EC Welcomes US Proposals On Deregistration From Capital Markets

by Ulrika Lomas, for LawAndTax-News.com, Brussels

15 February 2007

The European Commission announced on Wednesday that it welcomes new rules proposed by the US Securities and Exchange Commission (SEC) that would make it much easier for non-US companies listed on US capital markets to deregister from those markets at a time of their choosing, once certain criteria have been fulfilled.

In the Commission's view, the new rules, which are based on a comparison of the company's trading volume on the US market and on its primary market, have the potential to largely resolve issues concerning the existing rules, which are based on the number of US investors, and are considered by EU companies to be overly restrictive.

In addition, the Commission has strongly encouraged the US regulator to ensure swift adoption of its revised proposal.

The Commission's response is supported by EU Member States and European issuer associations.

Internal Market and Services Commissioner Charlie McCreevy announced that:

"The SEC's new approach is sensible, practical and workable. EU companies will be more inclined to enter US capital markets and stay there if rules on leaving those markets are made less restrictive. This represents real progress, and shows that the EU-US Financial Markets Regulatory Dialogue can make a difference in addressing transatlantic financial issues."

However, in its letter, the Commission has also made some technical comments on the SEC's proposal. In particular, the Commission would like to see an increase in the trading volume threshold, which stands at 5% under the proposal. A higher threshold would allow a higher number of EU issuers to use the new rule.

Additionally, the Commission has requested the SEC to use the worldwide trading volume instead of the primary market trading volume, thus taking into account all markets where the security is traded.

Meanwhile, SEC Chairman Christopher Cox announced yesterday that on March 6, 2007, senior SEC staff members from the Office of the Chief Accountant, the Division of Corporation Finance and the Office of International Affairs will hold a roundtable discussion on the “roadmap” regarding International Financial Reporting Standards (IFRS).

“Nearly 100 countries currently use, or have a policy of convergence with, IFRS,” stated Chairman Cox, “including the European Union, where IFRS reporting has been mandatory since 2005. Eliminating the current reconciliation requirement, and paving the way for the use of both systems in the United States, remains the objective of the roadmap. This Roundtable will help us identify both opportunities and speed bumps along the way.”

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