[Federal Register: April 5, 2007 (Volume 72, Number 65)]
[Rules and Regulations]
[Page 16933-16960]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ap07-21]
[[Page 16933]]
-----------------------------------------------------------------------
Part III
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Parts 200, 232, 240 and 249
Termination of a Foreign Private Issuer's Registration of a Class of
Securities Under Section 12(g) and Duty To File Reports Under Section
13(a) or 15(d) of the Securities Exchange Act of 1934; Final Rule
[[Page 16934]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 232, 240 and 249
[Release No. 34-55540; International Series Release No. 1301; File No.
S7-12-05]
RIN 3235-AJ38
Termination of a Foreign Private Issuer's Registration of a Class
of Securities Under Section 12(g) and Duty To File Reports Under
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: We are adopting amendments to the rules that govern when a
foreign private issuer may terminate the registration of a class of
equity securities under section 12(g) of the Securities Exchange Act of
1934 (``Exchange Act'') and the corresponding duty to file reports
required under section 13(a) of the Exchange Act, and when it may cease
its reporting obligations regarding a class of equity or debt
securities under section 15(d) of the Exchange Act. Under the current
rules, 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 U.S.-
registered 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. New Exchange Act Rule 12h-6 will permit a foreign private issuer
of equity securities to terminate its reporting obligations under
either section 13(a) or section 15(d) of the Exchange Act by meeting a
quantitative benchmark designed to measure relative U.S. market
interest for its equity securities that does not depend on a head count
of the issuer's U.S. security holders. The new rule will permit a
foreign private issuer to compare the average daily trading volume of
its securities in the United States with its worldwide average daily
trading volume, using a 5 percent benchmark. The accompanying rule
amendments will also help provide U.S. investors with ready access
through the Internet on an ongoing basis to material information about
a foreign private issuer of equity securities that is required by its
home country after it has exited the Exchange Act reporting system. The
new rule will also permit a foreign private issuer of debt securities
to terminate, rather than merely suspend, its section 15(d) reporting
obligations.
DATES: Effective Date: June 4, 2007.
FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Special Counsel, at
(202) 551-3450, in the Office of International Corporate Finance,
Division of Corporation Finance, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-3628.
SUPPLEMENTARY INFORMATION: We are adopting amendments to Commission
Rule 30-1,\1\ Rule 101 \2\ of Regulation S-T,\3\ and Rules 12g3-2, 12g-
4 and 12h-3 \4\ under the Exchange Act,\5\ and adding new Rule 12h-6
\6\ and Form 15F \7\ under the Exchange Act.
---------------------------------------------------------------------------
\1\ 17 CFR 200.30-1.
\2\ 17 CFR 232.101.
\3\ 17 CFR 232.10 et seq.
\4\ 17 CFR 240.12g3-2, 240.12g-4 and 240.12h-3.
\5\ 15 U.S.C. 78a et seq.
\6\ 17 CFR 240.12h-6.
\7\ 17 CFR 249.324.
---------------------------------------------------------------------------
Table of Contents
I. Executive Summary and Background
A. Introduction
B. Principal Comments Regarding the Reproposed Rule Amendments
C. Summary of the Adopted Rule Amendments
II. Discussion
A. Conditions for Equity Securities Issuers
1. Quantitative Benchmarks
a. Trading Volume Benchmark
i. Calculation of the U.S. Trading Volume Benchmark as a
Percentage of Worldwide Trading Volume Instead of Primary Trading
Market Trading Volume
ii. Inclusion of Off-Market Transactions in the Trading Volume
Calculation
iii. The 5 Percent Trading Volume Measure
iv. Definition of Equity Securities
v. One Year Ineligibility Period After Delisting
vi. One Year Ineligibility Period After Termination of Sponsored
ADR Facility
vii. Transition Period
b. Alternative 300-Holder Condition
2. Prior Exchange Act Reporting Condition
3. The One Year Dormancy Condition
4. Foreign Listing Condition
B. Debt Securities Provision
C. Revised Counting Method
D. Expanded Scope of Rule 12h-6
1. Application of Rule 12h-6 to Successor Issuers
2. Application of Rule 12h-6 to Prior Form 15 Filers
E. Public Notice Requirement
F. Form 15F
G. Amended Rules 12g-4 and 12h-3
H. Amendment Regarding the Rule 12g3-2(b) Exemption
1. Extension of the Rule 12g3-2(b) Exemption Under Rule 12g3-
2(e)
2. Electronic Publishing of Home Country Documents
I. Concerns Regarding Securities Act Rule 701
III. Paperwork Reduction Act Analysis
IV. Cost-Benefit Analysis
V. Consideration of Impact on the Economy, Burden on Competition and
Promotion of Efficiency, Competition and Capital Formation Analysis
VI. Regulatory Flexibility Act Certification
VII. Statutory Basis and Text of Rule Amendments
I. Executive Summary and Background
A. Introduction
In December 2005, the Commission issued proposed amendments to its
current rules governing when a foreign private issuer \8\ may exit the
Exchange Act reporting regime.\9\ Under the current rules, the primary
determinant regarding whether a foreign private issuer may terminate
its registration of a class of securities under section 12(g) \10\ or
suspend its reporting obligations under section 15(d) \11\ is if its
subject securities are held of record by less than 300 residents in the
United States.\12\ The Commission proposed to amend these rules out of
concern that, due to the increased globalization of securities markets
in recent decades as well as other trends, it has become difficult for
a foreign private issuer to exit the Exchange Act reporting system even
when there is relatively little U.S. investor interest in its U.S.-
registered securities.\13\
---------------------------------------------------------------------------
\8\ See the definition of foreign private issuer at Exchange Act
Rule 3b-4(c) (17 CFR 240.3b-4(c)).
\9\ Release No. 34-53020 (December 23, 2005), 70 FR 77688
(December 30, 2005) (Original Proposing Release).
\10\ This statutory section applies to equity securities only.
See Exchange Act Section 12(g)(1) [15 U.S.C. 78l (g)(1)].
\11\ 15 U.S.C. 78o(d). The effectiveness of a registration
statement under the Securities Act of 1933 (``Securities Act'')
triggers Section 15(d) reporting obligations. That section provides
that an issuer cannot suspend its reporting obligations unless the
subject class of securities is held of record by less than 300
persons at the beginning of a fiscal year other than the year in
which the Securities Act registration statement became effective.
Section 15(d) does not permit an issuer to terminate, but only to
suspend, its reporting obligations under that section.
\12\ Exchange Act Rules 12g-4(a)(2)(i) (17 CFR 240.12g-
4(a)(2)(i)) and 12h-3(b)(2)(i) (17 CFR 240.12h-3(b)(2)(i)).
\13\ See Original Proposing Release, 70 FR at 77689-77690.
---------------------------------------------------------------------------
We recognize that U.S. investors benefit from the investment
opportunities provided by foreign private issuers registering their
securities with the Commission and listing and publicly offering those
securities in the United States. However, because of the burdens and
uncertainties associated with terminating registration and reporting
under the Exchange Act, the current exit process may serve as a
disincentive to foreign private issuers accessing the
[[Page 16935]]
U.S. public capital markets.\14\ In order to remove this disincentive,
we proposed to amend the current Exchange Act exit rules for foreign
private issuers.
---------------------------------------------------------------------------
\14\ See Part I.C of the Original Proposing Release for a
discussion of the concerns raised by foreign private issuers
regarding the current Exchange Act exit regime.
---------------------------------------------------------------------------
As originally proposed, new Exchange Act Rule 12h-6 would have
permitted a foreign private issuer of equity securities to terminate
its Exchange Act registration and reporting obligations if, among other
conditions, it met one of a set of alternative quantitative benchmarks
that, depending on whether the issuer was a well-known seasoned issuer
(``WKSI''),\15\ was based either on a combination of U.S. trading
volume and U.S. public float criteria or just U.S. public float
data.\16\ However, numerous commenters stated that the originally
proposed rules would still unduly restrict a significant portion of
U.S.-registered foreign private issuers from exiting the Exchange Act
reporting regime, thus making it unlikely that the proposed rules would
achieve their purpose of attracting more foreign companies to U.S.
public capital markets.
---------------------------------------------------------------------------
\15\ For purposes of proposed Rule 12h-6, a ``well-known
seasoned issuer'' meant a well-known seasoned issuer as defined in
Securities Act Rule 405 (17 CFR 230.405), which would have required
the worldwide market value of an issuer's outstanding voting and
non-voting common equity held by non-affiliates to be $700 million
or more.
\16\ Under the original rule proposal, a WKSI would have been
eligible to terminate its Exchange Act reporting obligations
regarding a class of equity securities if the U.S. average daily
trading volume (``ADTV'') of the subject class of securities had
been no greater than 5 percent of the ADTV of that class of
securities in its primary trading market during a recent 12 month
period, and U.S. residents held no more than 10 percent of the
issuer's worldwide public float as of a specified date. A WKSI with
greater than 5 percent U.S. ADTV or a non-WKSI would have been
eligible for termination of reporting regarding a class of equity
securities if, regardless of U.S. trading volume, U.S. residents
held no more than 5 percent of the issuer's worldwide public float
as of a specified date. See Part II.B.2.d of Release No. 34-53020.
---------------------------------------------------------------------------
In light of these criticisms, we reconsidered our approach and, in
December 2006, we reproposed the amendments to the Exchange Act exit
rules for foreign private issuers.\17\ As an alternative to the record
holder standard for equity securities issuers, we proposed a
quantitative benchmark based solely on a comparison of the average
daily trading volume of a foreign private issuer's equity securities in
the United States with that in its primary trading market. We reasoned
that a standard based on trading volume may in fact be superior to the
originally proposed standard, which was based primarily on a comparison
of an issuer's U.S. public float with its worldwide public float,
because it is a more direct measure of the issuer's nexus with the U.S.
market and because trading volume data is easier to obtain than public
float or record holder data.\18\ We concluded that, in applying an exit
standard based on trading volume data for the U.S. and an issuer's
primary trading market, issuers would face reduced costs when
determining whether they can terminate their registration and reporting
obligations under the Exchange Act, compared to the originally proposed
standards that would have required an issuer to assess the U.S.
residence of its security holders.\19\
---------------------------------------------------------------------------
\17\ Release No. 34-55005 (December 22, 2006), 72 FR 1384
(January 11, 2007) (Reproposing Release).
\18\ We reproposed the rule amendments primarily because the
Commission did not fully address this trading volume approach in the
Original Proposing Release.
\19\ See Parts II.A.1.a and IV of the Reproposing Release.
---------------------------------------------------------------------------
B. Principal Comments Regarding the Reproposed Rule Amendments
We received 30 comment letters in response to the reproposed rule
amendments.\20\ These letters represented the views of over 40 distinct
entities, including business, financial and legal associations, foreign
companies, financial advisory and accounting firms, law firms, and one
foreign government. While the commenters generally strongly supported
the trading volume-based approach and other aspects of the reproposed
rules, many offered suggestions designed primarily to fine-tune those
rules.
---------------------------------------------------------------------------
\20\ These comment letters, along with the letters received at
the proposing stage, are available on the Commission's Internet Web
site, located at http://www.sec.gov/rules/proposed/s71205.shtml, and
in the Commission's Public Reference Room in its Washington, DC
headquarters.
---------------------------------------------------------------------------
We received the most comments concerning the reproposed trading
volume benchmark for equity securities issuers. Numerous commenters
urged us to adopt a quantitative benchmark that would require an issuer
to measure its U.S. ADTV as a percentage of its ADTV for the same class
of securities on a worldwide basis, rather than against its ADTV in its
primary trading market, as reproposed. Many commenters also requested
that we permit an issuer to include off-market transactions when
calculating its worldwide ADTV for a class of equity securities, rather
than only when calculating its U.S. ADTV, as reproposed. Some
commenters further urged us to permit an issuer to include trades
conducted through alternative trading systems when determining whether
it meets the proposed trading volume benchmark. Still others requested
that we increase the percentage in the trading volume-based measure to
a percentage greater than 5 percent, as reproposed, particularly if we
did not move to a worldwide ADTV standard.
Commenters expressed concern or requested guidance regarding a
number of other issues, including:
the appropriateness of the proposed provision that would
prohibit reliance on the trading volume standard if an issuer has
delisted its securities from a U.S. exchange during the preceding 12
months when its U.S. ADTV exceeded the 5 percent threshold;
the appropriateness of the proposed provision that would
prohibit reliance on the trading volume standard if an issuer has
terminated a sponsored American Depositary Receipts (ADR) facility \21\
during the preceding 12 months, regardless of whether the issuer met
the trading volume benchmark at the time of termination;
---------------------------------------------------------------------------
\21\ An ADR is a negotiable instrument that represents an
ownership interest in a specified number of securities, which the
securities holder has deposited with a designated bank depositary.
Use of an ADR facility makes it easier for a U.S. resident to
collect dividends in U.S. dollars. Moreover, because the clearance
and settlement process for ADRs generally is the same for securities
of domestic companies that are traded in U.S. markets, a U.S. holder
of an ADR is able to hold securities of a foreign company that
trades, clears and settles within automated U.S. systems and within
U.S. time periods.
---------------------------------------------------------------------------
whether to include convertible debt and other equity-
linked securities in the definition of equity security for purposes of
the new exit rule;
whether a special financial report filed pursuant to
Exchange Act Rule 15d-2 \22\ would constitute an Exchange Act annual
report for the purpose of the reproposed prior reporting condition;
---------------------------------------------------------------------------
\22\ 17 CFR 240.15d-2.
---------------------------------------------------------------------------
the appropriateness of the reproposed dormancy condition
for equity securities registrants,\23\ including whether it would
prohibit an issuer from conducting a registered offering in which an
underwriter has agreed to a standby purchase commitment but only
resells the purchased securities outside the United States;
---------------------------------------------------------------------------
\23\ As reproposed, Rule 12h-6 would prohibit an equity
securities registrant from selling its securities in the United
States in a registered offering under the Securities Act, except for
specified registered offerings, during the 12 months preceding the
filing of its Form 15F.
---------------------------------------------------------------------------
the appropriateness of the reproposed foreign listing
condition for equity securities registrants,\24\ including whether it
should apply to an issuer relying on the alternative 300 holder
provision of Rule 12h-6, and to an
[[Page 16936]]
issuer that delists from its non-U.S. exchange in connection with being
acquired;
---------------------------------------------------------------------------
\24\ As reproposed, Rule 12h-6 would require an equity
securities issuer to have maintained a listing on an exchange in its
primary trading market.
---------------------------------------------------------------------------
the role of a predecessor in determining a successor
issuer's eligibility to terminate its Exchange Act reporting
obligations under reproposed Rule 12h-6, including whether, under
Exchange Act Rule 12g-3(g),\25\ a successor issuer would have to file
an Exchange Act annual report for the predecessor's most recently
completed fiscal year before it could terminate its reporting
obligations under Rule 12h-6;
---------------------------------------------------------------------------
\25\ 17 CFR 240.12g-3(g).
---------------------------------------------------------------------------
whether to permit a foreign company that filed a Form 15
previously to terminate or suspend its Exchange Act reporting
obligations regarding a class of equity securities before the
effectiveness of new Rule 12h-6 to terminate its reporting obligations
under the new exit rule without having to recount its holders, as long
as it meets that rule's trading volume benchmark;
whether to increase the threshold number of record holders
in the debt securities provision; and
whether an issuer that has filed a Form 15F \26\ solely to
terminate its reporting obligations regarding debt securities must wait
until the effectiveness of that termination before it can submit an
application for the Rule 12g3-2(b) exemption regarding a class of
equity securities.
---------------------------------------------------------------------------
\26\ Like current Rules 12g-4 and 12h-3, which require the
filing of Form 15, reproposed Rule 12h-6 would require the filing of
a form--Form 15F--by which an issuer would certify that it meets the
conditions for ceasing its Exchange Act reporting obligations.
---------------------------------------------------------------------------
C. Summary of the Adopted Rule Amendments
We have carefully considered commenters' concerns regarding the
reproposed rules, and have addressed many of them in the rule
amendments that we are adopting today. As adopted, new Exchange Act
Rule 12h-6 and the accompanying rule amendments will:
permit a foreign private issuer, regardless of size, to
terminate its Exchange Act registration and reporting obligations
regarding a class of equity securities, assuming it meets all the other
conditions of Rule 12h-6, if, for a recent 12-month period, the U.S.
ADTV of the subject class of securities has been no greater than 5
percent of its worldwide ADTV--rather than 5 percent of the ADTV in its
primary trading market, as reproposed;
permit an issuer to include off-market transactions,
including transactions through alternative trading systems, when
calculating its worldwide ADTV for a class of equity securities--as
discussed in connection with calculating its U.S. ADTV, as reproposed--
as long as the trading volume information regarding the off-market
transactions is reasonably reliable and does not duplicate other
trading volume information regarding the subject class of securities;
require an issuer to wait 12 months before filing its Form
15F in reliance on the trading volume standard if the issuer has
delisted its class of equity securities from a national securities
exchange or automated inter-dealer quotation system in the United
States,\27\ or terminated a sponsored ADR facility and, at the time of
delisting or termination, the U.S. ADTV of the subject class of
securities exceeded 5 percent of its worldwide ADTV for the preceding
12 months;
---------------------------------------------------------------------------
\27\ Neither the OTC Bulletin Board operated by Nasdaq nor the
market operated by the Pink Sheets LLC are deemed to be automated
inter-dealer quotation systems. See Release 33-6862 (April 23,
1999), n.22.
---------------------------------------------------------------------------
retain the 300-holder standard as an alternative to the
trading volume standard for an equity securities issuer and as the
quantitative standard for a debt securities issuer, as reproposed;
exclude convertible debt and other equity-linked
securities from the definition of equity security for the purpose of
new Rule 12h-6's trading volume provision;
require an equity securities registrant to have at least
one year of Exchange Act reporting, be current in reporting obligations
for that period, and have filed at least one Exchange Act annual
report, as reproposed;
permit an issuer to count a special financial report filed
pursuant to Exchange Act Rule 15d-2 as an Exchange Act annual report
for the purpose of the new rule's prior reporting condition;
prohibit an issuer of equity securities from selling
securities in the United States in a registered offering under the
Securities Act, except as specified, during the 12 months preceding the
filing of its Form 15F (the ``dormancy condition''), substantially as
reproposed;
require an issuer of equity securities to have maintained
a listing of the subject class of securities for at least the 12 months
preceding the filing of its Form 15F on one or more exchanges in a
foreign jurisdiction that, either singly or together with the trading
of the same class of the issuer's securities in another foreign
jurisdiction, constitutes the primary trading market for those
securities, substantially as reproposed;
define primary trading market to mean that at least 55
percent of the trading in a foreign private issuer's class of
securities that is the subject of Form 15F took place in, on or through
the facilities of a securities market or markets in a single foreign
jurisdiction or in no more than two foreign jurisdictions during a
recent 12-month period, as long as the trading in at least one of the
two foreign jurisdictions is larger than the trading in the United
States for the same class of the issuer's securities;
permit an equity securities issuer relying on the
alternative 300-holder standard, or a debt securities issuer, to use a
revised counting method that limits the inquiry regarding the amount of
securities represented by accounts of customers resident in the United
States to brokers, dealers, banks and other nominees located in the
United States, the foreign private issuer's jurisdiction of
incorporation, legal organization or establishment, and the one or two
jurisdictions comprising the issuer's primary trading market if
different from the issuer's jurisdiction of incorporation, legal
organization or establishment, as reproposed;
permit an issuer of equity or debt securities to rely on
the assistance of an independent information services provider when
determining whether the issuer falls below the 300-holder standard, as
reproposed;
permit a successor issuer meeting specified conditions to
terminate its Exchange Act reporting obligations under new Rule 12h-6,
as reproposed; \28\
---------------------------------------------------------------------------
\28\ See Part II.D.1 of this release for clarification regarding
the limited role of the predecessor in determining a successor
issuer's eligibility to terminate its Exchange Act reporting
obligations under Rule 12h-6.
---------------------------------------------------------------------------
permit a foreign private issuer that filed a Form 15 and
suspended or terminated its Exchange Act reporting obligations under
the current exit rules before the effective date of Rule 12h-6 to
terminate its Exchange Act reporting obligations under new Exchange Act
Rule 12h-6, as long as, if regarding a class of equity securities, the
issuer meets Rule 12h-6's listing condition and either the trading
volume or alternative-300 holder condition or, if regarding a class of
debt securities, the issuer meets the rule's 300-holder condition for
debt issuers;
extend the Rule 12g3-2(b) exemption to a foreign private
issuer of equity securities, including a successor issuer and prior
Form 15 filer, immediately upon its termination of reporting under Rule
12h-6, and require the issuer to maintain that exemption by publishing
in English specified material home country documents required by
[[Page 16937]]
Rule 12g3-2(b) \29\ on its Internet Web site or through an electronic
information delivery system generally available to the public in its
primary trading market, as reproposed;
---------------------------------------------------------------------------
\29\ See Exchange Act Rule 12g3-2(b)(1)(iii) (17 CFR 240.12g3-
2(b)(1)(iii)).
---------------------------------------------------------------------------
permit a non-reporting company that has received or will
receive the Rule 12g3-2(b) exemption, upon application to the
Commission and not pursuant to Rule 12h-6, to publish its ``ongoing''
home country documents required under Rule 12g3-2(b) on its Internet
Web site or through an electronic information delivery system rather
than submit them in paper to the Commission; and
permit an issuer that has filed a Form 15F to terminate
its Exchange Act reporting obligations regarding a class of debt
securities to establish the Rule 12g3-2(b) exemption for a class of
equity securities upon the effectiveness of its termination of
reporting under Rule 12h-6, by submitting an application for the Rule
12g3-2(b) exemption after filing its Form 15F.
We are also adopting, as reproposed, procedural conditions that
will:
require a foreign private issuer to file a Form 15F
providing information with respect to whether the issuer meets the
requirements for terminating its reporting obligations under Rule 12h-
6;
automatically suspend an issuer's Exchange Act reporting
obligations upon the filing of its Form 15F and trigger a 90-day
waiting period at the end of which, assuming the Commission has no
objections, the suspension will become a termination of reporting; and
require a foreign private issuer to publish a notice, such
as a press release, announcing its intention to terminate its Exchange
Act reporting obligations under Rule 12h-6, before or at the time of
filing its Form 15F.
We believe the rules that we are adopting today provide meaningful
protection of U.S. investors by permitting the termination of Exchange
Act registration and reporting only by those foreign registrants with
relatively low U.S. market interest in their U.S.-registered
securities. Compared to the current exit rules, Rule 12h-6 will
establish a more clearly defined process with a more appropriate
benchmark by which a foreign private issuer can terminate its Exchange
Act reporting obligations. As a result, we believe foreign private
issuers should be more willing initially to register their securities
with the Commission, which will provide more investment choices for
U.S. investors.
At the same time, we believe the conditions that determine a
foreign private issuer's eligibility to terminate its Exchange Act
registration and reporting regarding a class of equity securities under
new Rule 12h-6 will serve to protect U.S. investors. For example, the
prior reporting condition \30\ is intended to provide investors with at
least one complete year's worth of Exchange Act reports, including an
annual report, upon which they can base their investment decisions
about a particular foreign registrant before that registrant exits the
Exchange Act reporting system. The dormancy condition is designed to
deter a foreign private issuer's promotion of U.S. investor interest
through recent registered capital-raising shortly before exiting our
reporting system. The one year reporting and dormancy conditions are
consistent with the statutory requirements under section 15(d).
---------------------------------------------------------------------------
\30\ See p. 12 and Part II.A.2 of this release.
---------------------------------------------------------------------------
The foreign listing condition and U.S. trading volume benchmark
support our view that, before a foreign private issuer may terminate
its Exchange Act reporting obligations under Rule 12h-6, it must have
been subject to an ongoing disclosure and financial reporting regime,
and have a significant market following, in its primary trading market.
We have set the U.S. trading volume benchmark at such a level that,
although there may be some U.S. investor interest in the subject
securities of an issuer meeting the benchmark, that interest would
appear to be sufficiently diminished so that a foreign private issuer
should not be required to continue its Exchange Act reporting if it
determines that it is no longer desirable to continue as a U.S.
registrant.
The condition restricting the ability of an issuer to rely on the
trading volume standard under specified circumstances (U.S. delisting
and termination of a sponsored ADR facility) should deter an issuer
from excluding U.S. investors, particularly retail investors, from
investing in their securities when U.S. market interest is still
significant. The immediate availability of the exemption under Rule
12g3-2(b) will foster access by U.S. investors to ongoing home country
information about an issuer after it terminates its Exchange Act
registration and reporting under Rule 12h-6. Finally, the conditions
relating to the filing of Form 15F and the publication of a press
release or other notice will promote transparency in the exit process.
II. Discussion
A. Conditions for Equity Securities Issuers
1. Quantitative Benchmarks
a. Trading Volume Benchmark
As adopted, new Exchange Act Rule 12h-6 will enable a foreign
private issuer of equity securities, regardless of size, to qualify for
termination of its Exchange Act reporting by meeting a quantitative
benchmark provision that does not depend on the number of its U.S.
record holders or the percentage of its securities held by those
holders. Under new Rule 12h-6, an issuer will be able to terminate its
Exchange Act registration and reporting obligations regarding a class
of equity securities, assuming it meets the other conditions of Rule
12h-6, if the ADTV of the subject class of equity securities in the
United States has been 5 percent or less of the ADTV of that class of
securities on a worldwide basis during a recent 12-month period.\31\
This trading volume benchmark is substantially similar to the
reproposed standard, except that the adopted benchmark requires an
issuer to measure its U.S. ADTV as a percentage of its worldwide ADTV
rather than the ADTV in its primary trading market.
---------------------------------------------------------------------------
\31\ New Exchange Act Rule 12h-6(a)(4)(i) (17 CFR 240.12h-
6(a)(4)(i)).
---------------------------------------------------------------------------
A threshold matter in this regulatory initiative has been what is
the most appropriate benchmark for equity securities that would best
serve the interests of investors and issuers, and most commenters
addressed this issue. Most of the commenters agreed that a benchmark
based solely on trading volume is superior to one based on a
combination of U.S. public float and trading volume criteria or just
U.S. public float data, as under the originally proposed Rule 12h-6, or
one based on the number of record holders in the United States or on a
worldwide basis, as under the current exit rules. Most commenters
stressed that trading volume data is easier to obtain and confirm than
is the data required for a U.S. public float or record holder
determination.\32\ As commenters have noted, it is difficult for a
reporting foreign private issuer to determine accurately the specific
country of residence of its investors.\33\ Because a public float
benchmark would require such a determination to varying degrees, most
commenters agreed with our conclusion that the reproposed trading
[[Page 16938]]
volume-based benchmark should result in reduced costs to issuers in
determining whether they can terminate their Exchange Act reporting
obligations.\34\
---------------------------------------------------------------------------
\32\ See, for example, the letter, dated February 12, 2007, from
Cleary Gottlieb, Steen & Hamilton LLP (Cleary Gottlieb).
\33\ See the comment letters discussed in Part II.A.1.a of the
Reproposing Release.
\34\ See, for example, the letter, dated February 12, 2007, from
the European Association for Listed Companies and other signatories
(EALIC).
---------------------------------------------------------------------------
Some commenters supported the reproposed trading volume measure
because it would provide a simple and clear measure of the degree of
U.S. market interest in an issuer's equity securities.\35\ Some
commenters expressed the view that basing the new exit rule on a
trading volume measure would help ensure that an issuer's termination
of Exchange Act registration and reporting would not have a significant
impact on the primary price-setting determinants of an issuer's equity
securities, which would allow for U.S. investors to trade in that
issuer's securities following its U.S. deregistration.\36\
---------------------------------------------------------------------------
\35\ See, for example, the letter, dated February 12, 2007, from
Sullivan & Cromwell LLP (Sullivan & Cromwell) and the letter, dated
January 2, 2007, from Galileo Global Advisors (Galileo).
\36\ See, for example, the letter from Cleary Gottlieb.
---------------------------------------------------------------------------
Commenters expressed their belief that adoption of the reproposed
trading volume standard would enable significantly more foreign private
issuers to exit the Exchange Act reporting regime if they so
desire.\37\ Consequently, as one commenter indicated, by removing
restrictions regarding the ability to exit U.S. securities markets,
adoption of new Rule 12h-6 and the accompanying amendments will have a
major impact on the perception that foreign companies have of those
markets, making the U.S. capital markets ``much more attractive and
competitive on an international scale.''\38\
---------------------------------------------------------------------------
\37\ See, for example, the letter, dated February 12, 2007, from
the European Commission.
\38\ See the letter from Cleary Gottlieb.
---------------------------------------------------------------------------
For the above reasons, we are adopting a quantitative exit standard
for equity securities registrants based solely on trading volume
instead of one based on a combination of trading volume and public
float criteria or just public float data. We also are adopting, as
reproposed, one trading volume standard that will apply to all issuers
of equity securities. Commenters generally supported having one
benchmark applicable to any foreign private issuer, regardless of
size.\39\ Although we originally proposed a set of quantitative
benchmarks that depended primarily on whether an issuer was a WKSI, we
are adopting the same trading volume standard for a smaller issuer as
for a larger issuer in order to provide increased flexibility and
simplification to the Exchange Act deregistration regime, and for the
other reasons discussed in the Reproposing Release.\40\
---------------------------------------------------------------------------
\39\ See, most recently, the letter, dated February 23, 2007,
from the American Bar Association, Section of Business Law (ABA).
\40\ For example, a trading volume standard that favored WKSIs
could discourage smaller foreign companies from entering U.S. public
capital markets, to the detriment of U.S. investors. Moreover,
commenters at the proposing stage noted that the costs of continued
Exchange Act reporting fall disproprotionately on smaller issuers.
See Part II.A.1.a of the Reproposing Release.
---------------------------------------------------------------------------
i. Calculation of the U.S. Trading Volume Benchmark as a Percentage of
Worldwide Trading Volume Instead of Primary Trading Market Trading
Volume
Numerous commenters requested that the Commission calculate U.S.
trading volume as a percentage of worldwide trading volume rather than
as a percentage of ADTV in the issuer's primary trading market,\41\ as
reproposed.\42\ The primary rationale for this request is that, with
the increased globalization of securities markets, many issuers now
trade on multiple non-U.S. markets. According to these commenters,
since the goal of the reproposed trading volume benchmark is to
determine the relative importance of the U.S. trading market for an
issuer's securities, an issuer should be able to take into account all
non-U.S. trading in its securities, and not just the trading that has
occurred in the one or two jurisdictions comprising its primary trading
market.\43\
---------------------------------------------------------------------------
\41\ As discussed in Part II.A.4 of this release, we define
primary trading market to mean that at least 55 percent of the
trading in a foreign private issuer's subject class of securities
took place in, on or through the facilities of a securities market
or markets in a single foreign jurisdiction or in no more than two
foreign jurisdictions during a recent 12-month period. If an issuer
aggregates the trading in two foreign jurisdictions, the trading
market for the issuer's securities in at least one of the two
foreign jurisdictions must be larger than the United States trading
market for the same class of the issuer's securities. We proposed a
substantially similar definition at the reproposing stage.
\42\ See, for example, the letter, dated February 8, 2007, from
BusinessEurope, the letters, dated February 12, 2007, from Davis
Polk & Wardwell (Davis Polk), Linklaters, and Makinson Cowell, and
the letters from Cleary Gottlieb, EALIC, and the EU. In contrast,
only one commenter opposed using worldwide trading volume. See the
letter from Galileo.
\43\ See the letters from Cleary Gottlieb and EALIC.
---------------------------------------------------------------------------
Some commenters maintained that, while it is reasonable to base
Rule 12h-6's foreign listing condition on the reproposed primary
trading market definition, it is not so for the trading volume
benchmark.\44\ As discussed below, the purpose of the foreign listing
condition is to help assure that there is a non-U.S. jurisdiction that
principally regulates and oversees the issuance and trading of the
issuer's securities and the issuer's disclosure obligations to
investors.\45\ Limiting the definition of primary trading market in
this context to no more than two jurisdictions helps to further the
purpose of the foreign listing condition. In contrast, the purpose of
the trading volume benchmark is to measure the relative U.S. market
interest in a foreign private issuer's equity securities. Accounting
for as much of the issuer's trading as is reasonably possible would
further the purpose of this rule.
---------------------------------------------------------------------------
\44\ See the letter from Linklaters.
\45\ See Part II.A.4 of this release.
---------------------------------------------------------------------------
We agree that, in light of the number of foreign registrants that
have listings in more than two jurisdictions, and given the purpose of
the trading volume benchmark, measuring an issuer's U.S. ADTV as a
percentage of its worldwide ADTV would increase the likelihood of
obtaining a more accurate measure of relative U.S. market interest for
that issuer's equity securities. Therefore, we are adopting a trading
volume benchmark for new Rule 12h-6 that will require an issuer to use
as the denominator of its trading volume calculation its worldwide ADTV
for the subject class of securities.\46\
---------------------------------------------------------------------------
\46\ Worldwide ADTV includes U.S. ADTV. Some commenters favored
a trading measure based on the dollar value of shares traded rather
than on the number of shares traded. See the letter, dated February
12, 2007, from Ziegler, Ziegler and Associates (Ziegler) and the
letter from Galileo. We decline to adopt a trading value measure
because we believe that it would add an unnecessary level of
complexity and cost to the non-record holder determination.
---------------------------------------------------------------------------
ii. Inclusion of Off-Market Transactions in the Trading Volume
Calculation
We reproposed to require an issuer to include both transactions
occurring on a stock exchange and over-the-counter trades for the
purpose of calculating U.S. ADTV for the numerator of the trading
volume benchmark, but to include only on-exchange transactions for the
purpose of calculating its ADTV for the denominator (its primary
trading market, as reproposed). We did so based on our belief that
trading volume information about over-the-counter trades was more
readily available in the United States than in many foreign
jurisdictions.
Numerous commenters \47\ urged the Commission to permit an issuer
to include ``off-market'' transactions when determining whether it
meets the 5
[[Page 16939]]
percent trading volume standard, rather than just transactions
occurring on a stock exchange, as reproposed. These commenters
maintained that it was inappropriate to require an issuer to include
both on-exchange and off-exchange transactions when calculating its
U.S. ADTV but not when calculating its worldwide trading volume. As
noted by some of these commenters, members of Euronext markets are
currently required to report off-market transactions.\48\ Moreover,
some commenters noted that an EU Directive,\49\ scheduled for
effectiveness in November 2007, will generally require the reporting of
off-market transactions, which will make information regarding off-
market transactions generally available in Europe the same way that
such information is available through a transaction reporting plan in
the United States.\50\
---------------------------------------------------------------------------
\47\ See the letters from BusinessEurope, Cleary Gottlieb, Davis
Polk, EALIC, the EU, Makinson Cowell, and Sullivan & Cromwell, and
the letters, dated February 12, 2007, from the International Bar
Association and Skadden Arps Slate Meagher & Flom (Skadden Arps).
\48\ See, for example, the letter from Cleary Gottlieb.
\49\ Directive 2004/39/EC, also known as the Market in Financial
Instruments Directive (MiFID).
\50\ See the letters from Cleary Gottlieb, the EU, and
BusinessEurope.
---------------------------------------------------------------------------
Some of these commenters urged the Commission to permit an issuer
to include not only off-market transactions that currently occur
through traditional over-the-counter means, but those that may occur
through alternative trading systems.\51\ According to these commenters,
MiFID will encourage the development of such trading systems.\52\ These
commenters stated that, as long as trading information is credible and
the sources reliable, an issuer should be able to include information
about securities transactions regardless of the platform on which they
occur.\53\
---------------------------------------------------------------------------
\51\ See the letters from the EU and Davis Polk.
\52\ See, for example, the EU letter.
\53\ See, for example, the letter from Davis Polk.
---------------------------------------------------------------------------
Some commenters requested that, if the Commission does not permit
an issuer to include off-market transactions when determining its
worldwide trading volume for the denominator of its trading volume
calculation, it should also prohibit the inclusion of off-market
transactions when determining its U.S. ADTV for the numerator of that
calculation.\54\ In contrast, one commenter, which favored a worldwide
trading volume measure, expressly requested that the Commission
prohibit the inclusion of off-market transactions for both the
numerator and denominator because of the difficulty of obtaining over-
the-counter trading information.\55\
---------------------------------------------------------------------------
\54\ See the letters from BusinessEurope and the EU.
\55\ See the letter from Skadden Arps.
---------------------------------------------------------------------------
These comments have persuaded us that, for at least some foreign
private issuers, information regarding off-exchange transactions in
non-U.S. jurisdictions will be readily obtainable. Therefore, under
adopted Rule 12h-6, when making its trading volume determination, an
issuer must include in its calculation of U.S. ADTV both on-exchange
and off-exchange transactions, as reproposed. For both on-exchange and
off-exchange transactions in the United States, we expect an issuer to
be able to obtain relevant trading volume information as reported
pursuant to an effective transaction reporting plan,\56\ pursuant to
NASD rules,\57\ or reported by a national securities exchange otherwise
than pursuant to an effective transaction reporting plan. In addition,
an issuer may include in its calculation of worldwide ADTV off-market
transactions, including transactions conducted through alternative
trading systems, in addition to transactions occurring on an exchange,
as long as an issuer has obtained the information concerning the off-
market transactions from publicly available sources or third-party
information service providers, upon which the issuer has reasonably
relied in good faith, and as long as the off-market transaction
information does not duplicate any other trading volume information
obtained.
---------------------------------------------------------------------------
\56\ Rule 601 of Regulation NMS (17 CFR 242.601) requires every
national securities exchange to file a transaction reporting plan
regarding transactions in listed equity and Nasdaq securities.
\57\ See, for example, NASD Manual Rule 6600 et seq. for rules
regarding recording and reporting transactions in OTC Equity
Securities. A member broker-dealer must report information
concerning OTC trades not involving a listed security, including a
Nasdaq security, under the NASD rules rather than pursuant to a
transaction reporting plan since the latter only covers unlisted
transactions involving listed (and Nasdaq) securities.
---------------------------------------------------------------------------
In response to our request for comments on whether issuers should
be required to obtain trading volume data from particular sources, a
number of commenters advocated that the final rules provide issuers
with sufficient flexibility to use such data sources as they deem
reliable and appropriate.\58 \The adopted rules do not specify any
particular data sources that issuers must use to determine either its
U.S. or worldwide trading volume. In this respect, when obtaining
information concerning either on-exchange or off-exchange transactions,
issuers will have the latitude to use market data vendors or other
commercial service providers and publicly available sources of market
information that they reasonably believe to be reliable and that do not
duplicate trading volume information obtained from other sources, such
as various exchanges or markets.\59\ Issuers will be required to
disclose their trading volume data sources on Form 15F, which will
inform investors of the data sources used.\60\
---------------------------------------------------------------------------
\58\ See, for example, the letters from Cleary Gottlieb and
EALIC.
\59\ See Instruction 3.c to Item 4 of Form 15F.
\60\ See Item 4.F of Form 15F.
---------------------------------------------------------------------------
iii. The 5 Percent Trading Volume Measure
Commenters expressed a variety of views on whether 5 percent U.S.
ADTV was the appropriate threshold for the trading volume benchmark.
Although some commenters requested that the Commission increase the
percentage to 10 percent ADTV,\61\ many others supported the 5 percent
threshold.\62\ Moreover, some of the commenters that requested an
increase to 10 percent did so only if the Commission decided not to
adopt a world-wide trading based benchmark.\63\
---------------------------------------------------------------------------
\61\ See the letter, dated February 9, 2007, from SGL Carbon,
the letter, dated February 12, 2007, from Fried Frank Harris Shriver
& Jacobson (Fried Frank), and the letter from Skadden Arps. Another
commenter requested an increase to 15 percent. See the letter from
i-CABLE Communications Ltd. (i-CABLE).
\62\ See the letters from Cleary Gottlieb, EALIC, Galileo,
Sullivan & Cromwell, and the New York State Society of Certified
Public Accountants (NYSSCPA).
\63\ See the letters from the ABA, BusinessEurope, and
Linklaters.
---------------------------------------------------------------------------
We believe that adoption of the ``5 percent of worldwide trading
volume'' standard will permit foreign companies with relatively little
U.S. market interest to deregister.\64\ Moreover, by permitting an
issuer to include both on-exchange and off-exchange transactions when
calculating its worldwide ADTV, we have addressed the concerns of
commenters who suggested the 5 percent threshold could be too low to
achieve the rule's purpose of reducing the disincentive to U.S.
registration that may be caused by the current exit regime.
iv. Definition of Equity Securities
---------------------------------------------------------------------------
\64\ See Part III, n. 191 of this release.
---------------------------------------------------------------------------
We reproposed that, for purposes of new Rule 12h-6, an issuer would
use the definition of equity security provided in Exchange Act Rule
3a11-1.\65\ That provision includes equity-linked securities, such as
convertible debt securities and warrants, within the definition of
equity security. Several commenters \66\ requested that the Commission
exclude equity-linked securities from the definition of equity
[[Page 16940]]
security on the grounds that trading volume information for equity-
linked securities is difficult to obtain. One commenter suggested using
instead the definition of equity security provided in the Securities
Act cross-border rules, which explicitly excludes convertible debt and
other equity-linked securities.\67\
---------------------------------------------------------------------------
\65\ 17 CFR 240.3a11-1.
\66\ See the letters from BusinessEurope, the EU, EALIC and
Cleary Gottlieb.
\67\ See the letter from Cleary Gottlieb, which cites Securities
Act Rule 800(b) (17 CFR 230.800(b)).
---------------------------------------------------------------------------
We agree with those commenters that, because trading volume
information concerning convertible debt and other equity-linked
securities is more difficult to obtain than trading volume information
for the underlying equity securities, an issuer should not have to
include equity-linked securities when determining whether it meets the
trading volume benchmark. The same reasoning applies to an issuer's
determination concerning the foreign listing condition, which requires
an issuer to meet the definition of primary trading market, which is a
trading volume-based definition.\68\ Therefore, we are adopting a
definition of equity security that is based on Rule 3a11-1, except
that, for purposes of the trading volume and foreign listing provisions
of Rule 12h-6, the definition explicitly excludes:
---------------------------------------------------------------------------
\68\ See Part II.A.4 of this release.
---------------------------------------------------------------------------
any debt security that is convertible into an equity
security, with or without consideration;
any debt security that includes a warrant or right to
subscribe to or purchase an equity security;
any such warrant or right; or
any put, call, straddle, or other option or privilege that
gives the holder the option of buying or selling a security but does
not require the holder to do so.\69\
---------------------------------------------------------------------------
\69\ New Exchange Act Rule 12h-6(f)(3) (17 CFR 240.12h-6(f)(3)).
These are the same categories of securities excluded from the
definition of equity security under Securities Act Rule 800(b).
---------------------------------------------------------------------------
v. One Year Ineligibility Period After Delisting
We are adopting, substantially as proposed, a condition to the use
of Rule 12h-6's trading volume standard and corresponding eligibility
to file Form 15F. This condition provides that if a foreign private
issuer has had its equity securities delisted from a registered
national securities exchange or automated inter-dealer quotation system
within one year before filing the Form 15F, it must have satisfied the
trading volume percentage as of the date of delisting, as measured over
the 12 months preceding the date of delisting.\70\ Under this
condition:
---------------------------------------------------------------------------
\70\ New Exchange Act Rule 12h-6(b)(1) (17 CFR 240.12h-6(b)(1)).
We previously proposed to codify this delisting requirement, along
with a similar requirement concerning termination of a sponsored ADR
facility, as Notes to paragraph (a)(4) of reproposed Rule 12h-6. We
have restructured final Rule 12h-6 to provide for these requirements
in a separate paragraph and have changed the paragraph numbering of
the adopted rule accordingly. As adopted, Rule 12h-6(b) does not
apply to issuers terminating their reporting obligations under
either Rule 12h-6(d) (the successor issuer provision) or Rule 12h-
6(i) (the prior Form 15 filer provision).
---------------------------------------------------------------------------
a listed foreign private issuer that satisfied the trading
volume condition will be able to delist from its stock exchange and
terminate its Exchange Act registration and reporting obligations
concurrently; and
a listed foreign private issuer that did not satisfy the
trading volume condition will be able to delist but will not be
eligible to file a Form 15F and terminate its Exchange Act registration
and reporting obligations until one year after the date of delisting,
assuming that, at that time, it meets the conditions of the rule.\71\
---------------------------------------------------------------------------
\71\ For example, an issuer that failed to meet the trading
volume standard at the date of delisting would have to meet the
trading volume standard one year later when filing its Form 15F. If,
notwithstanding its delisting, an active U.S. over-the-counter
market in the company's securities continued, the company would not
be eligible to use Rule 12h-6 and file a Form 15F in reliance on the
trading volume benchmark.
---------------------------------------------------------------------------
We are adopting this condition in order to prevent the new trading
volume-based rule from creating an incentive for a foreign private
issuer to delist its securities from a U.S. exchange for the purpose of
decreasing its U.S. trading volume. As one commenter suggested early
on, if we were to adopt a standard based solely on trading volume, a
foreign private issuer that delisted its securities from a U.S.
exchange before its trading volume fell below the applicable percentage
should not be eligible to terminate its registration under such a
standard.\72\
---------------------------------------------------------------------------
\72\ See the letter, dated February 9, 2004, from Cleary
Gottlieb.
---------------------------------------------------------------------------
A few commenters requested that the Commission remove this
delisting condition on the grounds that it imposed a restraint on the
use of the new exit rule that was not necessary for the protection of
U.S. investors.\73\ We agree that companies should not be unnecessarily
restricted in choosing the markets on which their securities are
listed. Thus, we do not believe that delisting from a U.S. exchange
should result in an automatic bar against a foreign private issuer from
using the new exit rule. Nonetheless, we share the concern about
possible negative impacts on U.S. investors stemming from a measure
based solely on trading volume. Moreover, by requiring companies to
remain registered and reporting under the Exchange Act for a period of
time after delisting when, before delisting, the company had a
relatively active U.S. market for its securities, U.S. investors will
have access to information prepared in accordance with the Commission's
financial reporting and disclosure requirements for a period of time
during which, most likely, the U.S. market will be diminishing.
Accordingly, we are adopting the delisting condition substantially as
proposed.\74\
---------------------------------------------------------------------------
\73\ See the letters from Galileo, Makinson Cowell and SGL
Carbon.
\74\ Some commenters requested that we exempt from the delisting
condition an issuer that has been involuntarily delisted. See, for
example, the letter, dated February 22, 2007, from Cravath, Swaine &
Moore (Cravath). We decline to do so since such an exemption could
encourage an issuer not to comply with exchange standards in order
to get delisted.
---------------------------------------------------------------------------
vi. One Year Ineligibility Period After Termination of Sponsored ADR
Facility
As part of the rule reproposal, we proposed an additional condition
to an issuer's use of Rule 12h-6 and eligibility to file Form 15F in
reliance on the trading volume provision. That condition provided that
a foreign private issuer must not have terminated any sponsored ADR
facility within the 12 month period before filing its Form 15F. We
proposed that condition in order to encourage foreign private issuers
to maintain their ADR facilities, even after they delist from a U.S.
market and terminate their Exchange Act reporting obligations.
After a foreign private issuer delists and deregisters, investors
will benefit if its ADRs continue to be traded in the over-the-counter
market in the United States. The termination of ADR facilities has a
detrimental impact on holders, imposing fees and other charges on
investors and, when investors are cashed out, subjecting investors to
unplanned tax consequences and limiting their investment choices.\75\
In addition, the termination of ADR facilities will limit the ability
of many U.S. investors to effect transactions in
[[Page 16941]]
the securities of the subject foreign company.
---------------------------------------------------------------------------
\75\ When an issuer terminates its ADR facility, the holders of
ADRs generally have the option to make arrangements to hold the
underlying securities directly. However, if holders are unable or
unwilling to make these arrangements, or to pay the costs associated
with these arrangements, the holders will have their investment
cashed out, that is, the underlying securities will generally be
sold into the home market and the net proceeds (after deducting fees
and expenses of the selling broker and the depositary bank) remitted
to the former ADR holders.
---------------------------------------------------------------------------
Some commenters opposed the ADR facility termination condition on
grounds similar to those raised against the delisting condition.
However, these commenters also objected to the fact that, unlike the
delisting condition, the proposed ADR facility condition applied
regardless of whether, at the time of termination of its ADR facility,
an issuer met the trading volume threshold measured for the previous 12
months.\76\ One commenter stated that adoption of the reproposed
condition could dissuade issuers from sponsoring ADR programs, to the
detriment of U.S. investors.\77\
---------------------------------------------------------------------------
\76\ See, for example, the letter, dated February 12, 2007, from
the New York State Bar Association (N.Y. State Bar), and the letters
from the ABA and Linklaters.
\77\ See the letter from the N.Y. State Bar.
---------------------------------------------------------------------------
We continue to believe that, due to the importance of ADR
facilities for U.S. investors, a sponsored ADR facility termination
condition is appropriate. However, we agree with commenters that the
importance of this concern significantly diminishes if, at the time of
its termination of a sponsored ADR facility, an issuer's U.S. ADTV has
already fallen below the trading volume threshold.
Therefore, we are adopting a condition providing that, if an issuer
has terminated a sponsored ADR facility, and at the time of termination
the average daily trading volume in the United States of the ADRs
exceeded 5 percent of the average daily trading volume of the
underlying class of securities on a worldwide basis for the preceding
12 months, the issuer must wait 12 months before it may file a Form 15F
to terminate its Exchange Act reporting obligations in reliance on Rule
12h-6's trading volume provision.\78\ We are also clarifying that, for
purposes of Rule 12h-6's trading volume provision, an issuer must
calculate the trading volume of its ADRs in terms of the number of
securities represented by those ADRs.\79\
---------------------------------------------------------------------------
\78\ New Exchange Act Rule 12h-6(b)(2) (17 CFR 240.12h-6(b)(2)).
\79\ Note to paragraph (a)(4) of Rule 12h-6. Typically the ratio
defining the number of common or ordinary shares underlying each ADR
is included as part of the deposit agreement or in an exhibit to
that agreement.
---------------------------------------------------------------------------
vii. Transition Period
In connection with our reproposal of Rule 12h-6, we solicited
comment on whether the proposed delisting and ADR termination
conditions should apply to a foreign private issuer that delisted its
equity securities from a U.S. exchange or terminated a sponsored ADR
facility before the effective date of the new exit rule. One commenter
\80\ requested that neither provision apply to an issuer that delisted
or terminated a sponsored ADR facility before December 13, 2006, which
is the date of the open meeting at which the Commission voted to
repropose Rule 12h-6 and the accompanying rule amendments.
---------------------------------------------------------------------------
\80\ See the letter from the ABA.
---------------------------------------------------------------------------
We agree that, in the interests of fairness, an issuer should not
be precluded from relying on Rule 12h-6's trading volume provision
because it delisted or terminated a sponsored ADR facility before the
Commission had even proposed to make those acts meaningful to the
application of Rule 12h-6. However, we believe that March 21, 2007
should be the dispositive date since, on that date, the Commission
voted to adopt the delisting and ADR termination conditions, thus
making definite its intent that those conditions apply to Rule 12h-6's
trading volume provision.
Therefore, a foreign private issuer that, before March 21, 2007,
delisted a class of equity securities from a national securities
exchange or inter-dealer quotation system in the United States or
terminated a sponsored ADR facility, may file a Form 15F in reliance on
Rule 12h-6's trading volume provision even if, at the time of delisting
or termination, its U.S. ADTV exceeded 5 percent of the ADTV of that
class of securities on a worldwide basis for the preceding 12 months.
b. Alternative 300-Holder Condition
We are adopting, substantially as reproposed, an alternative to the
trading volume benchmark provision, which will permit a foreign private
issuer to terminate its Exchange Act reporting obligations regarding a
class of equity securities if it has less than 300 record holders on a
worldwide basis or who are U.S. residents as long as the issuer meets
the rule's other conditions.\81\ The purpose of this alternative 300-
holder condition is to enable an issuer to terminate its Exchange Act
reporting obligations if it cannot satisfy the new trading volume
benchmark but does meet the current 300-holder standard. Otherwise, an
issuer could find itself worse off under Rule 12h-6 than under the
current exit rules.\82\
---------------------------------------------------------------------------
\81\ New Exchange Act Rule 12h-6(a)(4)(ii) (17 CFR 240.12h-
6(a)(4)(ii)).
\82\ We did not originally propose or repropose a similar 500
record holder condition, although one exists in the current rules
for a small issuer with total assets that have not exceeded $10
million for its most recent three fiscal years. Based on current
experience, most foreign private issuers have not relied on that
provision due to the difficulty in meeting the asset test.
---------------------------------------------------------------------------
The adopted alternative record holder condition is substantially
the same as the proposed and reproposed condition. Although at the
proposing stage, some commenters requested that the Commission
significantly raise the 300-holder threshold in both the Exchange Act
exit and entrance rules, and a few made a similar request at the
reproposing stage,\83\ we decline to adopt an increase to the 300-
holder threshold for foreign private issuers either in the exit or
entrance rules at this time. As we previously stated, the limited
purpose for retaining the 300-holder provision in the new exit rule is
to preclude disadvantaging those companies that could terminate their
Exchange Act reporting obligations under the current exit rules but not
under the new trading volume condition.\84\ Moreover, since domestic
registrants are subject to a substantially similar record holder
standard, we believe any change would be more appropriately considered
as part of a comprehensive evaluation of the record holder provisions
in both the Exchange Act entrance and exit rules for both domestic and
foreign registrants.\85\ In addition, issuers relying on the
alternative holder provision will be able to use the revised counting
method that we are adopting today, which should make the U.S. holder
determination easier for those issuers.\86\
---------------------------------------------------------------------------
\83\ See the letters from the ABA and the Organization for
International Investment.
\84\ See Part II.A.1.b of the Reproposing Release.
\85\ In this regard, we note that the Advisory Committee on
Smaller Public Companies has made recommendations relating to
Exchange Act registration and termination of registration. See the
Final Report of the Advisory Committee on Smaller Public Companies,
dated April 23, 2006, which is available at http://www.sec.gov/info/smallbus/acspc/acspc-finalreport.pdf
.
\86\ See Part II.C of this release.
---------------------------------------------------------------------------
2. Prior Exchange Act Reporting Condition
We are adopting, substantially as reproposed, a prior Exchange Act
reporting condition that a foreign private issuer must meet before it
can terminate its section 12(g) registration or its section 15(d)
reporting obligations regarding a class of equity securities under Rule
12h-6.\87\ This condition will require an issuer of equity securities
to have had reporting obligations under section 13(a) or section 15(d)
of the Exchange Act for at least the 12 months preceding the filing of
Form 15F, to have filed or furnished all reports required for this
period, and to have filed at least one annual report pursuant
[[Page 16942]]
to section 13(a) of the Exchange Act. The purpose of this prior
Exchange Act reporting condition is to provide investors in U.S.
securities markets with a minimum period of time to make investment
decisions regarding a foreign private issuer's securities based on the
information provided in an Exchange Act annual report and the interim
home country materials furnished in English under cover of Form 6-
K.\88\
---------------------------------------------------------------------------
\87\ New Exchange Act Rule 12h-6(a)(1) (17 CFR 240.12h-6(a)(1)).
\88\ Under cover of a Form 6-K (17 CFR 249.306), a foreign
private issuer is required to furnish in English a copy of any
document that it publishes or is required to publish under the laws
of its home country or the requirements of its local exchange or
that it has distributed to shareholders, and which is material to an
investment decision.
---------------------------------------------------------------------------
Originally proposed Rule 12h-6 would have required a foreign
private issuer to have had Exchange Act reporting obligations for the
two years preceding the filing of its Form 15F and to have filed at
least two Exchange Act annual reports before it could terminate its
Exchange Act reporting obligations regarding a class of equity
securities. As previously noted, several commenters objected to this
two year reporting condition primarily on the grounds that it would
impose a stricter reporting requirement than is the case under the
current exit rules.\89\ In response to those commenters, when
reproposing Rule 12h-6, we reduced the required prior reporting period
to at least 12 months and proposed to require only one Exchange Act
annual report.
---------------------------------------------------------------------------
\89\ See Part II.A.2 of the Reproposing Release.
---------------------------------------------------------------------------
We received only a few comments on the reproposed prior reporting
condition for equity security issuers. One commenter supported the
revisions made to the proposed prior reporting condition but urged the
Commission to permit an issuer to terminate its Exchange Act reporting
obligations regarding a class of equity securities even if it has not
submitted all required Form 6-Ks.\90\ That commenter pointed to the
difficulties that a foreign private issuer may experience when
determining whether a Form 6-K submission is required under foreign
reporting and U.S. materiality requirements.
---------------------------------------------------------------------------
\90\ See the letter from the ABA.
---------------------------------------------------------------------------
As adopted, Rule 12h-6 will require a foreign private issuer to
have submitted all Form 6-Ks required during the 12 months preceding
the filing of its Form 15F in order to be eligible to terminate its
reporting obligations regarding a class of equity securities. This
requirement will help ensure that a U.S. investor is able to access
through EDGAR \91\ and in English all material interim information
about a foreign private issuer as required by its home country. We
continue to believe that our rules should provide appropriate
incentives for companies to stay current with their Exchange Act
reporting obligations.
---------------------------------------------------------------------------
\91\ EDGAR is the Commission's Electronic Data Gathering,
Analysis and Retrieval System.
---------------------------------------------------------------------------
From a practical point of view, the 12-month prior reporting
requirement should not be problematic since, based on current
experience, most foreign companies that register securities with the
Commission, including solely under Exchange Act section 12(g), stay in
the U.S. market for at least a year and file at least one Exchange Act
annual report.\92\ Moreover, the prior reporting condition will require
that a foreign private issuer must be current in its reporting
obligations, not that it must have timely filed all reports required
during the 12 month period. In the event that an issuer determines that
it should have filed a Form 6-K during this period, it can do so before
it files its Form 15F.
---------------------------------------------------------------------------
\92\ See, for example, the letter from Galileo.1`
---------------------------------------------------------------------------
Another commenter \93\ requested that we permit an issuer to
satisfy the prior Exchange Act annual report requirement by filing a
special financial report required under Exchange Act Rule 15d-2.\94\ We
agree that it would be appropriate to have the special financial report
satisfy the annual report filing requirement under new Rule 12h-
6(a)(1). In this situation, an issuer will have recently sold
securities under an effective Securities Act registration statement
with non-financial information as current as the date of the
prospectus, and the information in the special financial report will
provide financial statements and other information as of and for the
most recent fiscal year end, thus serving the same purpose as an
Exchange Act annual report.
---------------------------------------------------------------------------
\93\ See the letter from Sullivan & Cromwell.
\94\ 17 CFR 240.15d-2. This rule requires an issuer that filed a
Securities Act registration statement, which did not contain audited
financial statements for the last full fiscal year preceding the
year in which the registration statement became effective, to file a
special financial report with the Commission that includes audited
financials for that last full fiscal year.
---------------------------------------------------------------------------
In addition, this approach is consistent with our recent
implementation rules for the internal control over financial reporting
requirements mandated by Section 404 of the Sarbanes-Oxley Act of
2002.\95\ Accordingly, we are clarifying that a special financial
report, filed with the Commission pursuant to Rule 15d-2, constitutes
an Exchange Act annual report for the purpose of complying with Rule
12h-6's prior reporting condition.
---------------------------------------------------------------------------
\95\ 15 U.S.C. 7262. See Release No. 33-8760 (December 15,
2006), 71 FR 76580 (December 21, 2006).
---------------------------------------------------------------------------
3. One Year Dormancy Condition
We are adopting, as reproposed, a one year dormancy condition with
which a foreign private issuer must comply before it can terminate its
Exchange Act registration and reporting obligations regarding a class
of equity securities under Rule 12h-6.\96\ New Rule 12h-6 will prohibit
sales of a foreign private issuer's securities in the United States in
a registered offering under the Securities Act during the 12 months
preceding the filing of its Form 15F other than securities issued:
---------------------------------------------------------------------------
\96\ New Exchange Act Rule 12h-6(a)(2) (17 CFR 240.12h-6(a)(2)).
---------------------------------------------------------------------------
to the issuer's employees;
by selling security holders in non-underwritten offerings;
upon the exercise of outstanding rights granted by the
issuer if the rights are granted pro rata to all existing security
holders of the class of the issuer's securities to which the rights
attach;
pursuant to a dividend or interest reinvestment plan; or
upon the conversion of outstanding convertible securities
or upon the exercise of outstanding transferable warrants issued by the
issuer.
The primary purpose of the dormancy condition's prohibition of
registered offerings is to preclude a foreign private issuer from
exiting the Exchange Act reporting system shortly after it has engaged
in U.S. public capital raising.
We received relatively few comments on the reproposed dormancy
condition.\97\ Most welcomed the revisions made to the originally
proposed dormancy condition.\98\ For example, the originally proposed
rule would have prohibited sales of unregistered securities, with
limited exceptions. We removed this prohibition when reproposing Rule
12h-6 after commenters convinced us that adoption of the originally
proposed dormancy condition could well drive many private placement
financings and other unregistered offerings by foreign companies
offshore, to the detriment of U.S. investors and U.S. broker-dealers,
since many companies might prefer to finance outside the United States
under Regulation S in order to avoid triggering the dormancy condition.
Consequently, as reproposed, the adopted rule will permit the
unregistered sale of securities that are exempted under the Securities
[[Page 16943]]
Act during the dormancy period. The permitted category of securities
will include sales pursuant to section 4(2),\99\ Regulation D,\100\
Rule 144A,\101\ Rules 801 and 802,\102\ and exempt securities under
section 3, including section 3(a)(10) of the Securities Act.\103\
---------------------------------------------------------------------------
\97\ See the letters from the ABA, Linklaters, the N.Y. State
Bar, Sullivan & Cromwell, and Skadden Arps.
\98\ See the letters from the ABA, Skadden Arps, and Sullivan &
Cromwell.
\99\ 15 U.S.C. 77d(2).
\100\ 17 CFR 230.501 et seq.
\101\ 17 CFR 230.144A.
\102\ 17 CFR 230.801 and 230.802.
\103\ 15 U.S.C. 77c and 77c(a)(10).
---------------------------------------------------------------------------
Some of the comments pertained to additional proposed exceptions to
the dormancy condition. As originally proposed, Rule 12h-6 would have
excepted from the dormancy condition's prohibition of sales of an
issuer's registered securities in the United States only securities
sold to an issuer's employees and those sold by selling security
holders in non-underwritten offerings. When reproposing Rule 12h-6, we
proposed three additional exceptions to the dormancy condition's
prohibition of sales of an issuer's registered securities: the issuance
of registered securities pursuant to pro rata rights offerings,
dividend or interest reinvestment plans, and the conversion of
outstanding convertible securities.\104\ Like the earlier proposed
exceptions, these transactions often occur for reasons unrelated to
capital raising or for the benefit of the issuer, for example, to
benefit current security holders or for the convenience of investors.
---------------------------------------------------------------------------
\104\ See Part II.A.3 of the Reproposing Release.
---------------------------------------------------------------------------
We also reproposed that these additional exceptions would not apply
to securities issued pursuant to a standby underwritten offering or
other similar arrangement in the United States. As we explained, this
limitation is consistent with the Commission's previous treatment of
these types of registered offerings.\105\
---------------------------------------------------------------------------
\105\ Instruction 2 to Item 8 of Form 20-F imposes a similar
limitation.
---------------------------------------------------------------------------
Two commenters requested that we clarify that an issuer would not
trigger the dormancy condition if it conducted a registered offering
involving, for example, a rights offering, in the United States, with a
standby underwriting arrangement according to which the underwriter
only resold the securities purchased in the offering outside the United
States pursuant to Regulation S.\106\ We agree that this type of
standby underwritten arrangement would not trigger the dormancy
condition since it would not increase an issuer's involvement in public
capital raising in the United States.
---------------------------------------------------------------------------
\106\ See the letters from Linklaters and the N.Y. State Bar.
---------------------------------------------------------------------------
Also as reproposed, the adopted rule includes under the dormancy
condition sales of an issuer's securities by its selling security
holders in an underwritten registered offering because there is a
greater likelihood of issuer involvement in a U.S. underwritten
offering than in a non-underwritten offering of selling security
holders.
New Exchange Act Rule 12h-6 will use the definition of ``employee''
under Form S-8 \107\ for the purpose of applying the dormancy condition
under Rule 12h-6, as reproposed.\108\ That definition includes any
employee, director, general partner, certain trustees, certain
insurance agents, and former employees as well as executors,
administrators or beneficiaries of the estates of deceased employees,
and a family member of an employee who has received shares through a
gift or domestic relations order.\109\ Otherwise, a narrow
interpretation of the term ``employee'' could result in an issuer being
disqualified from terminating its Exchange Act registration and
reporting obligations under Rule 12h-6 because it engaged in a sale of
securities during the dormancy period to an employee's family member or
other relationship permitted under Form S-8 but not explicitly allowed
under the new rule.
---------------------------------------------------------------------------
\107\ 17 CFR 239.16b. Form S-8 is the form used by an Exchange
Act reporting company to register securities for issuance to its
employees or those of its subsidiaries or parent under an employee
benefit plan.
\108\ New Exchange Act Rule 12h-6(f)(2) (17 CFR 240.12h-
6(f)(2)).
\109\ See General Instruction A.1 to Form S-8.
---------------------------------------------------------------------------
4. Foreign Listing Condition
We are adopting a foreign listing condition under Rule 12h-6, which
will require that, with respect to equity securities, for at least the
12 months preceding the filing of its Form 15F, a foreign private
issuer must have maintained a listing of the subject class of
securities on one or more exchanges in a foreign jurisdiction that,
either singly or together with the trading of the same class of the
issuer' s securities in another foreign jurisdiction, constitutes the
primary trading market for the issuer's subject class of
securities.\110\ The new rule defines ``primary trading market'' to
mean that at least 55 percent of the trading in the foreign private
issuer's subject class of securities took place in, on or through the
facilities of a securities market or markets in no more than two
foreign jurisdictions during a recent 12-month period.\111\ That
definition further provides that if an issuer aggregates the trading of
its securities in two foreign jurisdictions for the purpose of Rule
12h-6's foreign listing condition, the trading for the issuer's
securities in at least one of the two foreign jurisdictions must be
larger than the trading in the United States for the same class of the
issuer's securities.\112\
---------------------------------------------------------------------------
\110\ New Exchange Act Rule 12h-6(a)(3) (17 CFR 240.12h-
6(a)(3)).
\111\ New Exchange Act Rule 12h-6(f)(5)(i) (17 CFR 240.12h-
6(f)(5)(i)). Rule 12h-6 defines ``recent 12-month period'' to mean a
12-calendar month period that ended no more than 60 days before the
filing date of the Form 15F. New Exchange Act Rule 12h-6(f)(6) (17
CFR 240.12h-6(f)(6)).
\112\ New Exchange Act Rule 12h-6(f)(5)(ii) (17 CFR 240.12h-
6(f)(5)(ii)). As proposed and as adopted, measurement under this
condition is by reference to average daily trading volume (ADTV) as
reported by the relevant market. Although the proposing and
reproposing releases noted that there are differences concerning how
various markets measure and report trading volume (for example,
dealer markets versus auction markets), no commenter supported a
trading volume standard that would take such differences into
account.
---------------------------------------------------------------------------
The purpose of this foreign listing condition is to help assure
that there is a non-U.S. jurisdiction that principally regulates and
oversees the issuance and trading of the issuer's securities and the
issuer's disclosure obligations to investors. This foreign listing
condition increases the likelihood that the principal pricing
determinants for a foreign private issuer's securities are located
outside the United States, and makes more likely the availability of a
set of non-U.S. securities disclosure documents to which a U.S.
investor may turn for material information when making investment
decisions about the issuer's securities following the termination of
its disclosure obligations under Rule 12h-6. If the United States was
the sole or principal market for the foreign private issuer's
securities, then the Commission would have a greater regulatory
interest in continuing to subject the foreign company to the Exchange
Act reporting regime.
The adopted foreign listing condition is substantially the same as
the reproposed condition, except that, at the request of commenters, we
have modified the rule to reflect that an issuer may be listed on
multiple exchanges within a single jurisdiction.\113\ Thus, the new
rule provides that an issuer may aggregate trading in the same class of
its equity securities on all of its exchanges within a single foreign
jurisdiction or in no more than two foreign jurisdictions for the
purpose of the foreign listing condition, as long as the trading in one
of the foreign jurisdictions is greater than the trading in the United
States.\114\
---------------------------------------------------------------------------
\113\ See, for example, the letter from Cravath.
\114\ For the purpose of the primary trading market
determination, an issuer would measure the ADTV of on-exchange
transactions in its securities aggregated over one or two foreign
jurisdictions against its worldwide trading volume. The issuer could
include in this measure off-exchange transactions in those
jurisdictions comprising the numerator only if it includes those
off-exchange transactions when calculating worldwide trading volume
in the denominator. This denominator would be the same as the
denominator used for the trading volume benchmark. Thus, this
denominator would consist of U.S. ADTV, which must include both on-
exchange and off-exchange transactions, and non-U.S. ADTV, which
must include on-exchange transactions, but could also include off-
exchange transactions. See Part II.A.1.a.ii of this release.
---------------------------------------------------------------------------
[[Page 16944]]
We received relatively few comments on the reproposed foreign
listing condition.\115\ Three commenters generally approved of the
changes made to the originally proposed foreign listing condition.\116\
These changes included shortening the proposed foreign listing
requirement from two years to one year and permitting an issuer to
aggregate its trading on an exchange in one foreign jurisdiction with
that in a second foreign jurisdiction.\117\ These commenters agreed
that the reproposed foreign listing condition would increase the
flexibility of the new rule for foreign private issuers while serving
to protect investors.
---------------------------------------------------------------------------
\115\ See the letters from the ABA, BusinessEurope, Cravath,
Davis Polk, Linklaters, and Skadden Arps.
\116\ See the letters from the ABA, Linklaters, and Skadden
Arps.
\117\ See Part II.A.4 of the Reproposing Release.
---------------------------------------------------------------------------
New Rule 12h-6's foreign listing condition will apply to any issuer
of equity securities, whether that issuer is relying on the trading
volume benchmark or the alternative holder provision, as reproposed.
Some commenters requested that the Commission not apply the foreign
listing condition to an issuer that has delisted in its primary trading
market as a result of being acquired. According to these commenters,
that issuer would not be able to terminate its Exchange Act reporting
obligations under the 300-holder provision because it could not meet
the foreign listing requirement.\118\
---------------------------------------------------------------------------
\118\ See the letters from BusinessEurope and Davis Polk.
---------------------------------------------------------------------------
The foreign listing condition is an important component of the new
exit regime because it increases the likelihood that U.S. investors
will have a set of material disclosure documents about an issuer to
which they may turn following that issuer's exit from the Exchange Act
reporting system. Therefore, we decline to create an exception from
this condition for any issuer at this time.\119\ We note that, under
most circumstances, a foreign private issuer that has been acquired may
exit the Exchange Act reporting regime under the provisions of the
current exit rules that permit any issuer, whether domestic or foreign,
or listed or unlisted, to file a Form 15 if its securities are held by
less than 300 holders of record.\120\
---------------------------------------------------------------------------
\119\ For this reason, we decline to adopt a general exception
from the foreign listing condition for equity securities issuers
proceeding under the alternative 300-holder provision.
\120\ Exchange Act Rules 12g-4(a)(1)(i) and 12h-3(b)(1)(i) (17
CFR 240.12g-4(a)(1)(i) and 240.12h-3(b)(1)(i)).
---------------------------------------------------------------------------
B. Debt Securities Provision
As adopted, Rule 12h-6 will enable a foreign private issuer to
terminate its Exchange Act reporting obligations regarding a class of
debt securities as long as the issuer has filed or furnished all
reports required under Exchange Act section 13(a) or section 15(d),
including at least one Exchange Act annual report, and has its class of
debt securities held of record by less than 300 holders either on a
worldwide basis or who are U.S. residents.\121\ This provision reflects
the minimum reporting requirement and current 300 holder standard under
section 15(d) and Rule 12h-3. Moreover, it is the same as the
reproposed debt securities provision.\122\
---------------------------------------------------------------------------
\121\ New Exchange Act Rule 12h-6(c) (17 CFR 240.12h-6(c)).
\122\ As originally proposed and reproposed, the adopted exit
rule for debt securities does not include a provision comparable to
Rule 12h-3's 500 record holder provision because most foreign
private issuers that are debt securities registrants would likely
exceed the $10 million asset threshold that accompanies the 500
record holder standard. No commenter has ever requested that we
incorporate the 500 record holder and $10 million asset standard
into Rule 12h-6's debt securities provision, either at the proposing
or reproposing stage.
---------------------------------------------------------------------------
Some commenters requested that we revise the 300-holder standard
for termination of a foreign private issuer's Exchange Act reporting
obligations under Exchange Act Section 15(d) regarding a class of debt
securities that had been offered and sold pursuant to an effective
registration statement under the Securities Act.\123\ In the view of
most of these commenters, an increase to at least 1,000 holders would
be appropriate in light of the changes in the global securities markets
since the 300-holder standard was adopted by Congress in the
1960s.\124\
---------------------------------------------------------------------------
\123\ See the letters from Cleary Gottlieb, EALIC, Davis Polk,
and the EU.
\124\ Davis Polk favored an increase to at least 3,000.
---------------------------------------------------------------------------
We are not revising the 300-holder standard as it applies to debt
securities. While we agree that there have been substantial changes in
the global capital markets, no commenter has presented us with data or
other information that supports raising the threshold from that adopted
by Congress. In addition, the problems associated with determining the
ownership of equity securities do not appear to apply to debt
securities, as to which there is generally a single U.S.-based transfer
agent. Further, the same 300-holder threshold applies to U.S.
companies, and unlike the situation for equity securities, no commenter
has addressed why it would be appropriate to treat U.S. and foreign
registrants differently with respect to the termination or suspension
of reporting obligations under section 15(d) as applied to debt
securities.\125\
---------------------------------------------------------------------------
\125\ We note that foreign private issuers that avail themselves
of Rule 12h-6 will be able to terminate their reporting obligations
under section 15(d) while U.S. companies will only continue to be
able to suspend their reporting obligations pursuant to Rule 12h-3
and section 15(d).
---------------------------------------------------------------------------
C. Revised Counting Method
We are adopting, as reproposed, Rule 12h-6's revised counting
method, which will enable an issuer of equity securities proceeding
under the alternative 300-holder provision, or a debt securities
issuer, to use a modified version of the ``look through'' counting
method under Rule 12g3-2(a) when determining the number of its U.S.
resident security holders.\126\ Instead of having to look through the
accounts of brokers, banks and other nominees on a worldwide basis to
determine the number of its U.S. resident holders, as is required under
the current rules, a foreign private issuer could limit its inquiry to
brokers, banks and other nominees located in the United States, the
issuer's jurisdiction of incorporation, legal organization or
establishment and, if different, the jurisidiction of its primary
trading market.\127\ This revised counting method is substantially
similar to the counting method that the Commission adopted under the
exemptive rules for cross-border rights offerings, exchange offers and
business combinations,\128\ as well as under the definition of foreign
private issuer.\129\
---------------------------------------------------------------------------
\126\ New Exchange Act Rule 12h-6(e) (17 CFR 240.12h-6(e)).
\127\ New Exchange Act Rule 12h-6(e)(1) (17 CFR 240.12h-
6(e)(1)).
\128\ Securities Act Rules 800 et seq. (17 CFR 230.800 et seq.).
\129\ 17 CFR 230.405 and 240.3b-4(c).
---------------------------------------------------------------------------
Like the reproposed rule, the adopted counting method provision
requires an issuer that aggregates the trading volume of its securities
in two foreign jurisdictions for the purpose of meeting Rule 12h-6's
foreign listing condition to look through nominee accounts in both
foreign jurisdictions, which comprise its primary trading market, and
in the United States as well as in its jurisdiction of incorporation or
organization, if different from the two jurisdictions that comprise its
primary
[[Page 16945]]
trading market.\130\ Also as reproposed, the adopted counting method
provision permits an issuer to rely on the assistance of an independent
information services provider when calculating the number of its U.S.
security holders.\131\
---------------------------------------------------------------------------
\130\ New Exchange Act Rule 12h-6(e)(1)(ii) (17 CFR 240.12h-
6(e)(1)(ii)).
\131\ New Exchange Act Rule 12h-6(e)(4) (17 CFR 240.12h-
6(e)(4)).
---------------------------------------------------------------------------
We are also adopting a presumption, included in both the originally
proposed and reproposed counting method provisions, that we previously
adopted under the cross-border rules and definition of foreign private
issuer.\132\ This presumption is that, if, after reasonable inquiry, an
issuer is unable without unreasonable effort to obtain information
about the amount of securities held by nominees for the accounts of
customers resident in the United States, it may assume that the
customers are the residents of the jurisdiction in which the nominee
has its principal place of business.\133\
---------------------------------------------------------------------------
\132\ See Securities Act Rule 800(h)(4) (17 CFR 230.800(h)(4))
and Instruction B to Exchange Act Rule 3b-4(c)(1) (17 CFR 240.3b-
4(c)(1)).
\133\ New Exchange Act Rule 12h-6(e)(2) (17 CFR 240.12h-
6(e)(2)).
---------------------------------------------------------------------------
The reproposed rule provided that an issuer must count securities
as owned by U.S. holders when publicly filed reports of beneficial
ownership or information that is otherwise provided to it indicates
that the securities are held by U.S. residents. One commenter requested
that we clarify that an issuer is not required to take account of U.S.
ownership information provided to it if the issuer determines that it
is unreliable.\134\ We have so clarified by revising the above
provision to state that an issuer must count securities as owned by
U.S. holders when publicly filed reports of beneficial ownership or
other reliable information that is provided to it indicates that the
securities are held by U.S. residents.\135\
---------------------------------------------------------------------------
\134\ See the letter from Cravath.
\135\ New Rule 12h-6(e)(3) (17 CFR 240.12h-6(e)(3)).
---------------------------------------------------------------------------
Some foreign jurisdictions have laws that provide an established
and enforceable means for a public company to obtain information about
its shareholders.\136\ Like the reproposed rule, Rule 12h-6 does not
provide that a foreign private issuer may rely solely on specified
foreign statutory or code provisions when calculating the number of its
U.S. resident equity or debt holders. We received only two comments in
support of such a provision at the proposing stage, and none at the
reproposing stage. However, as we noted in the reproposing release, as
part of its inquiry regarding whether it meets any of the quantitative
benchmarks under Rule 12h-6, an issuer may refer to shareholder
information obtained pursuant to those foreign statutory or code
provisions to the extent that this shareholder information is
reasonably reliable and accurate and furthers the purpose of the
inquiry.
---------------------------------------------------------------------------
\136\ See, for example, section 212 of the United Kingdom
Companies Act.
---------------------------------------------------------------------------
D. Expanded Scope of Rule 12h-6
We are adopting, substantially as reproposed, an expansion of the
scope of the originally proposed Rule 12h-6 in two respects. First, we
are adopting a rule providing that an issuer that has succeeded to the
Exchange Act reporting obligations of an acquired company may terminate
those reporting obligations under Rule 12h-6 as long as it satisfies
specified conditions. Second, we are extending the application of Rule
12h-6 to a foreign private issuer that previously filed a Form 15 and
effected its termination of registration or suspension of reporting
under the current exit rules before the effective date of Rule 12h-6,
subject to conditions.
1. Application of Rule 12h-6 to Successor Issuers
As adopted, Exchange Act Rule 12h-6(d) \137\ provides that,
following a merger, consolidation, exchange of securities, acquisition
of assets or otherwise, a foreign private issuer that has succeeded to
the registration of a class of securities under Exchange Act section
12(g) pursuant to Rule 12g-3,\138\ or to the reporting obligations of
another issuer under Exchange Act section 15(d) pursuant to Rule 15d-
5,\139\ may file a Form 15F to terminate those reporting obligations
if, regarding a class of equity securities, the successor issuer meets
the conditions under Rule 12h-6(a), which applies to equity securities
issuers.\140\ Regarding a class of debt securities, the successor
issuer must meet the conditions under Rule 12h-6(c), including the
reporting condition.\141\ New Rule 12h-6(d) then provides that, when
determining whether it meets the prior reporting condition under either
the equity or debt securities provision of the final rule, a successor
issuer may take into account the reporting history of the issuer whose
reporting obligations it has assumed pursuant to Rule 12g-3 or 15d-
5.\142\
---------------------------------------------------------------------------
\137\ 17 CFR 240.12h-6(d).
\138\ 17 CFR 240.12g-3.
\139\ 17 CFR 240.15d-5.
\140\ New Exchange Act Rule 12h-6(d)(1)(i) (17 CFR 240.12h-
6(d)(1)(i)).
\141\ New Exchange Act Rule 12h-6(d)(1)(ii) (17 CFR 240.12h-
6(d)(1)(ii)).
\142\ New Exchange Act Rule 12h-6(d)(2) (17 CFR 240.12h-
6(d)(2)).
---------------------------------------------------------------------------
This successor issuer provision will enable a non-Exchange Act
reporting foreign private issuer that acquires a reporting foreign
private issuer in a transaction exempt under the Securities Act, for
example, under Rule 802 or section 3(a)(10), to qualify immediately for
termination of its Exchange Act reporting obligations under Rule 12h-6,
without having to file an Exchange Act annual report, as long as the
successor issuer meets the rule's foreign listing, dormancy and
quantitative benchmark conditions, and the acquired company's reporting
history fulfills Rule 12h-6's prior reporting condition. Since the
successor issuer will have assumed the acquired company's Exchange Act
reporting obligations, we believe it is appropriate that the issuer
succeed to the acquired company's reporting history for the purpose of
Rule 12h-6.
The adopted successor issuer provision is substantially similar to
the reproposed provision, except that the adopted rule clarifies that,
in order to qualify for deregistration under the successor issuer
provision, an issuer must meet all of the conditions pertaining to
equity securities registrants, including the dormancy condition. We
have made this clarification in order to underscore our position,
stated at the reproposing stage, that if a previously non-Exchange Act
reporting foreign private issuer acquires an Exchange Act reporting
company by consummating an exchange offer, merger or other business
combination registered under the Securities Act, most likely on a Form
F-4 registration statement, the acquiror will have to fulfill Rule 12h-
6's prior reporting condition without reference to the acquired
company's reporting history. Since the acquiror will have triggered its
own section 15(d) reporting obligations upon the effectiveness of its
Securities Act registration statement, it will have to meet Rule 12h-
6's full reporting condition like any other section 15(d) reporting
company before it can terminate its reporting obligations under the new
rule. In order to clarify that such a Securities Act registrant may not
proceed under the successor issuer provision and immediately terminate
its section 15(d) reporting obligations upon completion of the Form F-4
transaction, the adopted rule provides that an issuer must meet Rule
12h-6's equity
[[Page 16946]]
securities conditions, which includes the dormancy condition.\143\
---------------------------------------------------------------------------
\143\ Because some commenters stated that the dormancy condition
should not apply to a foreign private issuer that filed a Securities
Act registration statement solely to effect an acquisition or
business combination (see, for example, the letter from Sullivan &
Cromwell), we believe it is necessary to state explicitly in Rule
12h-6 that the dormancy condition applies to a successor issuer.
---------------------------------------------------------------------------
Most of the parties that commented on the reproposed successor
issuer provision supported it.\144\ However, one commenter sought
clarification regarding the intended role that the predecessor company
would play in satisfying Rule 12h-6's requirements.\145\ More
particularly, this commenter was concerned that Rule 12h-6 could be
construed to require an issuer to take into account the listing and
trading history of an acquired company. Such an interpretation could
preclude an acquiror from terminating its Exchange Act reporting
obligations immediately after succession if the acquired company was
unlisted or had an active U.S. trading market.
---------------------------------------------------------------------------
\144\ See, for example, the letters from Cleary Gottlieb and
PricewaterhouseCoopers.
\145\ See the letter from Latham & Watkins.
---------------------------------------------------------------------------
Therefore, we are clarifying that Rule 12h-6(d) permits a successor
issuer to consider an acquired company's history only when determining
whether the successor meets Rule 12h-6's prior reporting condition.
Following an acquisition, a successor issuer must look only to its own
foreign listing history, and consider its own U.S. and worldwide
trading volume, when determining whether it satisfies Rule 12h-6's
foreign listing and trading volume conditions.
This commenter also sought clarification regarding whether, as a
condition to deregistration under Rule 12h-6, a successor issuer would
have an obligation under Exchange Act Rule 12g-3(g)\146\ to file an
Exchange Act annual report for the predecessor's last full fiscal year
prior to succession. As with the filing of a Form 15 under the current
exit rules, under Rule 12h-6(g),\147\ the suspension of a foreign
private issuer's duty to file reports under section 13(a) or 15(d)
occurs immediately upon filing a Form 15F. This suspension extends to
an annual report that would be required under Rule 12g-3(g). A
successor issuer would only have to file an annual report on behalf of
its predecessor under Rule 12g-3(g) if, at the time of filing its Form
15F, that annual report was past due. This is consistent with the
current practice involving Form 15.
---------------------------------------------------------------------------
\146\ 17 CFR 240.12g-3(g). This provision requires a successor
issuer to file an Exchange Act annual report for the last full
fiscal year of the predecessor before the issuer's succession if the
predecessor has not done so.
\147\ 17 CFR 240.12h-6(g).
---------------------------------------------------------------------------
2. Application of Rule 12h-6 to Prior Form 15 Filers
As adopted, Rule 12h-6(i) will extend termination of Exchange Act
reporting under the new exit rule to a foreign private issuer that,
before the effective date of Rule 12h-6, already effected the
suspension or termination of its Exchange Act reporting obligations
after filing a Form 15.\148\ A prior Form 15 filer will have to meet
the following conditions in order to obtain the benefits of Rule 12h-6
with respect to a class of equity securities:
---------------------------------------------------------------------------
\148\ New Exchange Act Rule 12h-6(i)(1) (17 CFR 240.12h-
6(i)(1)). A former section 15(d) reporting company would benefit
from proceeding under Rule 12h-6 by obtaining termination, rather
than mere suspension, of its reporting obligations with respect to a
class of equity or debt securities. As discussed below, a former
section 12(g) company also would benefit from proceeding under Rule
12h-6 by being able to claim the Rule 12g3-2(b) exemption
immediately upon the effectiveness of its Rule 12h-6 termination.
---------------------------------------------------------------------------
the issuer must satisfy Rule 12h-6's foreign listing
condition regarding the class of equity securities that was the subject
of its Form 15;
the issuer must satisfy either Rule 12h-6's trading volume
or alternative holder provision; and
the issuer must file a Form 15F.\149 \
---------------------------------------------------------------------------
\149\ Rule 12h-6(i)(2)(i) (17 CFR 240.12h-6(i)(2)(i)).
---------------------------------------------------------------------------
An equity securities issuer will not have to satisfy Rule 12h-6's
prior reporting or dormancy provisions since it will already be a non-
reporting entity.
A prior Form 15 filer will have to meet the following conditions in
order to obtain the benefits of Rule 12h-6 with respect to a class of
debt securities:
the issuer must meet Rule 12h-6's record holder provision
for debt securities; and
the issuer must file a Form 15F.\150\
---------------------------------------------------------------------------
\150\ Rule 12h-6(i)(2)(ii) (17 CFR 240.12h-6(i)(2)(ii)).
---------------------------------------------------------------------------
As reproposed, the prior Form 15 filer provision was substantially
similar to the adopted rule, except that we proposed to establish, as a
condition of eligibility, that an issuer not be required to register a
class of securities under section 12(g) or be required to file reports
under section 15(d).\151\ While the parties that commented on the
reproposed provision supported extending the benefits of Rule 12h-6 to
a prior Form 15 filer, most also opposed requiring that filer to
determine that it had not assumed or resumed Exchange Act reporting
obligations.\152\ Those commenters noted that, since under the
reproposed rule, a former equity securities registrant could not have
relied on the trading volume condition, that registrant would have had
once more to undertake the costly task of counting its U.S. resident
holders.
---------------------------------------------------------------------------
\151\ See Part II.D.2 of the Reproposing Release.
\152\ See the letters from the ABA, BusinessEurope, Cleary
Gottlieb, EALIC, the EU, the N.Y. State Bar, and Sullivan &
Cromwell.
---------------------------------------------------------------------------
We agree that, as suggested by some of those commenters, a more
equitable approach would be to place former equity securities
registrants in as good a position as current registrants by permitting
them to meet the trading volume benchmark as an alternative to the
record holder standard.\153\ The adopted rule takes this approach.
---------------------------------------------------------------------------
\153\ See, for example, the letters from EALIC and Sullivan &
Cromwell.
---------------------------------------------------------------------------
E. Public Notice Requirement
We are adopting, as reproposed, a public notice requirement as a
condition to termination of reporting under Rule 12h-6, except for
prior Form 15 filers.\154\ Pursuant to this requirement, an issuer of
equity or debt securities, including a successor issuer, will have to
publish, either before or on the date that it files its Form 15F, a
notice in the United States that discloses its intent to terminate its
section 13(a) or 15(d) reporting obligations. The issuer must publish
the notice, such as a press release, through a means reasonably
designed to provide broad dissemination of the information to the
public in the United States. The issuer also must submit a copy of the
notice, either under cover of a Form 6-K before or at the time of
filing of the Form 15F, or as an exhibit to the Form 15F. The primary
purpose of this notice provision is to alert U.S. investors who have
purchased the issuer's securities about the issuer's intended exit from
the Exchange Act registration and reporting system.
---------------------------------------------------------------------------
\154\ New Exchange Act Rule 12h-6(h) (17 CFR 240.12h-6(h)).
---------------------------------------------------------------------------
The notice requirement will not apply to a prior Form 15 filer that
files a Form 15F to terminate its registration and reporting
obligations under Rule 12h-6(i). Since a prior Form 15 filer will
already have ceased its Exchange Act reporting obligations, investors
would gain little from the publishing of such a notice.
One commenter requested that we clarify that an issuer may satisfy
this notice provision by having the press release disseminated in the
United States by one of the international wire services, such as those
operated by U.S. and international financial publications.\155\ We have
so clarified by revising Form 15F to request that the issuer identify
the means, such as publication in a particular newspaper or
transmission by a particular wire
[[Page 16947]]
service, used to disseminate the notice in the United States.\156\
---------------------------------------------------------------------------
\155\ See the letter from Skadden Arps.
\156\ See Item 7.B of Form 15F.
---------------------------------------------------------------------------
F. Form 15F
Like our current exit rules, adopted Rule 12h-6 will require a
foreign private issuer to file electronically on EDGAR a form
certifying that it meets the requirements for ceasing its Exchange Act
reporting obligations.\157\ By signing and filing new Form 15F,\158\ a
foreign private issuer will be certifying that:
---------------------------------------------------------------------------
\157\ New Exchange Act Rule 12h-6(a).
\158\ 17 CFR 249.324.
---------------------------------------------------------------------------
it meets all of the conditions for termination of Exchange
Act reporting specified in Rule 12h-6; and
there are no classes of securities other than those that
are the subject of the Form 15F regarding which the issuer has Exchange
Act reporting obligations.\159\
---------------------------------------------------------------------------
\159\ Form 15F General Instruction B.
---------------------------------------------------------------------------
Unlike current Form 15, new Form 15F will require a foreign private
issuer to provide disclosure regarding several items in order to
provide investors with information regarding an issuer's decision to
terminate its Exchange Act reporting obligations. The information will
also assist Commission staff in assessing the use of Rule 12h-6. The
Form 15F filing requirement and the specified items of information are
substantially the same as those under reproposed Rule 12h-6, except
that we have modified some items to conform to the changes we have made
to the reproposed rule.
As with Form 15, and as originally proposed and reproposed, filing
of new Form 15F will immediately suspend an issuer's Exchange Act
reporting obligations regarding the subject class of securities and
commence a 90-day waiting period. If, at the end of this 90-day period,
the Commission has not objected to the filing, the suspension will
automatically become a termination of registration and reporting. If
the Commission denies the Form 15F or the issuer withdraws it, within
60 days of the date of the denial or withdrawal, the issuer will be
required to file or submit all reports that would have been required
had it not filed the Form 15F.\160\
---------------------------------------------------------------------------
\160\ New Exchange Act Rule 12h-6(g) (17 CFR 240.12h-6(g)).
---------------------------------------------------------------------------
After filing Form 15F, an issuer will have no continuing obligation
to make inquiries or perform other work concerning the information
contained in the Form 15F, including its assessment of trading volume
or ownership of its securities. However, Form 15F will require an
issuer to undertake to withdraw its Form 15F before the date of
effectiveness if it has actual knowledge of information that causes it
reasonably to believe that, at the date of filing the Form 15F:
the average daily trading volume of its subject class of
securities in the United States exceeded 5 percent of the average daily
trading volume of that class of securities on a worldwide basis for the
same recent 12-month period that the issuer used for purposes of Rule
12h-6(a)(4)(i);
its subject class of securities was held of record by 300
or more United States residents or 300 or more persons worldwide, if
proceeding under Rule 12h-6(a)(4)(ii) or Rule 12h-6(c); or
it otherwise did not qualify for termination of its
Exchange Act reporting obligations under Rule 12h-6.\161\
---------------------------------------------------------------------------
\161\ Form 15F Item 11.
---------------------------------------------------------------------------
This undertaking is substantially the same as that required under
the reproposed rule and form, except that, in the first prong of the
reproposed rule's undertaking, we referred to trading volume ``during a
recent 12-month period.'' At the request of a commenter,\162\ we have
clarified that the undertaking applies to an issuer relying on the
trading volume provision only when it learns that its trading volume
exceeded the 5 percent threshold for the same recent 12-month period
that the issuer used for purposes of Rule 12h-6's trading volume
provision.
---------------------------------------------------------------------------
\162\ See the letter from Cleary Gottlieb.
---------------------------------------------------------------------------
G. Amended Rules 12g-4 and 12h-3
Although similar to the current 300 record holder standard, Rule
12h-6's alternative record holder condition for equity securities and
its debt securities provision will offer advantages compared to the
current exit rules. As adopted, Rule 12h-6's revised counting method
will limit the jurisdictions in which a foreign private issuer must
search for records of its U.S. resident holders. Moreover, Rule 12h-6
will enable a foreign private issuer to terminate, rather than merely
suspend, its section 15(d) reporting obligations regarding a class of
equity or debt securities. In addition, under Rule 12h-6, a foreign
private issuer will be able to claim the benefits of the Rule 12g3-2(b)
exemption immediately upon the effectiveness of its termination of
reporting regarding a class of equity securities under section 12(g) or
15(d). In each instance, once its termination of reporting becomes
effective under Rule 12h-6, an issuer will no longer have to concern
itself with whether the number of its U.S. resident or worldwide
holders of the class of subject securities has risen above the
statutory or regulatory threshold.
Given these advantages, we continue to believe that, following the
adoption of Rule 12h-6, few, if any, foreign private issuers will elect
to proceed under the provisions of Rule 12g-4 or Rule 12h-3 that allow
a foreign private issuer to terminate its registration of a class of
securities under section 12(g) or suspend the duty to file reports
under section 15(d) if the class of securities is held by less than 300
U.S. residents or by 500 U.S. residents and the issuer has had total
assets not exceeding $10 million on the last day of each of its most
recent three fiscal years.\163\ Accordingly, we are adopting the
amendments to eliminate these provisions in Rules 12g-4 and 12h-3, as
reproposed.
---------------------------------------------------------------------------
\163\ See Exchange Act Rules 12g-4(a)(2) and 12h-3(b)(2) (17 CFR
240.12g-4(a)(2) and 12h-3(b)(2)).
---------------------------------------------------------------------------
H. Amendment Regarding the Rule 12g3-2(b) Exemption
We are adopting, substantially as reproposed, an amendment to
Exchange Act Rule 12g3-2 \164\ that will apply the exemption under
Exchange Act Rule 12g3-2(b) immediately to an issuer of equity
securities upon the effectiveness of its termination of reporting under
Rule 12h-6.\165\ As a condition to the immediate application of the
Rule 12g3-2(b) exemption upon its termination of reporting under Rule
12h-6, an issuer must publish subsequently in English material home
country documents required under Rule 12g3-2(b)(1)(iii) on its Web site
or through an electronic information delivery system generally
available to the public in its primary trading market.\166\
---------------------------------------------------------------------------
\164\ New Exchange Act Rule 12g3-2(e)(1) (17 CFR 240.12g3-
2(e)(1)).
\165\ Currently, foreign private issuers that registered a class
of securities under section 12 must wait at least 18 months
following their termination of reporting before they would be
eligible to apply for the Rule 12g3-2(b) exemption. In addition,
foreign private issuers with an active or suspended reporting
obligation under section 15(d) have thus far not been eligible to
claim the Rule 12g3-2(b) exemption. See Rule 12g3-2(d)(1) (17 CFR
240.12g3-2(d)(1)), which currently excepts from the 18 month
requirement only issuers that have filed Securities Act registration
statements using the Multijurisdictional Disclosure Act (MJDS)
forms.
\166\ New Exchange Act Rule 12g3-2(e)(2) (17 CFR 240.12g3 -
2(e)(2)).
---------------------------------------------------------------------------
The purpose of this condition is to provide U.S. investors with
access to material information about an issuer of equity securities
following its termination of reporting pursuant to Rule 12h-6.\167\ In
addition, an issuer
[[Page 16948]]
will be able to maintain a sponsored ADR facility with respect to its
securities.\168\ This condition also will facilitate resales of that
issuer's securities to qualified institutional buyers under Rule
144A.\169\ Moreover, having a foreign private issuer's key home country
documents posted in English on its web site will assist U.S. investors
who are interested in trading the issuer's securities in its primary
securities market.\170\
---------------------------------------------------------------------------
\167\ Any post-termination trading of a foreign private issuer's
securities in the United States would have to occur through over-
the-counter markets such as that maintained by the Pink Sheets, LLC
since, as of April, 1998, the NASD and the Commission have required
a foreign private issuer to register a class of securities under
Exchange Act section 12 before its securities could be traded
through the electronic over-the-counter bulletin board administered
by Nasdaq. See, for example, NASD Notice to Members (January 1998).
\168\ In order to establish an ADR facility, an issuer must
register the ADRs on Form F-6 (17 CFR 239.36) under the Securities
Act. The eligibility criteria for the use of Form F-6 include the
requirement that the issuer have a reporting obligation under
Exchange Act section 13(a) or have established the exemption under
Rule 12g3-2(b). See General Instruction I.A.3 of Form F-6.
\169\ See Securities Act Rule 144A(d)(4) (17 CFR
230.144A(d)(4)).
\170\ Brokers currently are exempt from complying with certain
information obligations under Exchange Act Rule 15c2-11 (17 CFR
240.15c2-11) when a foreign company has established and maintains
the Rule 12g3-2(b) exemption. See Release No. 34-41110 (February
25,1999), 64 FR 11124 (March 8, 1999).
---------------------------------------------------------------------------
The adopted extension of Rule 12g3-2(b) will apply both to a class
of equity securities formerly registered under section 12(g) and one
that formerly gave rise to section 15(d) reporting obligations, as
reproposed. The Rule 12g3-2(b) exemption received under new Rule 12g3-
2(e) will remain in effect for as long as the foreign private issuer
satisfies the rule's electronic publication conditions or until the
issuer registers a new class of securities under section 12 or incurs
section 15(d) reporting obligations by filing a new Securities Act
registration statement, which has become effective.\171\
---------------------------------------------------------------------------
\171\ See New Exchange Act Rule 12g3-2(e)(3) (17 CFR 240.12g3-
2(e)(3)).
---------------------------------------------------------------------------
1. Extension of the Rule 12g3-2(b) Exemption Under Rule 12g3-2(e)
As adopted, because Rule 12g3-2(e) applies to any issuer that has
terminated its reporting under Rule 12h-6, the rule amendment will
effectively extend the Rule 12g3-2(b) exemption to:
a foreign private issuer immediately upon its termination
of reporting regarding a class of equity securities pursuant to Rule
12h-6(a);
a successor issuer immediately upon its termination of
reporting regarding a class of equity securities pursuant to Rule 12h-
6(d); and
a prior Form 15 filer immediately upon its termination of
reporting regarding a class of equity securities pursuant to Rule 12h-
6(i).\172\
---------------------------------------------------------------------------
\172\ Most parties that commented on reproposed Rule 12g3-2(e)
favored the extension of the Rule 12g3-2(b) exemption to the above
categories of issuers. See, for example, the letter from the ABA.
---------------------------------------------------------------------------
Currently Rule 12g3-2(d)(2) precludes extending the Rule 12g3-2(b)
exemption to a foreign private issuer, other than a Canadian issuer
using the MJDS forms, that has issued securities in a merger or other
similar transaction to acquire a company that has registered a class of
securities under section 12 or has a reporting obligation under section
15(d).\173\ As amended, and as reproposed, Rule 12g3-2(d)(2) will
effectively extend the Rule 12g3-2(b) exemption to a successor issuer
that has terminated its Exchange Act reporting obligations under Rule
12h-6(d). Since we are permitting a successor issuer to rely on its
predecessor's reporting history for the purpose of Rule 12h-6, we
believe the issuer should also benefit from claiming the Rule 12g3-2(b)
exemption immediately upon the effectiveness of its Form 15F.
---------------------------------------------------------------------------
\173\ 17 CFR 240.12g3-2(d)(2).
---------------------------------------------------------------------------
Also as reproposed, we are extending the Rule 12g3-2(b) amendment
immediately upon the termination of reporting pursuant to Rule 12h-6(i)
to a foreign private issuer that, before the effective date of Rule
12h-6, terminated its registration or suspended its reporting
obligations regarding a class of equity securities after filing a Form
15. This is consistent with our expansion of the scope of Rule 12h-6 to
encompass prior Form 15 filers. Without this change, a prior Form 15
filer would find itself subject to the 18 month waiting period that
currently exists under Rule 12g3-2(d), although the issuer qualified
for termination of reporting under Rule 12h-6(i).
We further are permitting a foreign private issuer that filed a
Form 15F solely to terminate its reporting obligations regarding a
class of debt securities to establish the Rule 12g3-2(b) exemption for
a class of equity securities upon the effectiveness of its termination
of reporting regarding the class of debt securities.\174\ Since we are
abolishing the 18 month ``waiting period'' for equity securities
issuers that have terminated their Exchange Act reporting obligations
pursuant to Rule 12h-6, it would serve no useful purpose to impose this
waiting period on a debt securities issuer that determines that it will
need the Rule 12g3-2(b) exemption for a class of equity securities
following its termination of reporting under Rule 12h-6.
---------------------------------------------------------------------------
\174\ New Exchange Act Rule 12g3-2(e)(4) (17 CFR 240.12g3-
2(e)(4)).
---------------------------------------------------------------------------
The reproposed version of Rule 12g3-2(e)(4) provided that a debt
securities issuer could apply for the Rule 12g3-2(b) exemption at any
time following the effectiveness of its termination of reporting
regarding the class of debt securities. One commenter pointed out that
this version, if adopted, would jeopardize the legality of a sponsored
ADR facility maintained by a registered debt securities issuer
regarding a class of equity securities.\175\ A foreign private issuer
that has registered only debt securities under the Securities Act may
establish an ADR facility for its equity securities by filing and
having become effective a Form F-6 registration statement because it is
an Exchange Act reporting company.\176\ Such an issuer would lose the
legal basis for its ADR facility if, before it could apply for the Rule
12g3-2(b) exemption, it had to wait until after the completion of the
90-day waiting period, when the termination of its Exchange Act
reporting obligations under Rule 12h-6 would become effective.
---------------------------------------------------------------------------
\175\ See the letter from MTR Corporation.
\176\ See General Instruction I.A.3 of Form F-6.
---------------------------------------------------------------------------
As we have previously stated, we value the formation of ADR
facilities, because they are beneficial to U.S. investors, and we
encourage foreign issuers to continue to maintain their ADR facilities
after terminating their Exchange Act reporting obligations. Therefore,
we are clarifying that, under adopted Rule 12g3-2(e)(4), while a debt
securities issuer may establish the Rule 12g3-2(b) exemption only upon
the effectiveness of its termination of reporting regarding its class
of debt securities under Rule 12h-6, it may apply for the Rule 12g3-
2(b) exemption after it has filed its Form 15F and commenced the 90-day
waiting period.\177\ The issuer must include in that application the
date that it filed its Form 15F as well as the address of its Internet
Web site or that of the electronic information delivery system on which
it will publish the material home country information required under
Rule 12g3-2(b).
---------------------------------------------------------------------------
\177\ Commission staff will work with issuers to coordinate the
establishment of the Rule 12g3-2(b) exemption on the same day as
their termination of Exchange Act reporting.
---------------------------------------------------------------------------
2. Electronic Publishing of Home Country Documents
Currently foreign companies claim the Rule 12g3-2(b) exemption by
submitting to the Commission on an ongoing basis the material required
by the rule. This material may only be submitted in paper
[[Page 16949]]
format.\178\ Because paper submissions are more difficult to access, we
are adopting Rule 12g3-2(e), which relies on electronic access to a
foreign company's home country securities documents, although not
through the Commission's electronic database.
---------------------------------------------------------------------------
\178\ A foreign private issuer that has successfully filed an
application for the Rule 12g3-2(b) exemption must currently furnish
its home country documents in paper because the application is
analogous to one submitted for an exemption under Exchange Act
section 12(h). See Regulation S-T Rule 101(c)(16)(17 CFR
232.101(c)(16)). Although the Commission's EDGAR database contains
an entry signifying the receipt of paper documents, materials
received in paper are not accessible through the EDGAR system.
---------------------------------------------------------------------------
As part of the condition requiring an issuer to publish its home
country documents required under Rule 12g3-2(b)(1)(iii) on its Internet
Web site or through an electronic information delivery system generally
available to the public in its primary trading market, Rule 12g3-2(e)
will require an issuer to publish English translations of the following
documents:
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.\179\
---------------------------------------------------------------------------
\179\ Note 1 to Rule 12g3-2(e). Rule 12g3-2(b) requires an
exempt issuer to submit substantially the same categories of home
country documents as a reporting issuer must furnish to the
Commission under cover of Form 6-K. Moreover, both Rule 12g3-2(b)
and Form 6-K state that only material information need be furnished
under the rule and form. See Rule 12g3-2(b)(3) (17 CFR 240.12g3-
2(b)(3)) and General Instruction B to Form 6-K.
---------------------------------------------------------------------------
Rule 12g3-2(e) will further require a foreign private issuer of
equity securities to disclose in the Form 15F the address of its
Internet Web site or that of the electronic information delivery system
in its primary trading market on which it will publish the information
required under Rule 12g3-2(b)(1)(iii).\180\ The purpose of this
requirement is to alert investors and the Commission regarding where
investors and others may find the company's home country documents
should a problem arise concerning the Internet location of those
documents.
---------------------------------------------------------------------------
\180\ Note 3 to Rule 12g3-2(e). An issuer will not have to
update the Form 15F to reflect a change in that address.
---------------------------------------------------------------------------
Currently non-reporting issuers that seek the Rule 12g3-2(b)
exemption must submit their letter application for the exemption and
their home country documents to the Commission in paper. The same
primary reason for requiring an issuer to publish its home country
documents electronically after it terminates its reporting obligations
under Rule 12h-6 applies equally to current Rule 12g3-2(b) exempt
companies and the non-reporting companies that eventually will apply
for the exemption. In each case, the electronic posting of an issuer's
home country documents will increase an investor's ability to access
those documents.
Therefore, we are adopting, as proposed, an amendment to Rule 12g3-
2 to permit a foreign private issuer that, upon application to the
Commission and not after filing Form 15F, has obtained or will obtain
the Rule 12g3-2(b) exemption to publish its home country documents that
it is required to furnish on a continuous basis under Rule 12g3-
2(b)(1)(iii) on its Internet Web site or through an electronic
information delivery system generally available to the public in its
primary trading market.\181\ As a condition to this electronic posting,
an issuer that wishes to use this procedure will have to comply with
the English translation requirements of reproposed Rule 12g3-2(e). It
also will have to provide the Commission with the address of its
Internet Web site or that of the electronic information delivery system
in its primary trading market in its application for the Rule 12g3-2(b)
exemption or in an amendment to that application.
---------------------------------------------------------------------------
\181\ New Exchange Act Rule 12g3-2(f) (17 CFR 240.12g3-2(f)).
Parties that commented on the reproposed extension of Rule 12g3-2(b)
supported this electronic publishing provision for issuers claiming
the Rule 12g3-2(b) other than through Rule 12h-6. See, for example,
the letters from the ABA and Skadden Arps.
---------------------------------------------------------------------------
Currently the Commission does not have an established means for a
non-reporting company to submit electronically to the Commission its
initial documents under Rule 12g3-2(b)(1)(i) and (ii).\182\ Therefore,
an applicant will have to continue to submit its letter application and
the home country documents submitted in support of its initial
application to the Commission in paper.\183\
---------------------------------------------------------------------------
\182\ 17 CFR 240.12g3-2(b)(1)(i) and (ii).
\183\ As under current practice, the applicant should send these
initial materials to the Commission's Office of International
Corporate Finance in the Division of Corporation Finance.
---------------------------------------------------------------------------
At both the proposing and reproposing stages, some commenters
suggested that the Commission impose a specific time limit, for example
three years, governing how long an issuer must keep its home country
documents on its Internet Web site.\184\ We decline to adopt a specific
time limit primarily because different types of home country documents
may require different periods of electronic posting. While an issuer
will be required to post electronically a home country document for a
reasonable period of time, what constitutes a reasonable period will
depend on the nature and purpose of the home country document. At a
minimum, we suggest companies provide Web site access to their home
country reports for at least a 12 month period.
---------------------------------------------------------------------------
\184\ See Part II.H.2 of the Reproposing Release and, more
recently, the letter from Sullivan & Cromwell.
---------------------------------------------------------------------------
We also suggest that, if an issuer publishes its home country
documents required under Rule 12g3-2(b) on an electronic information
delivery system or an Internet Web site that is not in English, the
issuer provide a prominent link on its Internet Web site directing
investors to those home country documents in English.
I. Concerns Regarding Securities Act Rule 701
Some commenters asked that we clarify the availability of
Securities Act Rule 701 \185\ for a foreign private issuer that
terminates its registration and reporting obligations under Rule 12h-6.
By its terms, Rule 701 is available to any issuer that is not subject
to the reporting requirements of Exchange Act section 13 or 15(d).
Therefore, upon the effectiveness of termination of registration and
reporting requirements under Rule 12h-6, a foreign private issuer would
appear to satisfy this condition of Rule 701.
---------------------------------------------------------------------------
\185\ 17 CFR 230.701. Rule 701 provides a Securities Act
exemption for the offer and sale of securities to employees and
others pursuant to certain compensatory benefit plans and contracts
relating to compensation.
---------------------------------------------------------------------------
As we noted when originally proposing Rule 12h-6, before the filing
of a Form 15F, a foreign private issuer would have to file a post-
effective amendment to terminate the registration of its remaining
unsold securities under any of its Securities Act registration
statements.\186\ This would include a Form S-8 registration statement
relating to securities issuable under certain compensatory benefit
plans. After the effectiveness of the Form 15F, a foreign private
issuer would be able to rely on Rule 701 with respect to unsold
securities that had previously been covered by the Form S-8
registration statement.
---------------------------------------------------------------------------
\186\ See the Original Proposing Release at n. 45.
---------------------------------------------------------------------------
III. Paperwork Reduction Act Analysis
The final rule amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of 1995
[[Page 16950]]
(``PRA'').\187\ The titles of the affected collection of informations
are Form 20-F (OMB Control No. 3235-0288), Form 40-F (OMB Control No.
3235-0381), Form 6-K (OMB Control No. 3235-0116), new Form 15F, and
submissions under Exchange Act Rule 12g3-2 (OMB Control No. 3235-
0119).\188\ An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information such as Form 20-F
or new Form 15F unless it displays a currently valid OMB control
number. Compliance with the disclosure requirements of new Form 15F and
new Rule 12h-6, which will affect the above collections of information,
is mandatory.
---------------------------------------------------------------------------
\187\ 44 U.S.C. 3501 et seq.
\188\ A limited number of foreign private issuers file annual
reports on Form 10-K. In voluntarily electing to file periodic
reports using domestic issuer forms, these issuers seem to have
closely aligned themselves with the U.S. market. Accordingly, for
the purpose of the Paperwork Reduction Act Analysis, these issuers
do not appear likely to terminate their Exchange Act registration
under new Rule 12h-6, and we have assumed that none of these
companies will seek to use Rule 12h-6. Foreign private issuers that
file periodic reports using domestic issuer forms will be eligible,
nonetheless, to use Rule 12h-6.
---------------------------------------------------------------------------
Form 20-F sets forth the disclosure requirements for a foreign
private issuer's annual report and registration statement under the
Exchange Act as well as many of the disclosure requirements for a
foreign private issuer's registration statements under the Securities
Act. We adopted Form 20-F pursuant to the Exchange Act and the
Securities Act in order to provide investors with information about
foreign private issuers that have registered securities with the
Commission.
Form 40-F sets forth the disclosure requirements regarding the
annual report and registration statement under the Exchange Act for a
Canadian issuer that is qualified to use the Multijurisdictional
Disclosure System (``MJDS''). We adopted Form 40-F pursuant to the
Exchange Act in order to permit qualified Canadian issuers to prepare
their Exchange Act annual reports and registration statements based
primarily in accordance with Canadian requirements.
Form 6-K is used by a foreign private issuer to report material
information that it:
makes or is required to make public under the laws of the
jurisdiction of its incorporation, domicile or organization (its ``home
country'');
files or is required to file with its home country stock
exchange that is made public by that exchange; or
distributes or is required to distribute to its security
holders.
A foreign private issuer may attach annual reports to security
holders, statutory reports, press releases and other documents as
exhibits or attachments to the Form 6-K. We adopted Form 6-K under the
Exchange Act in order to keep investors informed on an ongoing basis
about foreign private issuers that have registered securities with the
Commission.
New Form 15F is the form that a foreign private issuer must file
when terminating its Exchange Act reporting obligations under new
Exchange Act Rule 12h-6. Form 15F requires a filer to disclose
information that will help investors understand the foreign private
issuer's decision to terminate its Exchange Act reporting obligations
and assist Commission staff in assessing whether the Form 15F filer is
eligible to terminate its Exchange Act reporting obligations pursuant
to Rule 12h-6.
Exchange Act Rule 12g3-2 is an exemptive rule that, under paragraph
(b) of that rule, provides an exemption from Exchange Act section 12(g)
registration for a foreign private issuer that, in addition to
satisfying other requirements, submits copies of its material home
country documents to the Commission on an ongoing basis. We adopted
paragraph (b) of Rule 12g3-2 in order to provide information for U.S.
investors concerning foreign private issuers with limited securities
trading in U.S. capital markets.
The hours and costs associated with preparing, filing and sending
Forms 20-F, 40-F, 6-K and 15F, and making submissions under Exchange
Act Rule 12g3-2(b) constitute reporting and cost burdens imposed by
those collections of information. We based our estimates of the effects
that the final rule amendments will have on those collections of
information primarily on our review of the most recently completed PRA
submissions for Forms 20-F, 40-F, and 6-K, and for submissions under
Rule 12g3-2(b), on the particular requirements for those forms and
submissions, and on relevant information, for example, concerning
comparative trading volume for numerous filers of those forms.
Final Rule 12h-6 will permit a foreign private issuer to terminate
permanently its Exchange Act reporting obligations, including the
obligation to file an annual report on Form 20-F or 40-F and the
obligation to submit Form 6-K reports, after filing a Form 15F. Final
Rule 12h-6 and the accompanying rule amendments will also enable a
foreign private issuer to claim the Rule 12g3-2(b) exemption
immediately upon the effectiveness of its termination of reporting
pursuant to the new exit rule, and to publish copies of its home
country documents required by Rule 12g3-2(b) on its Internet Web site
instead of submitting them in paper to the Commission. We have based
the annual burden and cost estimates of the adopted rule amendments on
Forms 20-F, 40-F, 6-K and 15F, and on the home country submissions
required under Rule 12g3-2(b), on the following estimates and
assumptions:
a foreign private issuer incurs or will incur 25% of the
annual burden required to produce each Form 20-F or 40-F report or Form
15F;
outside firms, including legal counsel, accountants and
other advisors, incur or will incur 75% of the burden required to
produce each Form 20-F or 40-F report or Form 15F at an average cost of
$400 per hour;
a foreign private issuer incurs or will incur 75% of the
annual burden required to produce each Form 6-K report and Rule 12g3-
2(b) submission, not including English translation work, and 25% of the
annual burden required to perform the English translation work for Form
6-K reports and Rule 12g3-2(b) submissions; and
outside firms, including legal counsel, accountants and
other advisors, incur or will incur 25% of the burden required to
produce each Form 6-K report and Rule 12g3-2(b) submission, not
including English translation work, at an average cost of $400 per
hour, and 75% of the annual burden resulting from the English
translation work for Form 6-K reports and Rule 12g3-2(b) submissions,
at an average cost of $125 per hour.
As was the case with the originally proposed and reproposed rule
amendments, the estimated effects of the adopted rule amendments
reflect the initial phase-in period of the Exchange Act termination
process under new Rule 12h-6 and Form 15F during the first year of
availability. We expect that most of these estimated effects will occur
on a one-time, rather than a recurring, basis. While we expect that
some issuers will terminate their Exchange Act reporting under Rule
12h-6 and file Form 15F in subsequent years, we do not expect the
resulting burdens and costs to be of the same magnitude as the burdens
and costs currently expected during the first year. Moreover, we expect
that over time, the number of foreign private issuers that are
encouraged to enter the Exchange Act reporting system as a result of
the rule amendments will increase so that, on an annual basis, the
number of foreign companies entering the Exchange Act reporting regime
will exceed the number exiting that regime.
[[Page 16951]]
We published a notice requesting comment on the collection of
information requirements in the Original Proposing Release and
submitted these requirements to the Office of Management and Budget
(``OMB'') for review in accordance with the PRA.\189\ OMB subsequently
approved the proposed requirements without change. We received several
comment letters regarding the proposed rule amendments, although none
addressed their estimated effects on the collection of information
requirements. We revised and reproposed Rule 12h-6 and the accompanying
rule amendments in response to these comments. We also revised the
estimated reporting and cost burdens for the reproposed rules.\190\
Because we are adopting Rule 12h-6 and the accompanying rule amendments
substantially as reproposed, the estimated reporting and cost burdens
for the adopted rules remain the same as the estimated reporting and
cost burdens for the reproposed rules, as discussed below.
---------------------------------------------------------------------------
\189\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
\190\ See Part III of the Reproposing Release.
---------------------------------------------------------------------------
A. Form 20-F
During the first year of effectiveness of reproposed Rule 12h-6, we
estimate that as many as 25% of Form 20-F filers could terminate their
Exchange Act reporting obligations under the new rule.\191\ However, we
continue to believe that Rule 12h-6 will encourage some foreign
companies to enter the Exchange Act registration and reporting regime
for the first time. Consequently, during the first effective year of
Rule 12h-6, the number of Form 20-F annual reports filed could increase
by 5%, leading to a net decrease of 20% for Form 20-Fs filed over this
same period. This net decrease would cause:
---------------------------------------------------------------------------
\191\ 191 As noted at the reproposing stage, a review by the
Commission's Office of Economic Analysis of trading volume data on a
sample of foreign Exchange Act reporting companies that filed Form
20-F during 2004 suggested that approximately 30% of filers would
meet the U.S. trading volume threshold of the reproposed rule. See
Part III, n. 137 of the Reproposing Release. A more recent review of
the Office of Economic Analysis of trading volume data on foreign
Exchange Act reporting companies with common equity trading during
2005 indicates that an estimated 29% of filers would meet the U.S.
trading volume threshold of the adopted rule. That percentage may
vary by region.
---------------------------------------------------------------------------
the number of Form 20-Fs filed to decrease to 880; \192\
---------------------------------------------------------------------------
\192\ 1,100 Form 20-Fs filed annually (prior to this rulemaking)
x .20 = 220; 1,100--220 = 880 Form 20-Fs filed annually.
---------------------------------------------------------------------------
the total number of burden hours required to produce Form
20-F \193\ to decrease to 2,314,400 total hours; \194\
---------------------------------------------------------------------------
\193\ As in the Reproposing Release, we estimate that a foreign
private issuer requires on average 2,630 hours to produce each Form
20-F.
\194\ 880 Form 20-Fs filed annually x 2,630 hours per Form 20-F
= 2,314,400 hours.
---------------------------------------------------------------------------
the total number of burden hours required by foreign
private issuers to produce Form 20-F to decrease to 578,600 total
hours; \195\ and
---------------------------------------------------------------------------
\195\ 880 Form 20-Fs x 2,630 hours per Form 20-F x .25 = 578,600
hours. Thus, we estimate that, during the first year of
effectiveness of Rule 12h-6, foreign private issuers could incur a
reduction of 144,650 hours in the number of burden hours required to
produce Form 20-F. 220 Form 20-Fs x 2,630 hrs. x .25 = 144,650
hours. Using an estimated hourly rate of $175 for in-house work,
foreign private issuers could incur Form 20-F cost savings of
$25,313,750 during Rule 12h-6's first year of effectiveness. 144,650
hrs. x $175/hr. = $25,313,750.
---------------------------------------------------------------------------
the cost incurred by outside firms \196\ to produce Form
20-F to total $694,320,000.\197\
---------------------------------------------------------------------------
\196\ We estimate cost savings of $173,580,000 regarding outside
firms' production of Form 20-Fs during Rule 12h-6's first year of
effectiveness. 220 Form 20-Fs x 2,630 hrs. x .75 x $400/hr. =
$173,580,000. Thus, during the first year of its effectiveness, Rule
12h-6 could result in total estimated Form 20-F cost savings of
$198,893,750. $25,313,750 + $173,580,000 = $198,893,750.
\197\ 880 Form 20-Fs x 2,630 hours x .75 x $400/hour =
$694,320,000. The $108,487,500 increase reflects the increase in the
estimated outside firm hourly rate from $300 to $400.
---------------------------------------------------------------------------
B. Form 40-F
During the first year of effectiveness of Rule 12h-6, we estimate
that as many as 10% of Form 40-F filers could terminate their Exchange
Act reporting obligations under the new rule.\198\ However, the
reproposed rule could encourage some foreign companies to enter the
Exchange Act registration and reporting regime for the first time,
including some that would be eligible to use the MJDS forms, including
the Form 40-F annual report. Consequently, over this same period, the
number of Form 40-F annual reports filed could increase by
approximately 3%, resulting in a net decrease of 7% for Form 40-Fs
filed over this same period.\199\ This net decrease would cause:
---------------------------------------------------------------------------
\198\ We do not expect the expanded scope of reproposed Rule
12h-6 to have as great an effect on MJDS filers as other foreign
reporting companies since, typically, the U.S. trading volume
relating to those shares is significant. Moreover, because of their
close proximity to U.S. capital markets, we believe MJDS filers are
less likely to seek to terminate their Exchange Act reporting
obligations than other foreign private issuers. Accordingly, based
on current experience, we expect no more than 10% of Form 40-F
filers will terminate their Exchange Act reporting obligations under
Rule 12h-6.
\199\ This is the same percentage previously estimated under the
originally proposed rule amendments.
---------------------------------------------------------------------------
the number of Form 40-Fs filed to total 125; \200\
---------------------------------------------------------------------------
\200\ 134 Form 40-Fs filed annually (prior to this rulemaking) x
.07 = 9; 134-9 = 125 Form 40-Fs filed annually.
---------------------------------------------------------------------------
the number of burden hours required to produce Form 40-F
\201\ to total 53,375 total hours; \202\
---------------------------------------------------------------------------
\201\ As in the Reproposing Release, we estimate that it takes
427 hours on average to produce a Form 40-F report.
\202\ 125 Form 40-Fs filed annually x 427 hours per Form 40-F =
53,375 hours.
---------------------------------------------------------------------------
the number of burden hours required by foreign private
issuers to produce Form 40-F to total 13,344 hours; \203\ and
---------------------------------------------------------------------------
\203\ 125 Form 40-Fs filed annually x 427 hours per Form 40-F x
.25 = 13,344 hours. Thus, we estimate that, during the first year of
effectiveness of Rule 12h-6, foreign private issuers could incur a
reduction of 961 hours in the number of burden hours required to
produce Form 40-F. 9 Form 40-Fs x 427 hrs. x .25 = 961 hrs. This
could result in estimated Form 40-F cost savings for foreign private
issuers of $168,175. 961 hrs. x $175/hr. = $168,175.
---------------------------------------------------------------------------
the cost incurred by outside firms to produce Form 40-F to
total $16,012,500.\204\
---------------------------------------------------------------------------
\204\ 125 Form 40-Fs filed annually x 427 hours per Form 40-F x
.75 x $400/hour = $16,012,500. This estimate corresponds to
estimated cost savings of $1,152,900 in connection with outside
firms' production of Form 40-F during reproposed Rule 12h-6's first
year of effectiveness. 9 x 427 hrs. x .75 x $400/hr. = $1,152,900.
Thus, during the first year of its effectiveness, Rule 12h-6 could
result in estimated total Form 40-F cost savings of $168,175 +
$1,152,900 = $1,321,075.
---------------------------------------------------------------------------
C. Form 6-K
During the first year of effectiveness of Rule 12h-6, we estimate
that as many as 23% of foreign private issuers that furnish Form 6-K
reports could terminate their Exchange Act reporting obligations under
the new rule.\205\ However, the adopted rule could encourage some
foreign companies to enter the Exchange Act registration and reporting
regime for the first time, including those that will furnish Form 6-K
reports. Consequently, over this same period, the number of Form 6-K
reports furnished could increase by as much as 5%,\206\ resulting in a
net decrease of 18% for Form 6-Ks furnished over this same period. This
net decrease would cause:
---------------------------------------------------------------------------
\205\ This estimate is based on the estimated number of Form 20-
F and Form 40-F filers that are expected to terminate their Exchange
Act reporting obligations under 2h-6. 1,100 Form 20-Fs x .25 = 275;
134 Form 40-Fs x .10 = 13; 288 = .23 x 1,234.
\206\ This estimate is based on the estimated number of foreign
private issuers that are expected to enter the Exchange Act
reporting regime and file Form 20-Fs or Form 40-Fs as a result of
this rulemaking during the first year of effectiveness. 1,100 Form
20-Fs x .05 = 55; 134 Form 40-Fs x .03 = 4; 59 = .05 x 1,234.
---------------------------------------------------------------------------
[[Page 16952]]
the number of Form 6-K reports furnished to decrease to
12,022; \207\
---------------------------------------------------------------------------
\207\ 14,661 Form 6-K reports x .18 = 2,639; 14,661 - 2,639 =
12,022 Form 6-K reports.
---------------------------------------------------------------------------
the total number of burden hours required to produce the
Form 6-Ks \208\ to decrease to 104,591 total hours; \209\
---------------------------------------------------------------------------
\208\ In the Original and Reproposing Releases, we estimated
that, prior to this rulemaking, it took a total of 127,197 annual
burden hours to produce the 14,661 Form 6-Ks, or approximately 8.7
hours per Form 6-K (for work performed by foreign private issuers
and outside firms). We continue to use this 8.7 hour estimate for
the final rule amendments.
\209\ 12,022 Form 6-K reports x 8.7 hours = 104,591 hours.
---------------------------------------------------------------------------
the total number of burden hours required by foreign
private issuers \210\ to produce Form 6-K to decrease to 65,369 hours;
\211\ and
---------------------------------------------------------------------------
\210\ We estimate that, during the first year of effectiveness
of Rule 12h-6, foreign private issuers could incur a reduction of
14,349 hours in the number of burden hours required to produce Form
6-K. 2,639 Form 6-Ks x 8.7 hours = 22,959 hours; 22,959 hours x .25
= 5,740 hours of English translation work; 5,740 hours x .25 = 1,435
hours of English translation work for foreign private issuers;
22,959 x .75 = 17,219 hours of non-English translation work; 17,219
x .75 = 12,914 hours of non-English translation work for foreign
private issuers; 1,435 + 12,914 = 14,349 hours. This could result in
estimated Form 6-K cost savings of $2,511,075 for foreign private
issuers during the first year of Rule 12h-6's effectiveness. 14,349
hrs. x $175/hr. = $2,511,075.
\211\ 104,591 hours x .25 = 26,148 hours for English translation
work; 104,591 hours--26,148 hours = 78,443 hours for non-English
translation work; 78,443 hours x .75 = 58,832 hours for non-English
translation work performed by foreign private issuers; 26,148 hours
x .25 = 6,537 hours of English translation work performed by foreign
private issuers; 58,832 hours + 6,537 hours = 65,369 total hours for
Form 6-K work performed by foreign private issuers, or 5.4 hours for
foreign private issuer work per Form 6-K.
---------------------------------------------------------------------------
the cost incurred by outside firms \212\ to produce Form
6-K to total $10,295,775.\213\
---------------------------------------------------------------------------
\212\ We estimate cost savings of $2,260,025 in connection with
outside firms' production of Form 6-K during Rule 12h-6's first year
of effectiveness. 5,740 hrs. x .75 x $125/hour = $538,125 for
English translation work; 17,219 x .25 x $400/hour = $1,721,900 for
non-English translation work. $538,125 + $1,721,900 = $2,260,025 in
Form 6-K cost savings for outside firms. Thus, Rule 12h-6 could
result in total estimated Form 6-K cost savings of $4,771,100.
$2,511,075 + $2,260,025 = $4,771,100.
\213\ 78,443 hours x .25 = 19,611 hours x $400/hour = $7,844,400
for non-translation work; 26,148 hours x .75 = 19,611 hours x $125/
hour = $2,451,375 for English translation work; $7,844,400 +
$2,451,375 = $10,295,775 for total work performed by outside firms.
The $2,078,475 increase reflects the increase in the estimated
outside firm hourly rate from $300 to $400 and the increase in the
estimated outside firm rate for English translation work from $75 to
$125/hour based on current information provided by financial printer
representatives.
---------------------------------------------------------------------------
D. Form 15F
During the first year of effectiveness of Rule 12h-6, we estimate
that as many as 351 foreign private issuers \214\ could file a Form 15F
to terminate their Exchange Act reporting obligations, which would
cause:
---------------------------------------------------------------------------
\214\ We derived this estimate from the number of Form 20-F
filers (275) and Form 40-F filers (13) estimated to elect to
terminate their Exchange Act reporting obligations under Rule 12h-6
during the first year of the rule's effectiveness. We then added to
this sum (288) the number of prior Form 15 filers (63) estimated to
file a Form 15F during the first year of Rule 12h-6's effectiveness
in order to make their Form 15 termination or suspension of
reporting obligations permanent. The latter number is based on the
approximate number of foreign private issuers that filed a Form 15
from 2003 through the present.
---------------------------------------------------------------------------
the number of burden hours required to produce Form 15F
\215\ to total 10,530 hours; \216\
---------------------------------------------------------------------------
\215\ In the Original and Reproposing Releases, we estimated
that the production of each Form 15F would require 30 hours. We
continue to use this estimate for the final rule amendments.
\216\ 351 Form 15Fs x 30 = 10,530 hours.
---------------------------------------------------------------------------
foreign private issuers to incur a total of 2,633 hours to
produce Form 15F; \217\ and
---------------------------------------------------------------------------
\217\ 10,530 hours x .25 = 2,633 hours. This could result in
estimated Form 15F costs for foreign private issuers of $460,775
during Rule 12h-6's first year of effectiveness. 2,633 hrs. x $175 =
$460,775.
---------------------------------------------------------------------------
outside firms to incur a total cost of $3,159,200 \218\ to
produce Form 15F.\219\
---------------------------------------------------------------------------
\218\ 10,530 hours x .75 = 7,898 hours; 7,898 hours x $400/hour
= $3,159,200. The $3,159,200 increase reflects the increase in the
number of estimated Form 15F filers and the increase in the
estimated outside firm hourly rate from $300 to $400.
\219\ Thus, Rule 12h-6 could result in total estimated Form 15F
costs of $3,619,975 during its first year of effectiveness. $460,775
+ $3,159,200 = $3,619,975.
---------------------------------------------------------------------------
E. Rule 12g3-2(b) Submissions
We estimate that 685 foreign private issuers currently have
obtained the Rule 12g3-2(b) exemption.\220\ In addition, we estimate
that each Rule 12g3-2(b) exempt issuer currently makes 12 Rule 12g3-
2(b) submissions per year for a total of 8,220 Rule 12g3-2(b)
submissions. We further estimate that it takes a total of 32,880 annual
burden hours, or 4 annual burden hours per submission (for work
performed by foreign private issuers and outside firms), to produce the
8,220 Rule 12g3-2(b) submissions.\221\
---------------------------------------------------------------------------
\220\ This estimate is based on Commission staff's most recent
annual review of the number of current Rule 12g3-2(b) exempt
companies, which will be available soon on our Internet Web site at
http://www.sec.gov/divisions/corpfin.shtml.
\221\ These estimates are the same as the estimates presented in
the Reproposing Release. As we stated in that release, the estimates
represent an adjustment of 31,080 hours from the 1,800 total hours
previously reported for Rule 12g3-2(b) submissions. They reflect a
re-evaluation of the number of foreign private issuers that
currently claim the Rule 12g3-2(b) exemption, the number of Rule
12g3-2(b) submissions made by them, and the number of burden hours
required for their production, in addition to assessing the effects
on Rule 12g3-2(b) submissions expected to result from adoption of
the final rule amendments. We believe these estimates more
accurately reflect the current burden hours required for the
collections of information submitted under Rule 12g3-2(b).
---------------------------------------------------------------------------
During the first year of effectiveness of reproposed Rule 12h-6, we
estimate that as many as 351 foreign private issuers could claim the
Rule 12g3-2(b) exemption immediately upon the effectiveness of their
termination of reporting under new Rule 12h-6.\222\ This increase in
the number of Rule 12g3-2(b) exempt issuers would cause:
---------------------------------------------------------------------------
\222\ This amount includes the estimated 288 Form 20-F and 40-F
filers expected to terminate their Exchange Act reporting
obligations under Rule 12h-6 as well as the estimated 63 prior Form
15 filers expected to file a Form 15F to make their prior
termination or suspension of reporting under Rule 12h-6.
---------------------------------------------------------------------------
the number of issuers claiming the Rule 12g3-2(b)
exemption to total 1,036;
the number of Rule 12g3-2(b) submissions made annually to
total 12,432;
the number of annual burden hours required to produce
these Rule 12g3-2(b) submissions to total 49,728 hours;
foreign private issuers to incur a total of 31,080 annual
burden hours to produce these Rule 12g3-2(b) submissions, or 2.5 annual
burden hours per submission; \223\ and
---------------------------------------------------------------------------
\223\ Because the home country document submission requirement
under Rule 12g3-2(b) is similar to the home country document
submission requirement under Form 6-K, we have used the same
assumptions regarding the English and non-English translation work
required under Rule 12g3-2(b) that we adopted for Form 6-K
submissions. Accordingly: 49,728 hours x .25 = 12,432 total annual
burden hours for English translation work; 49,728-12,432 = 37,296
total annual burden hours required for non-English translation work;
37,296 hours x .75 = 27,972 total annual burden hours incurred by
foreign private issuers for non-English translation work; 12,432
hours x .25 = 3,108 total annual hours incurred by foreign private
issuers for English translation work; 27,972 + 3,108 = 31,080 total
annual burden hours incurred by foreign private issuers for Rule
12g3-2(b) submissions, or 2.5 annual burden hours per submission. Of
the 31,080 hours, 10,530 hours would result from adoption of the new
rules and 20,550 hours represents an adjustment from the previous
PRA estimates for Rule 12g3-2 submissions.
---------------------------------------------------------------------------
outside firms to incur a total cost of $4,909,275 \224\ to
produce the Rule 12g3-2(b) submissions.\225\
---------------------------------------------------------------------------
\224\ 49,728 hours x .25 = 12,432 hours for English translation
work; 12,432 hours x .75 = 9,324 hours; 9,324 hours x $125 =
$1,165,500 for English translation work; 49,728 hours-12,432 hours =
37,296 hours for non-English translation work; 37,296 hours x .25 =
9,324 hours; 9,324 hours x $400 = $3,729,600 for non-English
translation work; $1,165,500 + $3,729,600 = $4,895,100 for total
work performed by outside firms. Of that total amount, $1,658,475
would result from adoption of the new rules and $3,236,625
constitutes an adjustment from the previous PRA estimates for Rule
12g3-2 submissions.
\225\ We further estimate that new Rule 12h-6 and the
accompanying rule amendments could result in total estimated Rule
12g3-2(b) costs of $3,501,225 during the first year of their
effectiveness. 351 issuers x 12 submissions/issuer x 2.5 hrs./
submission = 10,530 hours; 10,530 hours x $175/hr. = $1,842,750 in
Rule 12g3-2(b) submission costs for foreign private issuers. For
outside firm costs: 351 issuers x 12 submissions/issuer x 4 hrs./
submission = 16,848 hours; 16,848 x .25 = 4,212 hours of English
translation work; 4,212 x .75 x $125 = $394,875 of English
translation costs for outside firms. 16,848 hours x .75 = 12,636
hours of non-English translation work; 12,636 x .25 x $400 =
$1,263,600 of non-English translation costs for outside firms.
$394,875 + $1,263,600 = $1,658,475 in total Rule 12g3-2(b)
submission costs for outside firms. $1,842,750 + $1,658,475 =
$3,501,225 in total estimated Rule 12g3-2(b) costs.
---------------------------------------------------------------------------
[[Page 16953]]
IV. Cost-Benefit Analysis
A. Expected Benefits
New Exchange Act Rule 12h-6 and the accompanying rule amendments
will benefit U.S. investors to the extent that they remove a possible
disincentive for foreign companies that are not currently Exchange Act
reporting companies to register their equity and debt securities with
the Commission. In response to foreign companies' concerns about
Exchange Act reporting and other obligations, these rules will expand
the criteria by which a foreign company may terminate those
obligations. In so doing, the adopted rule amendments should over time
remove an impediment to foreign company access and participation in
U.S. public capital markets while still providing U.S. investors with
the protections afforded by our Exchange Act reporting regime.
The adopted rule amendments should remove a disincentive for
foreign firms to enter our Exchange Act reporting regime by lowering
the cost of exiting from that regime. Investors are expected to benefit
from the amendments by being able to purchase shares in foreign firms
that have been registered with the Commission and that, therefore,
provide a high level of investor protection. In addition, U.S.
investors may incur lower transaction costs when trading a foreign
company's shares on a U.S. exchange relative to a foreign exchange.
To remove a disincentive for foreign companies to enter U.S. public
capital markets, the adopted rule amendments will benefit U.S.
investors by enabling a foreign Exchange Act reporting company to lower
its costs of compliance in connection with Exchange Act deregistration.
This reduction in the cost of compliance will directly benefit both
foreign companies and their investors, including those resident in the
United States.
The final rule amendments will result in foreign private issuers
incurring lower costs of Exchange Act compliance in four possible ways.
First, rather than require a foreign private issuer to determine the
number of its U.S.holders, as is the case under the current exit rules,
new Rule 12h-6 will enable a foreign private issuer to rely solely on
trading volume data regarding its securities in the United States and
on a worldwide basis when determining whether it may terminate its
Exchange Act reporting obligations. Because trading volume data is more
easily obtainable than information regarding its U.S. shareholders, the
new rule should lower the costs of Exchange Act termination for foreign
private issuers.
Second, new Rule 12h-6 will allow a foreign firm to terminate its
Exchange Act reporting obligations regarding a class of equity
securities and immediately obtain the Rule 12g3-2(b) exemption.
Accordingly, such a terminating foreign private issuer would be able to
avoid the costs associated with continued annual verification that its
number of holders of record remains below 300.
Third, new Rule 12h-6 will permit an issuer to rely on the
assistance of an independent information services provider when
determining whether it falls below the 300-holder standard. The option
to hire an independent information services provider may be a more
efficient and cost-effective mechanism to make that determination.
Moreover, a foreign company may save costs when assessing its
eligibility to terminate its registration and reporting under the 300-
holder provision of Rule 12h-6, since the rule will limit the number of
jurisdictions in which a foreign private issuer must search for the
amount of securities represented by accounts of customers resident in
the United States held by brokers, dealers, banks and other nominees.
The current rules require a foreign private issuer to conduct a
worldwide search for such U.S. customer accounts.
Fourth, once having terminated its reporting obligations under new
Rule 12h-6, a foreign company will no longer be required to incur costs
associated with producing an Exchange Act annual report or interim Form
6-K reports.\226\ Based on estimates and assumptions used for the
purpose of the Paperwork Reduction Act, these estimated cost savings
could total approximately $200,000,000 for the first year of Rule 12h-
6's effectiveness.\227\
---------------------------------------------------------------------------
\226\ We recognize that, as a result of terminating their
Exchange Act reporting obligations under Rule 12h-6, foreign firms
may accrue other cost savings that are not specifically quantified
in this section. One such example is an investment in an internal
control system in order to comply with the Sarbanes-Oxley Act.
\227\ As discussed in Part III of this release, for the first
year of Rule 12h-6's effectiveness, estimated cost savings in
connection with Forms 20-F, 40-F and 6-K could amount to,
respectively, $198,893,750, $1,321,075, and $4,771,100, for a total
of $204,985,925. These cost savings could be less to the extent that
more foreign private issuers register with the Commission over time
as a result of the adoption of Rule 12h-6.
---------------------------------------------------------------------------
B. Expected Costs
Investors could incur costs from the adopted rule amendments to the
extent that currently registered foreign companies respond to the rule
changes by terminating their Exchange Act registration and reporting
obligations with respect to their equity and debt securities. If
Exchange Act disclosure requirements provide more information or
protection to U.S. or other investors than is provided in an issuer's
primary trading market, then all investors, both U.S. and foreign, may
suffer the costs of losing that information and protection upon
Exchange Act termination.\228\ If this is the case, the announcement
that a foreign firm is terminating its Exchange Act reporting may
result in a loss of share value and the incurrence by investors of
higher costs from trading in the firm's equity and debt securities.
---------------------------------------------------------------------------
\228\ Conversely, in countries that have similar regulatory
regimes and levels of investor protection, the impact of U.S.
deregistration may be mitigated.
---------------------------------------------------------------------------
There are costs associated with the filing of new Form 15F, which
is a requirement for a foreign private issuer that terminates its
Exchange Act registration and reporting under Rule 12h-6.\229\ A
foreign private issuer will also incur costs in connection with having
to post on its Internet Web site in English its material home country
documents required to maintain the Rule 12g3-2(b) exemption that it
will have received upon the effectiveness of its termination of
reporting under new Rule 12h-6.\230\
---------------------------------------------------------------------------
\229\ As discussed in Part III of this release, based on
estimates and assumptions adopted for the purpose of the Paperwork
Reduction Act, these costs could total $3,619,975 during the first
year of the new form's use.
\230\ As discussed in Part III of this release, based on
estimates and assumptions adopted for the Paperwork Reduction Act,
these resulting Rule 12g3-2(b) costs could amount to $3,501,225.
---------------------------------------------------------------------------
We expect that new Rule 12h-6 will enable some foreign registrants
to avoid other recent U.S. regulation, such as the Sarbanes-Oxley Act.
Investors will lose the benefits afforded by the Sarbanes-Oxley Act to
the extent a current foreign registrant is not fully subject to that
Act.
Some U.S. investors might seek to trade in the equity securities of
a foreign company following its termination of Exchange Act reporting
under Rule 12h-6. U.S. investors seeking to trade the former reporting
company's securities in the U.S. may be forced to trade in over-the-
counter markets such as the one administered by Pink Sheets, LLC, which
could result in higher transaction costs than if the foreign company
had continued to have a class of securities registered with the
Commission.
[[Page 16954]]
U.S. investors seeking to trade the former reporting company's
securities in its primary trading market also could incur additional
costs. For example, U.S. investors who held the securities in the form
of ADRs could incur costs associated with the depositary's conversion
of the ADRs into ordinary shares.\231\ Moreover, some U.S. investors
could incur costs associated with finding and contracting with a new
broker-dealer who is able to trade in the foreign reporting company's
primary trading market. U.S. investors may face additional costs due to
the cost of currency conversion and higher transaction costs trading
the securities in a foreign market.
---------------------------------------------------------------------------
\231\ A foreign company may terminate its ADR facility whether
or not it is an Exchange Act registrant, and adopted Rule 12h-6 does
not require the termination of ADR facilities. In fact, by granting
foreign private issuers the Rule 12g3-2(b) exemption immediately
upon their termination of reporting with regard to a class of equity
securities, Rule 12h-6 will enable foreign private issuers to retain
their ADR facilities as unlisted facilities following their
termination of reporting under Rule 12h-6. As adopted, Rule 12h-6
will require an issuer that has terminated a sponsored ADR facility
to wait a year before it may file a Form 15F in reliance on the
trading volume provision of Rule 12h-6 if, on the date of
termination, the issuer does not meet the trading volume benchmark.
---------------------------------------------------------------------------
Some investors who wish to make investment decisions regarding
former Exchange Act reporting foreign companies also may incur costs to
the extent that the information provided by such companies pursuant to
any home country regulations is different from that which currently is
required under the Exchange Act. Such investors could incur costs
associated with hiring an attorney or investment adviser, to the extent
that they have not already done so, to explain the material
differences, if any, between a foreign company's home country reporting
requirements, as reflected in its home country annual report posted on
its Internet Web site, and Exchange Act reporting requirements.
V. Consideration of Impact on the Economy, Burden on Competition and
Promotion of Efficiency, Competition and Capital Formation Analysis
When adopting rules under the Exchange Act, Section 23(a)(2) of the
Exchange Act \232\ requires us to consider the impact that any new rule
will have on competition. Section 23(a)(2) also prohibits us from
adopting any rule that will impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Furthermore, when engaging in rulemaking that requires us to
consider or determine whether an action is necessary or appropriate in
the public interest, Section 3(f) of the Exchange Act \233\ requires
the Commission to consider whether the action will promote efficiency,
competition and capital formation.
---------------------------------------------------------------------------
\232\ 15 U.S.C. 78w(a)(2).
\233\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
In the Reproposing Release, we considered reproposed Rule 12h-6 and
the accompanying reproposed rule amendments in light of the standards
set forth in the above statutory sections. We solicited comment on
whether, if adopted, reproposed Rule 12h-6 and the other reproposed
rule amendments would result in any anti-competitive effects or promote
efficiency, competition and capital formation. We further encouraged
commenters to provide empirical data or other facts to support their
views on any anti-competitive effects or any burdens on efficiency,
competition or capital formation that might result from adoption of
reproposed Rule 12h-6 and the other reproposed rule amendments.
We did not receive any comments or any empirical data in this
regard concerning reproposed Rule 12h-6 and the accompanying rule
amendments. Accordingly, since the adopted rules are substantially
similar to the reproposed rules, we continue to believe the new rules
will provide a foreign reporting company with a more efficient option
of exiting the Exchange Act reporting system when U.S. investor
interest has become relatively scarce. In so doing, new Rule 12h-6 and
the other rule amendments should encourage foreign private issuers to
register their equity and debt securities with the Commission by
reassuring foreign private issuers that, should interest in the U.S.
market for their securities decline sufficiently, they may exit the
Exchange Act reporting system with little difficulty.
By providing increased flexibility for foreign private issuers
regarding our Exchange Act reporting system, the adopted rules should
encourage foreign companies to participate in U.S. capital markets as
Exchange Act reporting companies to the benefit of investors. In so
doing, the adopted rules should foster increased competition between
domestic and foreign firms for investors in U.S. capital markets.
Moreover, by requiring a foreign private issuer that has terminated
its Exchange Act reporting under Rule 12h-6 to publish its home country
documents required under Exchange Act Rule 12g3-2(b) in English on its
Internet Web site or through an electronic information delivery system
that is generally available to the public in its primary trading
market, the adopted rules will help ensure that U.S. investors continue
to have ready access to material information in English about the
foreign private issuer.\234\ Thus, new Rule 12h-6 and the accompanying
rule amendments should foster increased efficiency in the trading of
the issuer's securities for U.S. investors following the issuer's
termination of Exchange Act reporting.
---------------------------------------------------------------------------
\234\ Similarly, by expanding the scope of the originally
proposed Rule 12h-6 to permit prior Form 15 filers to terminate
their Exchange Act reporting obligations under the new exit rule and
claim the Rule 12g3-2(b) exemption immediately upon such
termination, the adopted rules will help promote the availability of
material home country information in English about those issuers for
U.S. investors.
---------------------------------------------------------------------------
VI. Regulatory Flexibility Act Certification
Under Section 605(b) of the Regulatory Flexibility Act,\235\ we
certified that, when adopted, reproposed Rule 12h-6 and the
accompanying reproposed rule amendments would not have a significant
economic impact on a substantial number of small entities. We included
this certification in Part VI of the Reproposing Release. While we
encouraged written comments regarding this certification, no commenters
responded to this request.
---------------------------------------------------------------------------
\235\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
VII. Statutory Basis and Text of Rule Amendments
We are adopting the amendments to Rule 30-1 of Part 200, Rule 101
of Regulation S-T, and Exchange Act Rules 12g3-2, 12g-4 and 12h-3, new
Exchange Act Rule 12h-6 and new Exchange Act Form 15F under the
authority in sections 6, 7, 10 and 19 of the Securities Act \236\ and
sections 3(b), 12, 13, 23 and 36 of the Exchange Act.\237\
---------------------------------------------------------------------------
\236\ 15 U.S.C. 77f, 77g, 77j, and 77s.
\237\ 15 U.S.C. 78c, 78l, 78m, 78w, and 78mm.
---------------------------------------------------------------------------
List of Subjects
17 CFR Part 200
Administrative practice and procedure, Authority delegations
(Government agencies).
17 CFR Parts 232, 240 and 249
Reporting and recordkeeping requirements, Securities.
Text of Rule Amendments
0
For the reasons set out in the preamble, we are amending Title 17,
Chapter II of the Code of Federal Regulations as follows.
[[Page 16955]]
PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS
0
1. The general authority citation for Part 200 is revised to read as
follows:
Authority: 15 U.S.C. 77o, 77s, 77sss, 78d, 78d-1, 78d-2, 78w,
78ll(d), 78mm, 80a-37, 80b-11, and 7202, unless otherwise noted.
* * * * *
0
2. Amend Sec. 200.30-1 by adding paragraph (e)(17) to read as follows:
Sec. 200.30-1 Delegation of authority to Director of Division of
Corporation Finance.
* * * * *
(e) * * *
(17) At the request of a foreign private issuer, pursuant to Rule
12h-6 (Sec. 240.12h-6 of this chapter), to accelerate the termination
of the registration of a class of securities under section 12(g) of the
Act (15 U.S.C. 78l(g)) or the duty to file reports under section 13(a)
of the Act (15 U.S.C. 78m(a)) or section 15(d) of the Act (15 U.S.C.
78o(d)).
* * * * *
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
0
3. The authority citation for Part 232 continues to read in part as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 80a-8, 80a-29, 80a-
30, 80a-37, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *
0
4. Amend Sec. 232.101 by:
0
a. Removing the word ``and'' at the end of paragraph (a)(1)(x);
0
b. Removing the period and adding ``; and'' at the end of paragraph
(a)(1)(xi); and
0
c. Adding paragraph (a)(1)(xii).
The addition reads as follows:
Sec. 232.101 Mandated electronic submissions and exceptions.
(a) * * *
(1) * * *
(xii) Forms 15 and 15F (Sec. 249.323 and Sec. 249.324 of this
chapter).
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
5. The general authority citation for Part 240 continues to read in
part as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5,
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4,
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
* * * * *
0
6. Amend Sec. 240.12g3-2 by revising paragraphs (d)(1) and (d)(2) and
adding paragraphs (e) and (f) to read as follows:
Sec. 240.12g3-2 Exemptions for American depositary receipts and
certain foreign securities.
* * * * *
(d) * * *
(1) Securities of a foreign private issuer that has or has had
during the prior eighteen months any securities registered under
section 12 of the Act or a reporting obligation (suspended or active)
under section 15(d) of the Act (other than arising solely by virtue of
the use of Form F-7, F-8, F-9, F-10 or F-80), except as provided by
paragraph (e) of this section;
(2) Securities of a foreign private issuer issued in a transaction
(other than a transaction registered on Form F-8, F-9, F-10 or F-80) to
acquire by merger, consolidation, exchange of securities or acquisition
of assets, another issuer that had securities registered under section
12 of the Act or a reporting obligation (suspended or active) under
section 15(d) of the Act, except as provided by paragraph (e) of this
section; and
* * * * *
(e)(1) A foreign private issuer that has filed a Form 15F (Sec.
249.324 of this chapter) pursuant to Sec. 240.12h-6 shall receive the
exemption provided by paragraph (b) of this section for a class of
equity securities immediately upon the effectiveness of the termination
of registration of that class of securities under section 12(g) of the
Act (15 U.S.C. 78l(g)) or the termination of the duty to file reports
regarding that class of securities under section 15(d) of the Act (15
U.S.C. 78o(d)), or both.
(2) Notwithstanding any provision of Sec. 240.12g3-2(b), in order
to satisfy the conditions of the Sec. 240.12g3-2(b) exemption received
under this paragraph (e), the issuer shall publish in English the
information required under paragraph (b)(1)(iii) of this section on its
Internet Web site or through an electronic information delivery system
generally available to the public in its primary trading market, rather
than furnish that information to the Commission.
(3) The Sec. 240.12g3-2(b) exemption received under this paragraph
(e) will remain in effect for as long as the foreign private issuer
satisfies the electronic publication condition of paragraph (e)(2) of
this section or until the issuer registers a class of securities under
section 12 of the Act or incurs reporting obligations under section
15(d) of the Act.
(4) Notwithstanding the time period specified in Sec. 240.12g3-
2(d)(1), a foreign private issuer that filed a Form 15F solely with
respect to a class of debt securities under section 15(d) of the Act
(15 U.S.C. 78o(d)) may establish the exemption provided by paragraph
(b) of this section for a class of equity securities upon the
effectiveness of its termination of reporting regarding the class of
debt securities.
Notes to Paragraph (e): 1. In order to maintain the Sec.
240.12g3-2(b) exemption obtained under this paragraph, at a minimum,
a foreign private issuer shall electronically publish English
translations of the following documents required to be furnished
under paragraph (b)(1)(iii) of this section if in a foreign
language:
a. Its annual report, including or accompanied by annual
financial statements;
b. Interim reports that include financial statements;
c. Press releases; and
d. All other communications and documents distributed directly
to security holders of each class of securities to which the
exemption relates.
2. As used in paragraph (e)(2) of this section, primary trading
market has the same meaning as under Sec. 240.12h-6(f).
3. A foreign private issuer that files a Form 15F regarding a
class of equity securities shall disclose in the Form 15F the
address of its Internet Web site or that of the electronic
information delivery system in its primary trading market on which
it will publish the information required under paragraph (b)(1)(iii)
of this section. An issuer need not update the Form 15F to reflect a
change in that address.
4. A foreign private issuer that has filed a Form 15F solely
with respect to a class of debt securities may establish the
exemption under Sec. 240.12g3-2(b) regarding a class of equity
securities by submitting an application to the Commission after
filing its Form 15F. The issuer must provide in that application the
date that it filed its Form 15F as well as the address of its
Internet Web site or that of the electronic information delivery
system in its primary trading market on which it will publish the
information required under paragraph (b)(1)(iii) of this section.
(f)(1) A foreign private issuer that, upon application to the
Commission and not after filing a Form 15F, has obtained or will obtain
the exemption under Sec. 240.12g3-2(b), may publish the information
required under paragraph (b)(1)(iii) of this section on its Internet
Web site or through an electronic information delivery system generally
available to the public in its primary trading market, rather than
furnish that information to the Commission, as long as it complies with
the English translation requirements provided in paragraph (e) of this
section.
[[Page 16956]]
(2) Before a foreign private issuer may publish information
electronically pursuant to this paragraph, it must provide the
Commission with the address of its Internet Web site or that of the
electronic information delivery system in its primary trading market in
its application for the exemption under Sec. 240.12g3-2(b) or in an
amendment to that application.
0
7. Amend Sec. 240.12g-4 by:
0
a. Removing the authority citations following the section; and
0
b. Revising paragraph (a) to read as follows:
Sec. 240.12g-4 Certifications of termination of registration under
section 12(g).
(a) Termination of registration of a class of securities under
section 12(g) of the Act (15 U.S.C. 78l(g)) shall take effect 90 days,
or such shorter period as the Commission may determine, after the
issuer certifies to the Commission on Form 15 (17 CFR 249.323) that the
class of securities is held of record by:
(1) Less than 300 persons; or
(2) Less than 500 persons, where the total assets of the issuer
have not exceeded $10 million on the last day of each of the issuer's
most recent three fiscal years.
* * * * *
0
8. Amend Sec. 240.12h-3 by:
0
a. Removing the authority citations following the section;
0
b. Adding the word ``and'' at the end of paragraph (b)(1)(ii);
0
c. Removing paragraph (b)(2), including the undesignated paragraph;
0
d. Redesignating paragraph (b)(3) as (b)(2);
0
e. Revising the cite ``paragraphs (b)(1)(ii) and (2)(ii)'' to read
``paragraph (b)(1)(ii)'' in paragraph (c); and
0
f. Revising the phrase ``criteria (i) and (ii) in either paragraph
(b)(1) or (2)'' to read ``either criteria (i) or (ii) of paragraph
(b)(1)'' in paragraph (d).
0
9. Add Sec. 240.12h-6 to read as follows:
Sec. 240.12h-6 Certification by a foreign private issuer regarding
the termination of registration of a class of securities under section
12(g) or the duty to file reports under section 13(a) or section 15(d).
(a) A foreign private issuer may terminate the registration of a
class of securities under section 12(g) of the Act (15 U.S.C. 78l(g)),
or terminate the obligation under section 15(d) of the Act (15 U.S.C.
78o(d)) to file or furnish reports required by section 13(a) of the Act
(15 U.S.C. 78m(a)) with respect to a class of equity securities, or
both, after certifying to the Commission on Form 15F (17 CFR 249.324)
that:
(1) The foreign private issuer has had reporting obligations under
section 13(a) or section 15(d) of the Act for at least the 12 months
preceding the filing of the Form 15F, has filed or furnished all
reports required for this period, and has filed at least one annual
report pursuant to section 13(a) of the Act;
(2) The foreign private issuer's securities have not been sold in
the United States in a registered offering under the Securities Act of
1933 (15 U.S.C. 77a et seq.) during the 12 months preceding the filing
of the Form 15F, other than securities issued:
(i) To the issuer's employees;
(ii) By selling security holders in non-underwritten offerings;
(iii) Upon the exercise of outstanding rights granted by the issuer
if the rights are granted pro rata to all existing security holders of
the class of the issuer's securities to which the rights attach;
(iv) Pursuant to a dividend or interest reinvestment plan; or
(v) Upon the conversion of outstanding convertible securities or
upon the exercise of outstanding transferable warrants issued by the
issuer;
Note to Paragraph (a)(2): The exceptions in paragraphs
(a)(2)(iii) through (v) do not apply to securities issued pursuant
to a standby underwritten offering or other similar arrangement in
the United States.
(3) The foreign private issuer has maintained a listing of the
subject class of securities for at least the 12 months preceding the
filing of the Form 15F on one or more exchanges in a foreign
jurisdiction that, either singly or together with the trading of the
same class of the issuer' s securities in another foreign jurisdiction,
constitutes the primary trading market for those securities; and
(4)(i) The average daily trading volume of the subject class of
securities in the United States for a recent 12-month period has been
no greater than 5 percent of the average daily trading volume of that
class of securities on a worldwide basis for the same period; or
(ii) On a date within 120 days before the filing date of the Form
15F, a foreign private issuer's subject class of equity securities is
either held of record by:
(A) Less than 300 persons on a worldwide basis; or
(B) Less than 300 persons resident in the United States.
Note to Paragraph (a)(4): If an issuer's equity securities trade
in the form of American Depositary Receipts in the United States,
for purposes of paragraph (a)(4)(i), it must calculate the trading
volume of its American Depositary Receipts in terms of the number of
securities represented by those American Depositary Receipts.
(b) A foreign private issuer must wait at least 12 months before it
may file a Form 15F to terminate its section 13(a) or 15(d) reporting
obligations in reliance on paragraph (a)(4)(i) of this section if:
(1) The issuer has delisted a class of equity securities from a
national securities exchange or inter-dealer quotation system in the
United States, and at the time of delisting, the average daily trading
volume of that class of securities in the United States exceeded 5
percent of the average daily trading volume of that class of securities
on a worldwide basis for the preceding 12 months; or
(2) The issuer has terminated a sponsored American Depositary
Receipts facility, and at the time of termination the average daily
trading volume in the United States of the American Depositary Receipts
exceeded 5 percent of the average daily trading volume of the
underlying class of securities on a worldwide basis for the preceding
12 months.
(c) A foreign private issuer may terminate its duty to file or
furnish reports pursuant to section 13(a) or section 15(d) of the Act
with respect to a class of debt securities after certifying to the
Commission on Form 15F that:
(1) The foreign private issuer has filed or furnished all reports
required by section 13(a) or section 15(d) of the Act, including at
least one annual report pursuant to section 13(a) of the Act; and
(2) On a date within 120 days before the filing date of the Form
15F, the class of debt securities is either held of record by:
(i) Less than 300 persons on a worldwide basis; or
(ii) Less than 300 persons resident in the United States.
(d)(1) Following a merger, consolidation, exchange of securities,
acquisition of assets or otherwise, a foreign private issuer that has
succeeded to the registration of a class of securities under section
12(g) of the Act of another issuer pursuant to Sec. 240.12g-3, or to
the reporting obligations of another issuer under section 15(d) of the
Act pursuant to Sec. 240.15d-5, may file a Form 15F to terminate that
registration or those reporting obligations if:
(i) Regarding a class of equity securities, the successor issuer
meets the conditions under paragraph (a) of this section; or
(ii) Regarding a class of debt securities, the successor issuer
meets the conditions under paragraph (c) of this section.
(2) When determining whether it meets the prior reporting
requirement under paragraph (a)(1) or paragraph (c)(1) of this section,
a successor issuer
[[Page 16957]]
may take into account the reporting history of the issuer whose
reporting obligations it has assumed pursuant to Sec. 240.12g-3 or
Sec. 240.15d-5.
(e) Counting method. When determining under this section the number
of United States residents holding a foreign private issuer's equity or
debt securities:
(1)(i) Use the method for calculating record ownership Sec.
240.12g3-2(a), except that you may limit your inquiry regarding the
amount of securities represented by accounts of customers resident in
the United States to brokers, dealers, banks and other nominees located
in:
(A) The United States;
(B) The foreign private issuer's jurisdiction of incorporation,
legal organization or establishment; and
(C) The foreign private issuer's primary trading market, if
different from the issuer's jurisdiction of incorporation, legal
organization or establishment.
(ii) If you aggregate the trading volume of the issuer's securities
in two foreign jurisdictions for the purpose of complying with
paragraph (a)(3) of this section, you must include both of those
foreign jurisdictions when conducting your inquiry under paragraph
(e)(1)(i) of this section.
(2) If, after reasonable inquiry, you are unable without
unreasonable effort to obtain information about the amount of
securities represented by accounts of customers resident in the United
States, for purposes of this section, you may assume that the customers
are the residents of the jurisdiction in which the nominee has its
principal place of business.
(3) You must count securities as owned by United States holders
when publicly filed reports of beneficial ownership or other reliable
information that is provided to you indicates that the securities are
held by United States residents.
(4) When calculating under this section the number of your United
States resident security holders, you may rely in good faith on the
assistance of an independent information services provider that in the
regular course of its business assists issuers in determining the
number of, and collecting other information concerning, their security
holders.
(f) Definitions. For the purpose of this section:
(1) Debt security means any security other than an equity security
as defined under Sec. 240.3a11-1, including:
(i) Non-participatory preferred stock, which is defined as non-
convertible capital stock, the holders of which are entitled to a
preference in payment of dividends and in distribution of assets on
liquidation, dissolution, or winding up of the issuer, but are not
entitled to participate in residual earnings or assets of the issuer;
and
(ii) Notwithstanding Sec. 240.3a11-1, any debt security described
in paragraph (f)(3)(i) and (ii) of this section;
(2) Employee has the same meaning as the definition of employee
provided in Form S-8 (Sec. 239.16b of this chapter).
(3) Equity security means the same as under Sec. 240.3a11-1, but,
for purposes of paragraphs (a)(3) and (a)(4)(i) of this section, does
not include:
(i) Any debt security that is convertible into an equity security,
with or without consideration;
(ii) Any debt security that includes a warrant or right to
subscribe to or purchase an equity security;
(iii) Any such warrant or right; or
(iv) Any put, call, straddle, or other option or privilege that
gives the holder the option of buying or selling a security but does
not require the holder to do so.
(4) Foreign private issuer has the same meaning as under Sec.
240.3b-4.
(5) Primary trading market means that:
(i) At least 55 percent of the trading in a foreign private
issuer's class of securities that is the subject of Form 15F took place
in, on or through the facilities of a securities market or markets in a
single foreign jurisdiction or in no more than two foreign
jurisdictions during a recent 12-month period; and
(ii) If a foreign private issuer aggregates the trading of its
subject class of securities in two foreign jurisdictions for the
purpose of paragraph (a)(3) of this section, the trading for the
issuer's securities in at least one of the two foreign jurisdictions
must be larger than the trading in the United States for the same class
of the issuer's securities.
(6) Recent 12-month period means a 12-calendar-month period that
ended no more than 60 days before the filing date of the Form 15F.
(g)(1) Suspension of a foreign private issuer's duty to file
reports under section 13(a) or section 15(d) of the Act shall occur
immediately upon filing the Form 15F with the Commission if filing
pursuant to paragraph (a), (c) or (d) of this section. If there are no
objections from the Commission, 90 days, or such shorter period as the
Commission may determine, after the issuer has filed its Form 15F, the
effectiveness of any of the following shall occur:
(i) The termination of registration of a class of securities under
section 12(g); and
(ii) The termination of a foreign private issuer's duty to file
reports under section 13(a) or section 15(d) of the Act.
(2) If the Form 15F is subsequently withdrawn or denied, the issuer
shall, within 60 days after the date of the withdrawal or denial, file
with or submit to the Commission all reports that would have been
required had the issuer not filed the Form 15F.
(h) As a condition to termination of registration or reporting
under paragraph (a), (c) or (d) of this section, a foreign private
issuer must, either before or on the date that it files its Form 15F,
publish a notice in the United States that discloses its intent to
terminate its registration of a class of securities under section 12(g)
of the Act, or its reporting obligations under section 13(a) or section
15(d) of the Act, or both. The issuer must publish the notice through a
means reasonably designed to provide broad dissemination of the
information to the public in the United States. The issuer must also
submit a copy of the notice to the Commission, either under cover of a
Form 6-K (17 CFR 249.306) before or at the time of filing of the Form
15F, or as an exhibit to the Form 15F.
(i)(1) A foreign private issuer that, before the effective date of
this section, terminated the registration of a class of securities
under section 12(g) of the Act or suspended its reporting obligations
regarding a class of equity or debt securities under section 15(d) of
the Act may file a Form 15F in order to:
(i) Terminate under this section the registration of a class of
equity securities that was the subject of a Form 15 (Sec. 249.323 of
this chapter) filed by the issuer pursuant to Sec. 240.12g-4; or
(ii) Terminate its reporting obligations under section 15(d) of the
Act, which had been suspended by the terms of that section or by the
issuer's filing of a Form 15 pursuant to Sec. 240.12h-3, regarding a
class of equity or debt securities.
(2) In order to be eligible to file a Form 15F under this
paragraph:
(i) If a foreign private issuer terminated the registration of a
class of securities pursuant to Sec. 240.12g-4 or suspended its
reporting obligations pursuant to Sec. 240.12h-3 or section 15(d) of
the Act regarding a class of equity securities, the issuer must meet
the requirements under paragraph (a)(3) and paragraph (a)(4)(i) or
(a)(4)(ii) of this section; or
(ii) If a foreign private issuer suspended its reporting
obligations pursuant to Sec. 240.12h-3 or section 15(d) of the Act
regarding a class of debt securities, the issuer must meet the
[[Page 16958]]
requirements under paragraph (c)(2) of this section.
(3)(i) If the Commission does not object, 90 days after the filing
of a Form 15F under this paragraph, or such shorter period as the
Commission may determine, the effectiveness of any of the following
shall occur:
(A) The termination under this section of the registration of a
class of equity securities, which was the subject of a Form 15 filed
pursuant to Sec. 240.12g-4, and the duty to file reports required by
section 13(a) of the Act regarding that class of securities; or
(B) The termination of a foreign private issuer's reporting
obligations under section 15(d) of the Act, which had previously been
suspended by the terms of that section or by the issuer's filing of a
Form 15 pursuant to Sec. 240.12h-3, regarding a class of equity or
debt securities.
(ii) If the Form 15F is subsequently withdrawn or denied, the
foreign private issuer shall, within 60 days after the date of the
withdrawal or denial, file with or submit to the Commission all reports
that would have been required had the issuer not filed the Form 15F.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
10. The authority citation for Part 249 continues to read in part as
follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
* * * * *
0
11. Add Sec. 249.324 to read as follows:
Sec. 249.324 Form 15F, certification by a foreign private issuer
regarding the termination of registration of a class of securities
under section 12(g) or the duty to file reports under section 13(a) or
section 15(d).
This form shall be filed by a foreign private issuer to disclose
and certify the information on the basis of which it meets the
requirements specified in Rule 12h-6 (Sec. 240.12h-6 of this chapter)
to terminate the registration of a class of securities under section
12(g) of the Act (15 U.S.C. 78l(g)) or the duty to file reports under
section 13(a) of the Act (15 U.S.C. 78m(a)) or section 15(d) of the Act
(15 U.S.C. 78(o)(d)). In each instance, unless the Commission objects,
termination occurs 90 days, or such shorter time as the Commission may
direct, after the filing of Form 15F.
0
12. Add Form 15F (referenced in Sec. 249.324) to read as follows:
(Note: The text of Form 15F will not appear in the Code of
Federal Regulations.)
OMB APPROVAL
OMB Number: 3235-0621
Expires:
Estimated average burden hours per response--30.0
United States Securities and Exchange Commission
Washington, DC 20549
Form 15F--Certification of a Foreign Private Issuer's Termination of
Registration of a Class of Securities Under Section 12(g) of the
Securities Exchange Act of 1934 or its Termination of the Duty to File
Reports Under Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934
Commission File Number-------------------------------------------------
-----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
-----------------------------------------------------------------------
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-----------------------------------------------------------------------
(Title of each class of securities covered by this Form)
Place an X in the appropriate box(es) to indicate the provision(s)
relied upon to terminate the duty to file reports under the
Securities Exchange Act of 1934:
Rule 12h-6(a) [ballot]
(for equity securities)
Rule 12h-6(c) [ballot]
(for debt securities)
Rule 12h-6(d) [ballot]
(for successor registrants)
Rule 12h-6(i) [ballot]
(for prior Form 15 filers)
General Instructions
A. Who May Use Form 15F and When
1. A foreign private issuer may file Form 15F, pursuant to Rule
12h-6(a) (17 CFR 240.12h-6(a)) under the Securities Exchange Act of
1934 (``Exchange Act''), when seeking to terminate:
The registration of a class of securities under section
12(g) of the Exchange Act and the corresponding duty to file or
furnish reports required by section 13(a) of the Exchange Act; or
The obligation under section 15(d) of the Exchange Act
to file or furnish reports required by section 13(a) of the Act
regarding a class of equity securities; or
Both.
2. A foreign private issuer may file Form 15F, pursuant to Rule
12h-6(c) (17 CFR 240.12h-6(c)), when seeking to terminate its
reporting obligations under section 13(a) or section 15(d) of the
Exchange Act regarding a class of debt securities.
3. A foreign private issuer may file Form 15F, pursuant to Rule
12h-6(d) (17 CFR 240.12h-6(d)), when seeking to terminate the
registration of a class of securities under section 12(g), or
reporting obligations under section 13(a) or section 15(d) of the
Exchange Act, to which it has succeeded pursuant to Rule 12g-3 (17
CFR 240.12g-3) or Rule 15d-5 (17 CFR 240.15d-5).
4. A foreign private issuer may file Form 15F, pursuant to Rule
12h-6(i) (17 CFR 240.12h-6(i)), if, before the effective date of
Rule 12h-6, it terminated the registration of a class of securities
under section 12(g) of the Act, or suspended its reporting
obligations regarding a class of equity or debt securities under
section 15(d) of the Act, in order to:
Terminate under Rule 12h-6 the registration of a class
of equity securities that was the subject of a Form 15 (Sec.
249.323 of this chapter) filed by the issuer pursuant to Sec.
240.12g-4; or
Terminate its reporting obligations under section 15(d)
of the Act, which had been suspended by the terms of that section or
by the issuer's filing of a Form 15 pursuant to Sec. 240.12h-3,
regarding a class of equity or debt securities.
B. Certification Effected by Filing Form 15F
By completing and signing this Form, the issuer certifies that:
It meets all of the conditions for termination of
Exchange Act reporting specified in Rule 12h-6 (17 CFR 240.12h-6);
and
There are no classes of securities other than those
that are the subject of this Form 15F regarding which the issuer has
Exchange Act reporting obligations.
C. Effective Date
For an issuer filing Form 15F under Rule 12h-6(a), (c) or (d),
the duty to file any reports required under section 13(a) or 15(d)
of the Exchange Act will be suspended immediately upon filing the
Form 15F. If there are no objections from the Commission, 90 days,
or within a shorter period as the Commission may determine, after
the issuer has filed its Form 15F, there shall take effect:
the termination of registration of a class of
securities under section 12(g) of the Act;
the termination of the issuer's duty to file or submit
reports under section 13(a) or section 15(d) of the Act; or
both.
For an issuer that has already terminated its registration of a
class of equity securities pursuant to Rule 12g-4 or suspended its
reporting obligations under section 15(d) or Rule 12h-3, the
effectiveness of its termination of section 12(g) registration under
Rule 12h-6 and the corresponding duty to file reports required by
section 13(a) of the Act, or the termination of its previously
suspended reporting obligations under section 15(d) of the Act,
shall also occur 90 days after the issuer has filed its Form 15F
under Rule 12h-6(i), or within a shorter period as the Commission
may determine, if there are no objections from the Commission.
D. Other Filing Requirements
You must file Form 15F and related materials, including
correspondence, in electronic format via our Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system in accordance with
the EDGAR rules set forth in Regulation S-T (17 CFR Part 232). The
Form 15F and related materials must be in the English language as
required by Regulation S-T Rule 306 (17 CFR 232.306). You must
provide the signature required for Form 15F in accordance with
Regulation S-
[[Page 16959]]
T Rule 302 (17 CFR 232.302). If you have technical questions about
EDGAR, call the EDGAR Filer Support Office at (202) 551-8900. If you
have questions about the EDGAR rules, call the Office of EDGAR and
Information Analysis at (202) 551-3610.
If the Form 15F is subsequently withdrawn or denied, you must,
within 60 days after the date of the withdrawal or denial, file with
or submit to the Commission all reports that would have been
required had you not filed the Form 15F. See Rule 12h-6(g)(2) (17
CFR 240.12h-6(g)(2)) and Rule 12h-6(i)(3)(ii) (17 CFR 240.12h-
6(i)(3)(ii)).
E. Rule 12g3-2(b) Exemption
Regardless of the particular Rule 12h-6 provision under which it
is proceeding, a foreign private issuer that has filed a Form 15F
regarding a class of equity securities shall receive the exemption
under Rule 12g3-2(b) (17 CFR 240.12g3-2(b)) for the subject class of
equity securities immediately upon the effective date of its
termination of registration and reporting under Rule 12h-6. Refer to
Rule 12g3-2(e) (17 CFR 240.12g3-2(e)) for the conditions that a
foreign private issuer must meet in order to maintain the Rule 12g3-
2(b) exemption following its termination of Exchange Act
registration and reporting.
Part I
The purpose of this part is to provide information to investors
and to assist the Commission in assessing whether you meet the
requirements for terminating your Exchange Act reporting under Rule
12h-6. If, pursuant to Rule 12h-6, there is an item that does not
apply to you, mark that item as inapplicable.
Item 1. Exchange Act Reporting History
A. State when you first incurred the duty to file reports under
section 13(a) or section 15(d) of the Exchange Act.
B. State whether you have filed or submitted all reports
required under Exchange Act section 13(a) or section 15(d) and
corresponding Commission rules for the 12 months preceding the
filing of this form, and whether you have filed at least one annual
report under section 13(a).
Instruction to Item 1.
If you are a successor issuer that has filed this Form 15F
pursuant to Rule 12h-6(d), and are relying on the reporting history
of the issuer to which you have succeeded under Rule 12g-3 (17 CFR
12g-3) or Rule 15d-5 (17 CFR 240.15d-5), identify that issuer and
provide the information required by this section for that issuer.
Item 2. Recent United States Market Activity
State when your securities were last sold in the United States
in a registered offering under the Securities Act of 1933 (15 U.S.C.
77a et seq.) (``Securities Act'').
Instructions to Item 2.
1. Do not include registered offerings involving the issuance of
securities:
a. to your employees, as that term is defined in Form S-8 (17
CFR 239.16b);
b. by selling security holders in non-underwritten offerings;
c. upon the exercise of outstanding rights granted by the issuer
if the rights are granted pro rata to all existing security holders
of the class of the issuer's securities to which the rights attach;
d. pursuant to a dividend or interest reinvestment plan; or
e. upon the conversion of outstanding convertible securities or
upon the exercise of outstanding transferable warrants issued by the
issuer.
However, you must include registered offerings described in
paragraphs (c) through (e) of this instruction if undertaken
pursuant to a standby underwritten offering or other similar
arrangement in the United States.
2. If you have registered equity securities on a shelf or other
Securities Act registration statement under which securities remain
unsold, disclose the last sale of securities under that registration
statement. If no sale has occurred during the preceding 12 months,
disclose whether you have filed a post-effective amendment to
terminate the registration of unsold securities under that
registration statement.
Item 3. Foreign Listing and Primary Trading Market
A. Identify the exchange or exchanges outside the United States,
and the foreign jurisdiction in which the exchange or exchanges are
located, on which you have maintained a listing of the class of
securities that is the subject of this Form, and which, either
singly or together with the trading of the same class of the
issuer's securities in another foreign jurisdiction, constitutes the
primary trading market for those securities.
B. Provide the date of initial listing on the foreign exchange
or exchanges identified in response to Item 3.A. In addition,
disclose whether you have maintained a listing of the subject class
of securities on one or more of those foreign exchanges for at least
the 12 months preceding the filing of this Form.
C. Disclose the percentage of trading in the subject class of
securities that occurred in the identified jurisdiction or
jurisdictions of your foreign listing as of a recent 12-month
period.
Instructions to Item 3
1. When responding to this item, refer to the definition of
``primary trading market'' in Rule 12h-6(f) (17 CFR 240.12h-6(f)).
In accordance with that definition, if your primary trading market
consists of two foreign jurisdictions, provide the information
required by this section for both foreign jurisdictions. In
addition, disclose whether the trading market for your securities in
at least one of those two foreign jurisdictions is larger than the
trading market for your securities in the United States as of the
same recent 12-month period. Disclose the first and last days of
that recent 12-month period.
2. For the purpose of the primary trading market determination,
you must measure the average daily trading volume of on-exchange
transactions in the subject securities aggregated over one or two
foreign jurisdictions against your worldwide trading volume. You may
include in this measure off-exchange transactions in those
jurisdictions comprising the numerator only if you include those
off-exchange transactions when calculating worldwide trading volume
in the denominator. This denominator should be the same as the
denominator used for the trading volume benchmark under Rule 12h-
6(a)(4)(i) (17 CFR 240.12h-6(a)(4)(i)) and Item 4 of this Form.
Item 4. Comparative Trading Volume Data
If relying on Rule 12h-6(a)(4)(i), provide the following
information:
A. Identify the first and last days of the recent 12-month
period used to meet the requirements of that rule provision.
B. For the same recent 12-month period, disclose the average
daily trading volume of the class of securities that is the subject
of this Form both in the United States and on a worldwide basis.
C. For the same recent 12-month period, disclose the average
daily trading volume of the subject class of securities in the
United States as a percentage of the average daily trading volume
for that class of securities on a worldwide basis.
D. Disclose whether you have delisted the subject class of
securities from a national securities exchange or inter-dealer
quotation system in the United States. If so, provide the date of
delisting, and, as of that date, disclose the average daily trading
volume of the subject class of securities in the United States as a
percentage of the average daily trading volume for that class of
securities on a worldwide basis for the preceding 12-month period.
E. Disclose whether you have terminated a sponsored American
depositary receipt (ADR) facility regarding the subject class of
securities. If so, provide the date of the ADR facility termination,
and, as of that date, disclose the average daily trading volume of
the subject class of securities in the United States as a percentage
of the average daily trading volume for that class of securities on
a worldwide basis for the preceding 12-month period.
F. Identify the sources of the trading volume information used
for determining whether you meet the requirements of Rule 12h-6. If
you used more than one source, disclose the reasons why you used
each source.
Instructions to Item 4
1. ``Recent 12-month period'' means a 12-calendar-month period
that ended no more than 60 days before the filing date of this form,
as defined under Rule 12h-6(f). You may disclose the comparative
trading volume data in response to this item in tabular format and
attached as an exhibit to this Form.
2. An issuer is ineligible to rely on paragraph (a)(4)(i) of
Rule 12h-6 if, as of the date of delisting or termination of an ADR
facility, the average daily trading volume of the subject class of
securities in the United States exceeded 5 percent of the average
daily trading volume of that class of securities on a worldwide
basis, as measured over the preceding 12 months, and 12 months has
not elapsed from the date of delisting or termination of the ADR
facility. See Rule 12h-6(b) (17 CFR 240.12h-6(b)).
3. For purposes of paragraph (a)(4)(i) of Rule 12h-6:
a. when determining your U.S. average daily trading volume, you
must include all
[[Page 16960]]
transactions, whether on-exchange or off-exchange;
b. when determining your worldwide average daily trading volume,
in addition to on-exchange transactions, which you must include, you
may include off-exchange transactions; and
c. the sources of your trading volume information may include
publicly available sources, market data vendors or other commercial
information service providers upon which you have reasonably relied
in good faith, and as long as the information does not duplicate any
other trading volume information obtained from exchanges or other
sources.
Item 5. Alternative Record Holder Information
If relying on Rule 12h-6(a)(4)(ii) (17 CFR 240.12h-6(a)(4)(ii)):
Disclose the number of record holders of the subject class of
equity securities on a worldwide basis or who are United States
residents at a date within 120 days before filing this Form.
Disclose the date used for the purpose of Item 5.
Item 6. Debt Securities
If relying on Rule 12h-6(c) (17 CFR 240.12h-6(c)):
Disclose the number of record holders of your debt securities
either on a worldwide basis or who are United States residents at a
date within 120 days before the date of filing of this Form.
Disclose the date used for the purpose of Item 6.
Instructions to Items 5 and 6
1. When determining the number of record holders of your equity
or debt securities who are United States residents, refer to Rule
12h-6(e) (17 CFR 240.12h-6(e)) for the appropriate counting method.
2. If you have relied upon the assistance of an independent
information services provider to determine the number of your United
States equity or debt securities holders, identify this party in
your response.
Item 7. Notice Requirement
If filing Form 15F pursuant to Rule 12h-6(a), (c) or (d):
A. Disclose the date of publication of the notice, required by
Rule 12h-6(h) (17 CFR 240.12h-6(h)), disclosing your intent to
terminate your duty to file reports under section 13(a) or 15(d) of
the Exchange Act or both.
B. Identify the means, such as publication in a particular
newspaper or transmission by a particular wire service, used to
disseminate the notice in the United States.
Instruction to Item 7
If you have submitted a copy of the notice under cover of a Form
6-K (17 CFR 249.306), disclose the submission date of the Form 6-K.
If not, attach a copy of the notice as an exhibit to this Form. See
Rule 12h-6(h).
Item 8. Prior Form 15 Filers
If relying on Rule 12h-6(i):
A. Disclose whether, before the effective date of Rule 12h-6,
you filed a Form 15 (17 CFR 249.323) to terminate the registration
of a class of equity securities pursuant to Rule 12g-4 (17 CFR
240.12g-4) or to suspend your reporting obligations under section
15(d) of the Act regarding a class of equity or debt securities
pursuant to Rule 12h-3 (17 CFR 240.12h-3). If so, disclose the date
that you filed the Form 15. If you suspended your reporting
obligations by the terms of section 15(d), disclose the effective
date of that suspension as well as the date that you filed a Form 15
to notify the Commission of that suspension pursuant to Rule 15d-6
(17 CFR 240.15d-6).
B. If you terminated the registration of a class of securities
pursuant to Rule 12g-4 or suspended your reporting obligations
pursuant to Rule 12h-3 or by the terms of section 15(d) of the Act
regarding a class of equity securities, provide the disclosure
required by Item 3 of this Form, ``Primary Trading Market.'' Further
provide the disclosure required by Item 4 of this Form,
``Comparative Trading Volume Data,'' or the disclosure required by
Item 5 of the Form, ``Alternative Record Holder Information.''
C. If you suspended your reporting obligations pursuant to Rule
12h-3 or by the terms of section 15(d) of the Act regarding a class
of debt securities, provide the disclosure required by Item 6 of
this Form, ``Debt Securities.''
Part II
Item 9. Rule 12g3-2(b) Exemption
Disclose the address of your Internet Web site or of the
electronic information delivery system in your primary trading
market on which you will publish the information required under Rule
12g3-2(b)(1)(iii) (17 CFR 240.12g3-2(b)(1)(iii)).
Instruction to Item 9
Refer to Note 1 to Rule 12g3-2(e) for instructions regarding
providing English translations of documents published pursuant to
Rule 12g3-2(b)(1)(iii) (17 CFR 240.12g3-2(b)(1)(iii).
Part III
Item 10. Exhibits
List the exhibits attached to this Form.
Instruction to Item 10
In addition to exhibits specifically mentioned on this Form, you
may attach as an exhibit any document providing information that is
material to your eligibility to terminate your reporting obligations
under Exchange Act Rule 12h-6. You should refer to any relevant
exhibit when responding to the items on this Form.
Item 11. Undertakings
Furnish the following undertaking:
The undersigned issuer hereby undertakes to withdraw this Form
15F if, at any time before the effectiveness of its termination of
reporting under Rule 12h-6, it has actual knowledge of information
that causes it reasonably to believe that, at the time of filing the
Form 15F:
(1) The average daily trading volume of its subject class of
securities in the United States exceeded 5 percent of the average
daily trading volume of that class of securities on a worldwide
basis for the same recent 12-month period that the issuer used for
purposes of Rule 12h-6(a)(4)(i);
(2) Its subject class of securities was held of record by 300 or
more United States residents or 300 or more persons worldwide, if
proceeding under Rule 12h-6(a)(4)(ii) or Rule 12h-6(c); or
(3) It otherwise did not qualify for termination of its Exchange
Act reporting obligations under Rule 12h-6.
Instruction to Item 11
After filing this Form, an issuer has no continuing obligation
to make inquiries or perform other work concerning the information
contained in this Form, including its assessment of trading volume
or ownership of its securities in the United States.
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, [name of registrant as specified in charter] has duly
authorized the undersigned person to sign on its behalf this
certification on Form 15F. In so doing, [name of registrant as
specified in charter] certifies that, as represented on this Form,
it has complied with all of the conditions set forth in Rule 12h-6
for terminating its registration under section 12(g) of the Exchange
Act, or its duty to file reports under section 13(a) or section
15(d) of the Exchange Act, or both.
Dated: March 27, 2007.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7-5947 Filed 4-4-07; 8:45 am]
BILLING CODE 8010-01-P