On March 27, 2007, the Securities and Exchange Commission issued an adopting release with new rules by which foreign private issuers can terminate Exchange Act registration and reporting obligations. The final rules were adopted in substantially the form as reproposed in December 2006. The new rules will become effective sixty (60) days following their publication in the Federal Registrar, and are expected to be effective by the middle of June, which will enable eligible issuers to immediately file new Form 15F to deregister prior to the filing date for the 2006 Annual Report on Form 20-F (for issuers with a calendar year-end).
A copy of the rule release is available here. The following highlights the main provisions of the final rules and the most significant changes since the December 2006 reproposal:
- Under new Rule 12h-6, an issuer of equity securities will be able to terminate its registration under Section 12(g) of the Exchange Act, or its reporting obligations regarding a class of equity securities under Section 15(d) of the Exchange Act, 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% or less of the worldwide average daily trading volume of that class of securities for a recent 12-month period. Under the final rules, an issuer would measure its US trading volume as a percentage of worldwide trading volume, instead of as a percentage of its primary trading market volume as proposed.
- The final rules require an issuer to include both on-exchange and off-exchange transactions when determining its US trading volume. However, the final 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.
- Under the final rules, if an issuer has delisted a class of equity securities from a US 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. However, the adopting release contains a transition provision so that the delisting and ADR termination conditions would not apply to an issuer that delisted or terminated a sponsored ADR facility before March 21, 2007, the date the rule was adopted.