SEC Staff To Review Foreign Private Issuer Reporting System

At a recent conference in London, Meredith Cross, the director of the SEC Division of Corporation Finance, announced that the SEC will be undertaking a full review of the foreign private issuer reporting system under the U.S. Securities Exchange Act of 1934. Depending on its scope and results, this review could have a significant impact upon foreign private issuers that want to list their securities in the United States or conduct U.S. public offerings under the Securities Act of 1933 as well as issuers that are already reporting under the Exchange Act.

In her announcement, Ms. Cross noted that the characteristics of foreign issuers accessing the U.S. public markets have changed significantly over the last few decades. In particular, she noted that today a larger percentage of Exchange Act reporting foreign private issuers are small- to medium-sized issuers that trade only on U.S. exchanges, rather than large, dual-listed issuers as was the case in the past. As a result of this shift in foreign private issuers, the SEC is examining whether such companies should be treated for Exchange Act reporting purposes as foreign companies or U.S. domestic companies. Although Ms. Cross was not specific about the full extent of this review, she did suggest that one area for review was whether U.S.-only traded foreign private issuers should be subject to Form 10-Q quarterly reporting as well as the detailed Form 8-K periodic reporting, rather than, as currently is the case, only Form 6-K reporting that keys off of home-country disclosure.

Although there is no indication of the scope or timing of this initiative, the potential impact on foreign private issuers may be significant. These issuers and their advisors should monitor the SEC’s activities in this area, including the following:

  • There has been a trend over the last several years of harmonization of certain foreign private issuer and U.S. issuer registration and reporting requirements. For example, the Form 20-F annual report filing deadline recently has been accelerated to four months after the end of a foreign private issuer’s fiscal year.
  • Ms. Cross implied that this initiative is at least in part in response to the change in foreign private issuer characteristics noted above. However, this initiative may also extend to and have an impact on dual-listed foreign private issuers.
  • Ms. Cross did not address whether corporate governance requirements applicable to foreign private issuers will be part of the review. Currently, certain important governance requirements are imposed by the stock exchanges, which today provide exemptions from many of these requirements for foreign issuers.
  •  It will be important for the SEC to evaluate the impact of any rule changes upon the willingness of foreign private issuers to enter the U.S. public markets. To the extent the burden on such issuers is excessive, it may push such issuers to the U.S. private placement market or non-U.S. public markets. Obviously, this could adversely impact the competitiveness of the U.S. markets, an issue that continues to receive significant attention in the United States.

Although it is uncertain what changes, if any, will be made on the basis of the SEC’s review, any proposed changes, of course, would be subject to public comment and final approval by the SEC. In any event, this initiative should be closely watched by foreign private issuers whose securities are registered with the SEC or that may seek to access the U.S. public markets.

Lawyer Contacts

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Daniel Bushner

Linda A. Hesse

Richard M. Kosnik

Jeffrey Maddox

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