Exploring Corporate Governance Around the World

By Allison Garrett, Senior Vice President for Academic Affairs at Oklahoma Christian University

Thursday, October 12, 2006

Foreign Private Issuer Deregistration

Last December, the SEC proposed rules regarding the deregistration of foreign private issuers (see my blog posting regarding the proposed rule). Yesterday, the SEC announced an open meeting on December 13 to consider those proposed rules, as well as proposed rules regarding Section 404 of the Sarbanes-Oxley Act, the internet availability of proxy materials and Rule 14a-8 regarding shareholder proposals.

The proposed rules regarding foreign private issuers allow those issuers to exit the SEC reporting system if they:
1. have filed or furnished all require reports during the prior 2 years;
2. have not offered securities in the U.S. for at least the past 12 months (with a few exceptions such as sales to employees and sales of commercial paper); and
3. have had securities listed under their home country reporting regimes for the past 2 years or longer.

In addition to these requirements, the issuer must meet one of the following additional conditions:
1. no more than 5% of the shares are held by U.S. residents; or
2. the U.S. average daily trading volume is not more than 5% of the company's average daily trading volume in its primary market;
3. the class of shares is held by no more than 300 shareholders worldwide or in the U.S.

Foreign private issuers with debt securities issued in the U.S. can terminate their SEC reporting under the Exchange Act if that have filed or furnished all required reports including at least one annual report and within 120 days of filing a new Form 15F, the debt securities are held by fewer than 300 holders worldwide or 300 U.S. holders.

Foreign private issuers which meet these requirements may exit the U.S. reporting system. They must, however, make available to U.S. investors via the Internet reports that they are required to file in their home countries.

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