The United States Securities and Exchange Commission (SEC) recently issued its proposed amendments to Rule 15a-6 (the “Rule”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)1, (see White & Case, Client Alert, SEC Proposes to Expand Foreign BDs Access to US Investors, June 27, 2008). The proposed amendments would greatly expand direct access between foreign broker-dealers and US investors and ease the current rule’s conditions under which foreign broker-dealers may interact with such investors. Public comments on the proposed amendments may be submitted until September 8, 2008.

Summary of Proposed Amendments

The proposed amendments would: (1) create a more expansive category of “qualified investors” with which foreign broker-dealers may directly interact; (2) allow research reports to be distributed to all qualified investors; (3) permit direct dissemination to US investors of quotations of foreign broker-dealers; (4) eliminate most intermediation requirements by a US broker-dealer for solicited transactions; (5) create new categories of permissible counterparties; and (6) allow foreign options exchanges to provide information on their products and services to US investors.

“Qualified Investors”

Under the proposal, the terms “US institutional investor” and “major US institutional investor” would be eliminated, and foreign broker-dealers would be permitted to deal directly with “qualified investors,” as defined under Section 3(a)(54) of the Exchange Act. Qualified investors would include institutions currently defined as “institutional investors” under the Rule (with some minor revisions) and other institutions and individuals who own or invest, on a discretionary basis, at least US$25 million in assets.


Foreign broker-dealers could directly distribute research to all qualified investors and effect transactions in securities covered by the reports as long as the other current conditions of the Rule are followed (not recommending the use of the foreign broker-dealer to effect trades, no initiation of contact to follow up on the reports, satisfying the provisions of paragraph (a)(3) of the proposed rule if there is a relationship with a US broker-dealer, and no express or implied understanding of directing commission income to the foreign broker-dealer).

Dissemination of Quotations

The SEC is proposing to provide further interpretative guidance concerning the dissemination of quotations by foreign broker-dealers. Under the proposed interpretation, US distribution of a foreign broker-dealer’s quotation by a third-party system, which does not allow transactions to be executed through the system with the foreign broker-dealer, would not be viewed as a form of solicitation in the absence of other contacts with US investors.

Solicited Trades

Direct Contacts

The current “chaperoning” requirements as to visits and participation in communications with investors would be eliminated under the proposal. An associated person of a foreign broker-dealer would be permitted to have direct contact (including US visits of 180 days or fewer per year) with qualified investors through which solicitations of securities transactions may occur.


As is the case under the current Rule, a foreign broker-dealer would be required to provide the SEC, upon request or pursuant to an agreement between the SEC or the US and a foreign securities authority, information or documents relating to the foreign broker-dealer’s inducing or attempting to induce securities transactions by qualified investors. The foreign broker-dealer also would have to determine that its associated persons dealing with US investors are not subject to a “statutory disqualification” under Section 3(a)(39) of the Exchange Act.

Alternative Exemptions

A foreign broker-dealer wishing to solicit transactions with qualified investors would have two available exemptions under which to operate. Either exemption would still require a US broker-dealer intermediary, which would have a much reduced role in the transactions than under the current Rule in either case. However, when the transactions are effected on a US exchange or with a US over-the-counter market maker, the role of the US broker-dealer would be virtually the same as under the current Rule.

Broker-Dealers Conducting a “Foreign Business“

The first approach permits a foreign broker-dealer to maintain custody of the qualified investor’s securities. The foreign broker-dealer must be engaged in a “foreign business” (which the SEC would define as having 85 percent or more of its transactions in foreign securities on a two-year rolling basis), and an SEC-registered broker-dealer must maintain copies of the records of the securities transactions. The records could be maintained by the foreign broker-dealer according to the standards of its own regulations, as long as the US broker-dealer determines that the records could be obtained and made available to the SEC upon request. The foreign broker-dealer would be required to be regulated by a “foreign securities authority” and must disclose to the investor that it is not regulated by the SEC and that certain protections afforded under the federal securities laws, including SIPC coverage, do not apply.

US Broker-Dealer Maintains Custody

The second approach is to have an SEC-registered broker-dealer maintain custody of the investor’s securities. There is no “foreign business” requirement under this exemption. The foreign broker-dealer would have to be regulated by a “foreign securitiesauthority” and disclose that it is not regulated by the SEC. The US broker-dealer maintaining custody would have to follow the ordinary SEC customer protection rules pertaining to the receipt, delivery and safeguarding of customer funds and securities and maintain records in compliance with the SEC recordkeeping rules as to these functions.

Information Provided by Foreign Options Exchanges

Foreign options exchanges would be permitted to “familiarize” qualified investors with their operations. The proposal would allow representatives of such exchanges to communicate with persons whom they reasonably believe to be qualified investors regarding the exchanges and their products. A foreign broker-dealer would be permitted to effect transactions with qualified investors on foreign options exchanges if it does not solicit the transaction.

Foreign Resident Clients

Foreign broker-dealers would be permitted to solicit and effect transactions involving “foreign resident clients,” which would be defined as (1) an entity not organized in the US or engaged in a trade or business under US tax laws, (2) a natural person who is not a US resident under US tax laws or (3) an entity not organized in the US which is at least 85 percent owned by an entity or person who is considered a “foreign resident client” under (1) or (2).

The proposed amendments to the Rule have been expected for some time and evidence the SEC’s recognition that the current stringent requirements have become outmoded and act as a hindrance to US investors’ access to global markets. We will issue further updates as the proposal is refined through the comment period and in revised SEC releases.