On March 21, the Securities and Exchange Committee adopted new rules that will establish a more clearly defined process with a new benchmark by which aforeign private issuer can terminate its Exchange Act registration and reporting obligations. Under new Exchange Act Rule 12h-6, a foreign private issuer will be eligible to terminate its registration of securities under Exchange Act section 12(g), or its reporting obligations regarding a class of equity securities under Exchange Act section 15(d), if it meets a quantitative benchmark, which is not based on a head count of its shareholders, as is the current exit rule. An issuer of equity securities will be able to terminate its Exchange Act registration and reporting obligations, assuming it meets the other conditions of Rule 12h-6, if the average daily trading volume of the subject class of securities in the United States has been 5 percent or less of the worldwide average daily trading volume of that class of securities for a recent 12-month period.
The new rules require an issuer to include both on-exchange and off-exchange transactions when determining its U.S. trading volume. However, the rules also permit the inclusion of off-exchange transactions when calculating worldwide trading volume if the information about the off-exchange transactions comes from sources that are reasonably reliable and is not duplicative of other trading volume data.
Among other things, the new rules for termination provide as follows:
• if an issuer has delisted a class of equity securities from a U.S. exchange, or terminated a sponsored American Depositary Receipts facility and, at the time of delisting or termination, it exceeded the trading volume threshold, the issuer must wait at least a year before it may terminate its Exchange Act reporting obligations in reliance on the trading volume standard;
• an equity securities issuer must have maintained a listing of the subject class of securities on one or more exchanges in its primary trading market for at least the 12 months before filing for deregistration under new Rule 12h-6;
• Rule 12h-6 will require an equity securities registrant not to have sold its securities, with certain exceptions, in the United States in a registered offering under the Securities Act during the preceding 12 months; and
• an equity securities registrant will have to have been an Exchange Act reporting company for at least a year, to be current for that period, and to have filed at least one Exchange Act annual report before it may file for deregistration under the new rule.
The rules will become effective 60 days from their publication in the Federal Register.