SEC posts foreign firm exemption proposals

THE US Securities and Exchange Commission yesterday posted the proposed rules exempting foreign companies from registration if they meet certain requirements, including posting English disclosures on the Web.

The SEC staff are seeking comments on the proposed rules until April 25. I’ve already submitted one idea, which is to require foreign firms to offer investors an RSS feed or email alert facility so that they don’t have to visit issuers’ websites just to find out if there is new information. I think it’s a reasonable requirement that costs little or nothing and further improves US investors’ access to information.

In its rule proposals, the SEC explains more clearly why it wants the changes:

By requiring the electronic publication in English of specified non-U.S. disclosure
documents for an issuer claiming the Rule 12g3-2(b) exemption, the proposed
amendments should make it easier for U.S. investors to gain access to a foreign private
issuer’s material non-U.S. disclosure documents, and make better informed decisions
regarding whether to invest in that issuer’s equity securities through the over-the-counter
market in the United States or otherwise. Thus, the proposed amendments should foster
increased efficiency in the trading of the issuer’s securities for U.S. investors.

By enabling a qualified foreign private issuer to claim the Rule 12g3-2(b)
exemption automatically, and without regard to the number of its U.S. shareholders, the
proposed rule amendments should encourage more foreign private issuers to claim the
Rule 12g3-2(b) exemption. That would enable the establishment of additional ADR
facilities, make it easier for broker-dealers to fulfill their obligations under Exchange Act
Rule 15c2-11 to investors with respect to the equity securities of a non-reporting foreign
company, and facilitate the resale of a foreign company’s securities to QIBs in the United
States under Securities Act Rule 144A. Consequently, the proposed rule amendments
should foster the increased trading of a foreign company’s securities in the U.S. over-the-counter
market, which could benefit investors.

Information that a company will be required to post includes, at minimum, the following in English:

• Its annual report, including or accompanied by annual financial statements;
• Interim reports that include financial statements;
• Press releases; and
• All other communications and documents distributed directly to security holders of each class of securities to which the exemption relates.

Similar to the current rule, the proposed rule amendments would require an issuer to publish electronically its non-U.S. disclosure documents promptly after the information has been made public. What constitutes “promptly” would depend on the type of document and the amount of time required to prepare an English translation. Currently, companies typically must provide a translation of a material press release on the same business day of its original publication.

In my comment, I also said there is not enough trading information publicly available about OTC ADRs, such as volume data. How will these issuers know if they’re in danger of exceeding the 20% trading volume threshold if volume data is not readily available on sites such as bnyadr.com or adr.com?

More to the point, investors cannot judge a security’s liquidity without this volume data. Whatever the SEC can do to encourage greater transparency of trading and pricing information in OTC markets would be most valuable.

See previous story on IR Web Report.

Much more here: http://www.sec.gov/rules/proposed/2008/34-57350.pdf

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