SEC Publishes New Rules For De-Registration Of Foreign Issuers

by Glen Shapiro, LawAndTax-News.com, New York

29 March 2007

The US Securities and Exchange Commission on Tuesday published its new rules for deregistration by foreign companies, as adopted by the Commission on March 21.

Last Wednesday, the Commission voted unanimously to adopt changes to the rules that govern when a foreign private issuer may terminate the registration of a class of equity securities, and when it may cease its reporting obligations regarding a class of equity or debt securities.

Under the current rules, a foreign private issuer may exit the Exchange Act registration and reporting regime if the class of the issuer’s securities has less than 300 record holders who are US residents.

Because of the increased globalization of securities markets since the current rules were adopted, a foreign private issuer may find it difficult to terminate its Exchange Act registration and reporting obligations, despite the fact that there is relatively little interest in the issuer's securities among United States investors.

Moreover, currently a foreign private issuer can only suspend, and cannot terminate, a duty to report arising under Section 15(d) of the Exchange Act.

By eliminating conditions that had been considered a barrier to entry, the amended rules aim to encourage participation in US markets and increase investor choice.

“We believe that the amended rules will better serve the needs of both US investors and foreign private issuers. We recognize the importance of foreign private issuers to the US capital markets and expect that the new deregistration rules should in fact promote capital formation in the US and make our markets more attractive to foreign companies without sacrificing important investor protections,” announced John W. White, Director of the Division of Corporation Finance at the SEC.

He continued:

“These rules represent a key step in the Commission’s continuing efforts to respond to the challenges and needs of our markets’ increasing globalization. This effort includes improving the efficiency and effectiveness of implementation of Section 404 of the Sarbanes-Oxley Act and actively considering eliminating the requirement that foreign private issuers reconcile their IFRS financial statements to US GAAP.”

The effective date of the adopted rules will be 60 days from their publication in the Federal Register.

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