On August 27, the Securities and Exchange Commission voted to adopt amendments to Securities Exchange Act Rule 12g3-2(b). The Rule provides a foreign private issuer with an exemption from registering its equity securities under the Exchange Act while having its equity securities traded in the U.S. over-the-counter market if it files certain information published outside the U.S. with the SEC. The exemption does not apply if the foreign private issuer’s securities are traded on a national securities exchange or the OTC Bulletin Board.
Under the amendments, instead of complying with the current rule’s written application and paper submission requirements for exemption, a foreign private issuer that meets the following conditions will automatically be exempt from registration under Rule 12g3-2(b):
- Foreign Exchange Listing: The foreign private issuer must maintain listing of the subject class of securities on at least one foreign exchange in no more than two foreign jurisdictions, such jurisdictions constituting its primary trading market. At least 55% of the foreign private issuer’s average daily trading volume must be in its primary trading market, thus ensuring the foreign private issuer is held accountable by a foreign jurisdiction that principally regulates and oversees the foreign private issuer’s securities issuances and trading.
- Non-U.S. Disclosure Documents in English: The foreign private issuer is required to provide a full English translation of specified non-U.S. disclosure documents, whether on its website or through a public and generally available electronic information delivery system, from the beginning of the most recently completed fiscal year. In order to maintain its exemption, the foreign private issuer must continue to electronically publish such specified non-U.S. disclosure documents in English.
- No Reporting Obligations: In order to prevent an issuer from claiming the Rule 13g3-2(b) exemption when it has otherwise incurred Exchange Act reporting obligations, the foreign private issuer must not have any reporting obligations under Exchange Act Sections 13(a) or 15(d). However, under the amendments, the foreign private issuer no longer need look back to the past 18 months to determine whether or not it has any such reporting obligations. By eliminating the 18-month look-back period under the current rule, the amendment hastens a foreign private issuer’s publishing of its non-U.S. disclosure documents in English.
The final rule amendments do not include one condition to exemption contained in the SEC’s proposing release of February 2008, which would have required that the foreign private issuer’s average daily trading volume in the U.S. not exceed 20% of the average daily trading volume worldwide for the foreign private issuer’s most recently completed fiscal year.