Securities and Exchange Commission
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| Topics | |
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From SEC Site (11/14/00): |
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| A | Foreign Issuers in the U. S. Market |
| B | Abusive Practices under Regulation S and Amendments to Regulation S |
| C | International Accounting Standards |
| D | International Disclosure Standards -Amendments to Form 20-F |
| From SEC Site (3/31/01): | |
| E | Confidential Processing of Foreign Issuer Filings |
| From SEC Site (6/30/01): | |
| F | International Disclosure Standards Amendments to Forms 20-F, F-2 and F-3 |
| From SEC Site (9/30/01): | |
| G | Mandated Electronic Filing for Foreign Issuers |
NOVEMBER 14, 2000
A. Foreign Issuers in the U. S. Market
Foreign companies raising funds from the public or having their securities traded on a national exchange or the Nasdaq Stock Market are generally subject to the registration requirements of the Securities Act and the registration and reporting requirements of the Exchange Act. The Commission has provided a separate integrated disclosure system for foreign private issuers that provides a number of accommodations to foreign practices and policies. These accommodations include:
interim reporting on the basis of home country and stock exchange practice rather than quarterly reports;
exemption from the proxy rules and the insider reporting and short swing profit recovery provisions of Section 16;
aggregate executive compensation disclosure rather than individual disclosure, if so permitted in an issuer's home country;
acceptance of three International Accounting Standards relating to cash flow statements (IAS # 7), business combinations (IAS # 22) and operations in hyperinflationary economies (IAS # 21);
offering document financial statements updated principally on a semi-annual, rather than a quarterly basis; and
an exemption from Exchange Act registration under Section 12(g) for foreign private issuers that have not engaged in a U. S. public offering or whose securities are not traded on a national exchange or the Nasdaq Stock Market.
Additionally, the Commission staff has implemented procedures to review foreign issuers' disclosure documents on an expedited basis and in draft form, if requested by the issuer. This helps to facilitate cross-border offerings and listings in light of potentially conflicting home-country schedules and disclosure requirements.
Over the last five years, the number of foreign companies accessing the U. S. public markets has increased dramatically. As of October 1, 2000, there were over 1300 foreign companies from over 58 countries filing periodic reports with the Commission.
In addition to the topics discussed below in this "Internationalization" section, the Commission has issued an interpretive release on offshore Internet offerings; see Section III. C.
B. Abusive Practices under Regulation S and Amendments to Regulation S
The Commission adopted Regulation S in 1990 to clarify the applicability of the Securities Act registration requirements to offshore transactions. Since the adoption of Regulation S, a number of abusive practices have developed involving unregistered sales of equity securities by U. S. companies purportedly in reliance upon Regulation S. These transactions have resulted in indirect distributions of those securities into the United States without the investor protection provided by registration.
Regulation S has been used as a means of perpetrating fraudulent and manipulative schemes. In these schemes, the securities are being placed offshore temporarily to evade U. S. registration requirements, but the ownership of the securities never leaves the U. S. market, or a substantial portion of the economic risk is left in or is returned to the U. S. market during the restricted period, or there is no reasonable expectation that the securities could be viewed as coming to rest abroad.
In June 1995, the Commission issued an interpretive release that described certain abusive practices under Regulation S and requested comment on whether the regulation should be revised to limit its vulnerability to abuse, Securities Act Release No. 7190 (June 27, 1995). To address continued abuses of this rule, the Commission published for comment a proposal to amend Regulation S, Securities Act Release No. 7392 (February 20, 1997). In February 1998, the Commission adopted most of these proposed amendments, Securities Act Release No. 7505 (Feb. 17, 1998).
The amendments are designed to eliminate abusive practices under Regulation S, while preserving the benefits of the rule for capital formation. As a result of these amendments, securities offered and sold by domestic issuers pursuant to the Regulation S exemption will be treated in a manner similar to securities sold under the Regulation D exemption from registration.
The amendments to Regulation S affect offshore offerings of equity securities, including convertible securities, by U. S. companies. The amendments are as follows:
Equity securities of domestic issuers placed offshore pursuant to Regulation S are classified as "restricted securities" within the meaning of Rule 144, so that resales without registration or an exemption from registration will be restricted;
To avoid confusion between the holding period for "restricted securities" under Rule 144 and the "restricted period" under Regulation S, the term "restricted period" is renamed the "distribution compliance period;"
The distribution compliance period for these securities is lengthened from 40 days to one year;
Certification, legending and other requirements, which were applicable only to sales of equity securities by non-reporting issuers, are imposed on these equity securities;
Purchasers of these equity securities are required to agree that their hedging transactions with respect to these securities will be conducted in compliance with the Securities Act, such as Rule 144 thereunder; and
Domestic issuers are able to report sales of equity securities pursuant to Regulation S on a quarterly basis, rather than on Form 8-K. This change in reporting requirement was not effective until January 1, 1999, to allow Commission staff to monitor developments under the new amendments.
In addition, the amendments codify an existing Commission interpretive position that resales of these equity securities offshore do not "wash off" the restrictions applicable to these securities.
C. International Accounting Standards
The Commission has been working with the International Accounting Standards Committee (IASC) through the International Organization of Securities Commissions (IOSCO) since 1987 in an effort to develop a set of accounting standards for cross-border offerings and listings. The IASC is an independent, private sector body that was formed in 1973 by the professional accounting bodies in the U. S. and eight other industrialized countries to improve and harmonize accounting standards.
In July 1995, IOSCO and the IASC joined in an announcement that the IASC had developed a work program focusing on a core set of standards previously identified by IOSCO as being the necessary components of a reasonably complete set of accounting standards. The announcement noted that completion of comprehensive core standards that are acceptable to the IOSCO Technical Committee would allow the Technical Committee to recommend endorsement of the standards for cross-border capital raising and listing purposes in all global markets.
In April 1996, the IASC announced that it had accelerated its work program, and the Commission responded with a press release expressing support for the IASC's objective. The Commission's statement noted that the standards should include a core set of accounting pronouncements that constitute a comprehensive, generally accepted basis of accounting; that the standards be of high quality, i. e., they must result in comparability and transparency, and they must provide for full disclosure; and that the standards must be rigorously interpreted and applied. In October 1997, the Commission published a report to Congress that discussed the progress of the IASC. The report is available on the Commission's web site.
The IASC has completed substantially all the components of its core standards project, and both IOSCO and the Commission currently are engaged in a detailed assessment of the completed standards. On February 16, 2000, the Commission issued a concept release on the elements of a high quality financial reporting framework, one of which is high quality accounting standards (Securities Act Release No. 7801). The release solicits comment about the quality of the IASC standards and frames the discussion in the context of a number of related issues that will affect how the IASC standards are interpreted and applied in practice. The deadline for comments is May 23, 2000.
D. International Disclosure Standards Amendments to Form 20-F
On September 28, 1999, the Commission adopted changes to its non-financial statement disclosure requirements for foreign private issuers, to conform those requirements more closely to the International Disclosure Standards endorsed by IOSCO in September 1998 (Securities Act Release No. 7745). The changes are intended to harmonize disclosure requirements on fundamental topics among the securities regulations of various jurisdictions.
1. Background
The Commission has long supported the concept of a harmonized international disclosure system, and for a number of years has been working with other members of IOSCO to develop a set of international standards for non-financial statement disclosures that could be used in cross border offerings and listings. The International Disclosure Standards developed by IOSCO reflect a consensus among securities regulators in the major capital markets as to the types of disclosures that should be required for cross border offerings and listings. The Standards cover fundamental disclosure topics such as the description of the issuer's business, results of operations and management and the securities it plans to offer or list.
2. Changes to Foreign Integrated Disclosure System
The Commission amended Form 20-F, the basic Exchange Act registration statement and annual report form used by foreign issuers, to incorporate the International Disclosure Standards. The Commission also revised the Securities Act registration forms designated for use by foreign private issuers, and related rules and forms, to reflect the changes in Form 20-F. The amendments do not change the financial statement reconciliation requirements for foreign issuers, and the Commission will continue to require disclosure on topics not covered by the International Disclosure Standards, such as disclosures relating to market risk and specialized industries such as banks. Unlike the IOSCO International Disclosure Standards, which were intended to apply only to offerings and listings of common equity securities and only to listings and transactions for cash, the amendments to Form 20-F apply to all types of offerings and listings and to annual reports. The Commission also revised the definition of "foreign private issuer," which determines an issuer's eligibility to use certain Commission forms and benefit from certain accommodations under Commission rules, to clarify how issuers should calculate their U. S. ownership for purposes of the definition.
The changes to Form 20-F, the Securities Act registration forms and the "foreign private issuer" definition became effective in September 2000.
MARCH 31, 2001
| Confidential Processing of Foreign Issuer Filings
Filings by public companies are generally available to the public, including filings of amendments to remedy disclosure deficiencies identified by staff reviewers. The Division of Corporation Finance staff recognizes that foreign private issuers and foreign governments often face unique circumstances when accessing the US markets. This is particularly true when a foreign registrant's securities trade publicly in its home market, and the company will be making new and different disclosure as a result of its registration with the SEC. To address these concerns, the staff often reviews and screens draft submissions of foreign registrants on a non-public basis. The staff, however, is revising its practice in this area. The staff generally will continue to accept on a draft basis registration statements in connection with an issuer's initial registration with the SEC. Except in unusual circumstances, however, once a foreign issuer has registered a transaction under the Securities Act or a class of securities under the Exchange Act, the staff will no longer accept from that issuer additional registration statements on a draft basis and will not review or screen a registration statement until it is publicly filed. The timing and scope of staff review of draft registration statements is generally the same as for publicly filed registration statements. Foreign issuers are reminded that, when draft registration statements are submitted to the staff, the documents should be complete, as described in "International Financial Reporting and Disclosure Issues," available on the SEC's website. The Division's Office of International Corporate Finance should be contacted in advance of any draft submission.
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JUNE 30, 2001
| International Disclosure Standards Amendments to Forms 20-F, F-2 and F-3
On June 15, 2001, the Commission adopted technical amendments to Form 20-F, the basic Exchange Act registration statement and annual report form used by foreign issuers, and to Forms F-2 and F-3 under the Securities Act of 1933 (Securities Act Release No. 33-7983). The amendments clarify language in the forms that could create confusion as to the forms' disclosure requirements. The forms were last revised by the Commission on September 28, 1999 (Securities Act Release No. 33-7745). As revised, Instruction 1 to Item 8.A.4 incorrectly implied that audited financial information for a period of less than a full year would satisfy the requirement that audited annual financial statements are no more than 15 months old at the time of the offering or listing. The technical amendments clarify that a foreign private issuer cannot satisfy the 15-month audited annual financial statement requirement by filing financial statements that cover less than a full fiscal year, even if those statements are audited. Audited financial statements for a period of less than a full year, however, will continue to satisfy the requirement that the audited financial statements in an initial public offering are no more than 12 months old at the time of the filing. The amendments also codify the long-standing practice of accepting two years audited income statement and statement of cash flows information if the financial statements are presented in accordance with U.S. GAAP, and conform Item 3.A (Selected Financial Data) of Form 20-F by adding an instruction to include predecessor information as already required in Instruction 1 to Item 8 (Financial Information). Finally, the amendments correct various cross-references in Forms F-2 and F-3 under the Securities Act. The amendments were necessary only to clarify language in the forms, and do not alter the current disclosure requirements for companies filing on the forms.
SEPTEMBER 30, 2001
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| Mandated Electronic Filing for Foreign Issuers On September 28, 2001, the Commission proposed for public comment rule and form amendments that would require foreign private issuers and foreign governments to file electronically their securities documents through the Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system (Release No. 33-8016). Currently, the Commission's rules only permit, but do not require, foreign issuers to file their securities documents on EDGAR. By mandating the electronic filing of foreign issuers' securities documents on EDGAR, the Commission seeks to achieve the same investor benefits and the same efficiencies in information transmission, dissemination, retrieval and analysis realized since it mandated EDGAR filing for domestic issuers. Mandated EDGAR filing benefits investors by making available to the public information contained in Commission filings soon after the Commission has received them. Filers benefit from electronic filing requirements since the electronic format facilitates research and data analysis, thereby fostering increased market exposure for their securities. Filers also benefit from the speedy and secure delivery afforded by EDGAR filing as well as from the efficiencies achieved in the Commission's review and processing of their filings. The proposal in the release would amend Regulation S-T, the Commission's rules governing electronic filing, to eliminate the foreign issuer exception from mandated EDGAR filing for most Securities Act and Exchange Act documents. The proposed amendments would require the electronic filing of
The proposed amendments would further
Comments on the proposals should be submitted by December 3, 2001. |
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