On September 10, 2010 the Securities and Exchange Commission’s (the “SEC”) Office of International Corporate Finance published its approval of Bursa Malaysia Securities Berhad (“Bursa Securities”) and, for the limited purpose of trading certain “Shelf-Listed Bonds,” the electronic trading platform operated by Bursa Malaysia Bonds Sdn Bhd. (“Bursa Bonds”), as “designated offshore securities markets” within the meaning of Rule 902(b) of Regulation S (“Regulation S”) under the Securities Act of 1933, as amended (the “Act”).1
Regulation S provides an exemption from having to register securities with the SEC under the Act. Rule 904 of Regulation S applies to offers or sales of securities effected by persons other than the issuer of the securities, a distributor or persons acting on their behalf.2 An offer or sale of securities that satisfies the conditions of Rule 904 of Regulation S is deemed to occur outside the United States and therefore is not subjected to the registration requirements of the Act.
Among the conditions of Rule 904 is the requirement that the offer or sale must be made in an “offshore transaction.”3 Rule 902(h) provides, in relevant part, that an offer or sale is made in an offshore transaction if the offer is not made to a person in the United States and (provided there has been no prearrangement in the United States) the transaction is executed in, on or through the facilities of a designated offshore securities market (“DOSM”).4 Rule 902(b) provides that a DOSM includes certain specific non-U.S. securities exchanges and markets listed in Rule 902(b)(1), as well as any other non-U.S. securities exchange or market designated by the SEC based upon its consideration of, among other things, the attributes specified in Rule 902(b)(2).5
The implication of the SEC’s action is that equity securities listed on Bursa Securities and Shelf-Listed Bonds issued in Malaysia that are either traded on Bursa Bonds, or reported to Bursa Bonds (“Shelf-Listed Bonds”), may now generally be resold in non-prearranged trades executed through the facilities of these markets without requiring that the seller form a reasonable belief that the buyer is outside of the United States. Thus, such transactions may be effected with U.S. and non-U.S. persons without restrictions under the Act.
The SEC has designated a number of foreign markets as DOSM’s.6 However, the SEC has not previously granted DOSM status to a purely electronic marketplace such as Bursa Bonds that is a stand-alone electronic trading platform for bonds.7 The letter is also noteworthy in that the SEC included over-the-counter trades in Shelf-Listed Bonds that are reported to Bursa Bonds in the relief.