conditions.

The amendments were adopted substantially as proposed, except that the SEC eliminated a controversial requirement that would have made foreign private issuers ineligible under the Rule 12g3-2(b) exemption if the average daily trading volume in the issuer's subject class of securities in the United States was greater than 20 percent of the average daily trading volume of that class on a worldwide basis.

The amendments to Rule 12g3-2(b) become effective on October 10, 2008. 

Foreign Issuer Reporting Enhancements 

The foreign issuer reporting enhancements, among other things: (1) permit issuers to assess their foreign private issuer status once a year, on the last business day of their second fiscal quarter, rather than on a continuous basis; (2) accelerate the deadline for annual reports filed by foreign private issuers from six months to four months after the issuer's fiscal year-end, after a three-year transition period;[4] (3) require all U.S. GAAP reconciliations of financial statements to meet the higher standards of Item 18 of Form 20-F; and (4) revise the annual report and registration statement forms used by foreign private issuers to require information regarding changes in the issuer's certifying accountants and payments made by any American Depositary Receipt bank to the issuer.

The amendments were adopted substantially as proposed, except that the SEC:

  • modified the deadline for Annual Reports on Form 20-F to four months for all foreign private issuers, rather than the proposed three months for large accelerated filers and accelerated filers and four months for all other issuers;
  • modified the transition period for the accelerated Form 20-F filing date to three years, rather than two years; and
  • abandoned the proposal that would have required foreign issuers to include financial statements of significant acquired businesses in Annual Reports on Form 20-F.

The foreign issuer reporting enhancements become effective on December 6, 2008.

Revisions to Cross-Border Tender Offer, Exchange Offer, and Business Combination Rules as well as Beneficial Ownership Reporting Rules for Certain Foreign Institutions

The revisions to the cross-border rules expand and enhance the utility of the exemptions for business combination transactions and rights offerings, encourage offerors and issuers to permit U.S. security holders to participate in these transactions on the same terms as other target security holders, and codify existing SEC interpretive positions and exemptive orders in the cross-border area. The adopting release also provides interpretive guidance on several topics. The amendments to reporting rules for certain foreign institutions permit these entities to use Schedule 13G to the same extent as would be permitted for their U.S. counterparts, where specified conditions are satisfied.

The revisions were adopted substantially as proposed, except that the SEC modified the procedures used to calculate U.S. ownership under the Tier I and Tier II exemptions and expanded the availability and scope of the cross-border exemptions in two areas.

The new tests for calculating U.S. ownership of a target company, in both negotiated and hostile transactions:

  • permit the date of public announcement of the business combination as the reference point for calculating U.S. ownership;
  • permit the offeror to calculate U.S. ownership as of a date within a 60-day range before, or a 30-day range after, announcement;
  • no longer require that holders of more than 10 percent of the subject securities be excluded from the calculation of U.S. ownership;
  • clarify when a bidder "has reason to know" certain information about U.S. ownership that may affect the bidder's ability to rely on the presumption of eligibility in non-negotiated tender offers; and
  • provide an alternative trading volume test for determining eligibility in non-negotiated transactions and transactions for which the look-through holder analysis cannot be conducted.

The SEC also expanded the scope of the exemptions by eliminating the maximum length of time for any subsequent offering period and allowing for commencement of an exchange offer upon the filing of a registration statement and before its effectiveness for exchange offers not subject to Rule 13e-4 or Regulation 14D