On February 13, the Securities and Exchange Commission unanimously voted to propose amendments to rules (i) governing disclosure requirements for foreign companies which would eliminate all paper submission requirements and (ii) exempting foreign private issuers from having to register a class of equity securities under the Securities Exchange Act of 1934 based on submission to the SEC of information published outside the United States.
The SEC’s proposed amendments to rules governing disclosure requirements by foreign companies include:
- allowing foreign issuers to assess their eligibility to use the special forms and rules available to foreign private issuers once a year on the last day of their second fiscal quarter rather than the currently-required continuous basis;
- accelerating the reporting deadline for annual reports filed on Form 20-F for foreign private issuers from six months to 90 days after the issuer’s fiscal year-end in the case of large accelerated filers and accelerated filers, and to 120 days after the issuer’s fiscal year-end for all other foreign private issuers;
- amending Form 20-F by eliminating the instruction that permits certain foreign private issuers to omit segment data from their U.S. GAAP financial statements; and
- amending Exchange Act rules pertaining to going private transactions by reporting issuers or their affiliates to reference the recently adopted deregistration and termination of reporting rules applicable to foreign private issuers.
The SEC also proposed amending the Rule 12g3-2(b) exemption, which exempts a foreign private issuer from having to register a class of equity securities under Section 12(g) of the Exchange Act, by eliminating the Rule’s paper submission requirements and automatically granting the exemption to a foreign private issuer that meets specified conditions unrelated to a count of such issuer’s U.S. security holders. To claim the exemption as proposed, issuers must:
- not have any reporting obligations under Section 13(a) or 15(d) of the Exchange Act;
- maintain a listing of the subject securities on one or more exchanges in one or two foreign jurisdictions comprising its primary trading market;
- have U.S. trading volume no greater than 20% of its worldwide trading volume for its most recently completed fiscal year unless it claims an exemption under the Exchange Act in connection with deregistration; and
- electronically publish in English specified non-U.S. disclosure documents required since the beginning of its most recently completed fiscal year on its website or via another electronic information delivery system generally available to the public in its primary trading market, unless it is claiming an exemption under the Exchange Act in connection with deregistration.
To remain eligible for this exemption, an issuer must continue to electronically publish non-U.S. disclosure documents in English for subsequent fiscal years, maintain its foreign listing, continue to meet its trading volume requirement and not otherwise incur any Exchange Act reporting obligations. Compliance with this proposed rule amendment, as SEC Senior Special Counsel Felicia H. Kung discussed in her remarks, will “improve the accessibility of the U.S. markets to foreign private issuers, and enhance the disclosures that these issuers provide to U.S. investors.”