The U.S. Securities and Exchange Commission recently adopted a series of initiatives that change some of the disclosure (and other) requirements applicable to Canadian and other foreign private issuers.

Foreign Private Issuer Reporting Enhancements

The SEC has adopted amendments to its rules governing the reporting obligations of Canadian and other foreign private issuers (FPIs) that are effective as of December 6, 2008. Of greatest interest are the following:

  • FPIs will be permitted to assess their eligibility to use the special forms and rules available to FPIs just once a year on the last business day of their second fiscal quarter, rather than having to do so on a continuous basis. The amendments will require a Canadian issuer that plans to file its annual report on Form 40-F under the Multijurisdictional Disclosure System to test its FPI status as of the last business day of its second fiscal quarter, and to test its eligibility to file its annual report on Form 40-F based on the remaining criteria for use of Form 40-F at the end of its fiscal year.
  • FPIs filing their annual reports on Form 20-F will be required to accelerate their filing to 4 months after their fiscal year-end. Canadian issuers that file annual reports on Form 40-F are not affected by this amendment.

Changes to Cross-Border Exemptions and Beneficial Ownership Reporting Rules

The SEC has also adopted amendments to its cross-border exemptions that are effective as of December 8, 2008.

Highlights of the amendments include:

  • The method of determining U.S. beneficial ownership of a target’s securities when evaluating the availability of the Tier 1 and Tier 2 cross-border exemptions has been changed so that (i) the reference date for the calculation of U.S. beneficial ownership can be any date no more than 60 days before, and no more than 30 days after, the public announcement of the transaction; and (ii) individual holders of more than 10% of the subject securities will no longer be excluded from the calculation to determine the level of U.S. beneficial ownership.
  • In limited situations where an issuer or acquiror is unable to conduct the U.S. beneficial ownership analysis, an alternate test may be used for determining eligibility to rely on the cross-border exemptions based in part on a comparison of the average daily trading volume (ADTV) of the subject securities in the United States and worldwide over a 12-month period ending not more than 60 days before the announcement of the transaction. In addition, at least 55% of the ADTV in the subject securities must have taken place in a single, or no more than two, foreign jurisdiction(s) during a recent 12-month period.
  • Certain foreign institutions will be permitted to report their beneficial ownership of publicly traded securities on Schedule 13G to the same extent as their U.S. counterparts, subject to specified conditions.

Rule 12g3-2(b) Registration Exemption

The SEC also adopted amendments that became effective on October 10, 2008 to the rule that exempts FPIs from having to register a class of securities under Section 12(g) of the U.S. Securities Exchange Act of 1934. Under the new rule, a FPI may rely on the Rule 12g3-2(b) exemption automatically without the requirement for an application to the SEC as long as the FPI:

  • maintains a listing of the subject class of securities on one or more exchanges outside the United States that, either singly or together with the trading of the same class of the issuer’s securities in another non-U.S. jurisdiction, encompasses at least 55% of the worldwide trading of the subject class of securities;
  • is not otherwise required to file or furnish reports under the Exchange Act; and
  • if organized in Canada, is a reporting issuer in Canada making continuous disclosure filings on the System for Electronic Document Analysis and Retrieval (SEDAR) or, if it is a FPI organized outside Canada, is otherwise satisfying certain current public information requirements.

A more detailed summary of the SEC’s amendments is available here.