Securities Act Release No. 6437

Exchange Act Release No. 19258

Trust Indenture Act Release No. 774

Investment Company Act Release No. 12832

November 19, 1982

RELEASE NO. 7 Adoption of Foreign Issuer Integrated Disclosure System

ACTION: Final Rules.

SUMMARY: The Commission today announced the adoption of a comprehensive revision to the rules and forms applicable to foreign private issuers registering securities under the Securities Act of 1933 and the Securities Exchange Act of 1934. Specifically, this action involves (1) the adoption of three registration forms that constitute the basic framework for registration statements of foreign private issuers under the Securities Act; (2) the revision of Form 20-F (the consolidated registration and annual report form for foreign private issuers under the Exchange Act); (3) the adoption of a rule relating to the age of financial statements included in filings of foreign private issuers; (4) the adoption of a rule relating to the currency in which the financial statements of foreign private issuers are to be presented in filings with the Commission; and (5) the revision of various other rules to implement these rules and to reflect other changes.

EFFECTIVE DATES: Immediately upon publication in the Federal Register except as follows:

(1) Registration statements may be filed using Forms F-2 or F-3 as soon as a Form 20-F complying with the revisions adopted in this release has been filed. The latest Form 20-F filed may be amended to comply with such revisions;

(2) Annual reports on Form 20-F relating to fiscal years ending after December 15, 1982 shall comply with the revisions adopted in this release; annual reports relating to earlier fiscal years are not required to comply with such revisions;

(3) Filings on any form made prior to the publication of these rules and forms in the Federal Register may comply with either these rules and forms or the ones in effect at the date of filing;

(4) If Rule 3-20 of Regulation S-X requires a change in reporting currency, that change shall be made in the next filing that includes financial statements except filings on Forms 10-Q, 8-K or 6-K.

FOR FURTHER INFORMATION CONTACT: Carl T. Bodolus (202) 272-3246, or Ronald Adee (202) 272-3250, Office of International Corporate Finance, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Questions on accounting matters may be directed to Howard P. Hodges, Jr. (202) 272-3243, Chief Accountant, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

* * *[Text omitted].

GENERAL

The Commission received over sixty letters of comment on the proposals from foreign registrants, foreign and domestic stock exchanges, foreign and domestic accounting firms, securities firms, law firms, bar associations, accounting associations, and others.³  All but one of the commentators expressed general support of the proposals, but nevertheless most also urged the Commission to make significantly more accommodations in the requirements applicable to foreign issuers. As explained in the prior release, in developing the proposals the Commission sought to balance the policies of protecting investors by requiring substantially the same disclosure from domestic and foreign issuers and of promoting the public interest by encouraging foreign issuers to register their securities with the Commission.

The Commission believes that the proposals, for the most part, represented a satisfactory balance of these competing policies. The Commission has considered and evaluated the reasoning and comments presented in the letters received in response to the general concept release and the proposing releases. Based on the comments received and its own experience, the Commission has concluded to adopt the proposals with a few changes explained below and with revisions to clarify the requirements or to conform to the changes made upon the adoption of the domestic integrated disclosure system.

FORM 20-F⁴

The form is adopted basically as proposed with a few changes for clarity. The general instruction relating to the use of Form 20-F has been revised and simplified with no major substantive change.⁵  Few commentators addressed the proposal to add the requirements for Selected Financial Data and a Management's Discussion and Analysis of Financial Conditions and Results of Operations so they are adopted with only the changes necessary to conform to the corresponding requirements in Regulation S-K.⁶

Several changes are made in Items 17 and 18, the alternative financial statement requirements. These changes clarify the requirements, and allow more flexibility in the presentation of information about the balance sheet effect of using accounting principles other than U.S. generally accepted accounting principles reflected in the balance sheet.

FORMS F-1, F-2, and F-3

The Commission is revising its traditional distinction between North American foreign issuers (Canadian and Mexican) and all other foreign issuers so that Canadian issuers only are distinguished from other foreign issuers. The basis for the traditional distinction was explained in the previous releases and comments were solicited. Many commentators stated that Mexican issuers should be treated the same as other foreign issuers because the accounting and disclosure practices in Mexico significantly differ from those in the U.S. and Canada. A number of commentators stated that there was little need to eliminate the distinction of Canadian issuers because they have had substantial experience complying with U.S. disclosure standards.

For most purposes Canadian issuers are subject to the same regulation as U.S. issuers but are eligible to file on Forms 20-F and 6-K instead of Forms 10, 10-K, 10-Q, and 8-K for registration under Section 12(g) of the Exchange Act and subsequent periodic reporting. Forms F-1, F-2, and F-3 have been revised to allow such a Canadian registrant to use them for one offering. Thereafter, the registrant would be required to file the same periodic reports under the Exchange Act as a U.S. registrant and would use Forms S-1, S-2, or S-3 as appropriate. Moreover, a Canadian registrant that had been reporting on Form 20-F could use that time in determining whether it had been reporting for at least 36 months which is an eligibility criterion for Forms S-2 and S-3.

The float test, which is one of the eligibility criteria for Forms F-2 and F-3, has been revised from the proposed dual test of $500 million float worldwide and $150 million float in the U.S. Many commentators stated that the float tests were too high and would exclude all but a few registrants from the short-forms. A number of commentators questioned the need for a requirement relating to float in the U.S. They reasoned that the size of the U.S. float depends on arbitrage and other market factors; they asserted that large foreign registrants with a certain worldwide float are followed by financial analysts in the U.S. Accordingly, the float test is revised to require only a worldwide float of $300 million.

The forms have been revised to clarify the disclosure requirements in the situation in which a parent registrant guarantees the securities issued by a majority-owned subsidiary. Both the guarantee and the underlying security must be registered. Any form the parent is eligible to use is available to the subsidiary as well. Both the parent and subsidiary must furnish the information that would be required as if each were the sole registrant.⁷  This is consistent with practice for domestic registrants.

For some offerings, more disclosure is required by Forms F-1, F-2, or F-3 than required in Form 20-F, e.g., financial statements in compliance with Item 18 of Form 20-F are required in many filings under the Securities Act but financial statements in compliance with Item 17 of Form 20-F are acceptable in annual reports under the Exchange Act. Many commentators suggested that the registrant should be allowed to include the additional information in the Securities Act prospectus or in the Exchange Act annual report. The Forms as proposed and adopted require that the Form 20-F be amended to include the additional information. The Commission believes that, under these circumstances, permitting additional information to be included in the prospectus could result in "dangling reconciliations," e.g., part of the financial statements in one document and part in another. This could be especially confusing for filings on Form F-3.

AGE OF FINANCIAL STATEMENTS

The few changes made in Rule 3-19 of Regulation S-X relating to the age of financial statements included in filings are mainly for clarification and are self-explanatory. Forms F-2 and F-3 have been amended to allow the incorporation by reference of required interim financial statements and other information disclosed in submissions on Form 6-K if the financial statements and other information comply with the relevant requirements of the registration form and Regulation S-X. There is no explicit requirement for the registrant to state that there have been no material adverse developments since the date of the latest financial statements because the Commission believes such a requirement would duplicate the provisions of Rule 408 requiring the disclosure of additional material information necessary to make the required disclosure not misleading.

CONVENIENCE TRANSLATIONS

As several commentators suggested, the Commission's policy on convenience translations is stated in the Rule.⁸  Under proposed Rule 3-20, foreign private issuers would have been required to present their financial statements in the currency of the country in which they were incorporated. The issuer would have the option of using a different currency if several conditions were met.

One proposed condition was that the primary books and records were kept in the other currency. This condition is deleted because computerized recordkeeping permits records to be kept in multiple currencies making the condition irrelevant. The second condition, which relates to the absence of exchange controls and restrictions, is revised to include a materiality standard.

Many commentators criticized the third condition, which would have required the issuer to conduct a majority of its business in the other currency, as too rigid. Most commentators addressing this point recommended the use of the "functional currency" concept as articulated in Statement of Financial Accounting Standard No. 52. The adopted rule uses a condition that is more flexible than the proposal. The final condition is that the registrant use the other currency for the financial statements for all its shareholders. This condition helps to ensure that the currency used is the one the registrant believes is the best presentation.

The Commission proposed two versions of Rule 3-20(c) relating to supplementary information on the effects of changing prices for issuers from countries with hyperinflation. One alternative would require separate supplemental information on the effects of inflation. The other would require full financial statements indicating the effects of inflation. The Commission also solicited comments on whether particular principles or methods should be specified. All the commentators on this topic preferred the first alternative but did not request the specification of particular inflation accounting principles. Rules 3-20(c), as adopted, contains the first alternative and does not require a particular method of inflation accounting.

CONSENTS

The Commission solicited comments on inquiries concerning the general concept of requiring consents from foreign registrants and their officers, and directors, the need to define the term "authorized representative," and other matters regarding the enforceability of the federal securities laws against foreign entities. The comments received are being analyzed and the Commission will consider issuing a release on this topic in the near future.

Codification Update

The "Codification of Financial Reporting Policies" announced in Financial Reporting Release 1 (April 15, 1982) [47 FR 21028] is updated to:

1. Add a new subsection to Section 102 "Integrated Disclosure System," entitled as follows:

102.04 Foreign Private Issuers

2. Include in Section 102.04 the section of this release entitled "Supplementary Information."

The Codification is a separate publication issued by the SEC. It will not appear in the Federal Register/Code of Federal Regulations system.

List of Subjects in Administrative Practice and Procedure, Freedom of Information, Privacy, and Securities. List of Subjects in 17 CFR 210,  229, 239, 240, 249, 260: Reporting Requirements, Securities.

TEXT OF FORMS, REGULATIONS AND RULES

In accordance with the foregoing, Title 17, Chapter II, of the Code of Federal Regulations is amended as follows:

PART 200 ORGANIZATION, CONDUCT AND ETHICS, AND INFORMATION AND REQUESTS

1. By removing the proposed designation of Forms F-1, F-2, and F-3 in paragraph (b) of §200.800 to read as follows: * * * [ Text omitted].

PART 210 FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975.

2. By adding new paragraph (h) to §210.3-01. * * * [ Text omitted].

3. By adding new paragraph (d) to §210.3-02. * * * [ Text omitted].

4. By adding new paragraph (e) to §210.3-12. * * * [ Text omitted].

5. By adding new §210.3-19 to read as follows: * * * [ Text omitted].

6. By adding new §210.3-20 to read as follows: * * * [ Text omitted].

7. By revising paragraph (a)(2) of §210.4-01 to read as follows: * * * [ Text omitted].

PART 229 STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933 AND SECURITIES EXCHANGE ACT OF 1934 REGULATION S-K

8. By adding Instruction 5 to §229.201 (Item 201) as follows: * * * [ Text omitted].

9. By adding paragraph (f) and Instruction 5 to §229.202 (Item 202) as follows: * * * [ Text omitted].

10. By revising Instruction 3, and adding Instructions 6, 7, and 8 to §229.301 to read as follows: * * * [ Text omitted].

11. By revising paragraph (a)(5) of §229.302 (Item 302) to read as follows: * * * [ Text omitted].

12. By revising Instructions 8 and 9 and adding Instruction 12 to §229.303(a) to read as follows: * * * [ Text omitted].

13. By revising Instruction 1 to §229.402 to read as follows: * * * [ Text omitted].

14. By adding paragraph (d)(10) to §229.503 (Item 503) as follows: * * * [ Text omitted].

15. By adding paragraphs (a)(4) and (f)(4) to §229.512 to read as follows: * * * [ Text omitted].

16. By adding Forms F-1, F-2, and F-3 to the Exhibit Table in §229.601 (Item 601) as follows: * * * [ Text omitted].

PART 230 GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

17. By revising §230.138 to read as follows: * * * [ Text omitted].

18. By revising paragraphs (b)(1)(i), (b)(2), and (c)(3) of §230.175 as follows: * * * [ Text omitted].

19. By amending §230.405 by removing the definition of North American Issuer and by revising the definition of Foreign Private Issuer to read as follows: ** * * [ Text omitted].

20. By revising the introductory paragraph in §230.406 to read as follows: * * * [ Text omitted].

21. By revising paragraph (a)(1)(ii) of §230.431 to read as follows: * * * [ Text omitted].

22. By revising §230.464 to read as follows: * * * [ Text omitted].

23. By revising paragraph (d) of §230.473 to read as follows: * * * [ Text omitted].

24. By revising §230.475a to read as follows: * * * [ Text omitted].

25. By revising paragraph (b) of §230.477 to read as follows: * * * [ Text omitted].

26. By adding a new preliminary note 7 to Regulation D, §§230.501 through 230.506, to read as follows: * * * [ Text omitted].

27. By revising the Note to paragraph (a) and adding paragraphs (b)(2)(i)(C) and (b)(2)(ii)(D) to §230.502 to read as follows:* * * [ Text omitted].

PART 239 FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

28. By removing General Instruction I. D. from §239.13.

29. By adding General Instruction E to §239.16b to read as follows: * * * [ Text omitted].

30. By adding General Instruction E to §239.18 to read as follows: * * * [ Text omitted].

31. By adding registration statement Forms F-1, F-2, and F-3, §239.31 through §239.33 as follows: * * * [ Text omitted].

PART 240 GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

32. By revising paragraph (b) and removing paragraph (c) of §240.3a12-3 to read as follows: * * * [ Text omitted].

33. By revising paragraph (c) of §240.3b-4 to read as follows: * * * [ Text omitted].

34. By revising paragraphs (b)(1)(i), (b)(2), and (c)(3) of §240.3b-6 to read as follows: * * * [ Text omitted].

35. By removing the definition of North American Issuer from §240.12b-2.

36. By adding §240.12h-4 to read as follows: * * * [ Text omitted].

37. By amending Instruction B(4) to paragraph (d) of §240.13e-4 as follows: ** * * [ Text omitted].

38. By adding paragraph (e)(1)(ix) of §240.14d-6 to read as follows: * * * [ Text omitted].

39. By revising paragraph (c) of §240.13a-16 and §240.15d-16 to read as follows: * * * [ Text omitted].

40. By revising Instruction 1(b) of Item 9 of §240.100 to read as follows: * * * [ Text omitted].

41. By removing §240.15d-14.

PART 249-FORMS, SECURITIES EXCHANGE ACT OF 1934

42. By revising §249.218 to read as follows: * * * [ Text omitted].

43. By revising §240.219 and §249.319.

44. By revising Form 20-F [17 CFR §249.220f] as follows: * * * [ Text omitted].

45. By revising §249.318 to read as follows:* * * [ Text omitted].

PART 260-GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 1939

46. By revising paragraphs (b)(1)(i) and (2) and (c)(3) of §260.0-11 to read as follows: * * * [ Text omitted].

STATUTORY BASIS

These amendments are adopted pursuant to authority in Sections 6,7, 8, 10, and 19(a) of the Securities Act of 1933; Sections 12, 13, 15(d), and 23(a) of the Securities Exchange Act of 1934; Sections 8, 30, 31(c) and 38(a) of the Investment Company Act of 1940.

[Secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85; secs. 205, 209, 48 Stat. 906, 908; sec. 301, 54 Stat. 857; sec 8, 68 Stat. 685; sec. 1, 79 Stat. 1051; sec. 308(a)(2), 90 Stat. 57; secs. 12, 13, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs 1, 3, 8, 49 Stat. 1375, 1377, 1379, sec. 203(a), 49 Stat. 704; sec. 202, 68 Stat. 686; secs. 3, 4, 6, 78 Stat. 565-568, 569, 570-574; secs. 1, 2, 82 Stat. 454 sec. 28(c), 84 Stat. 1435; secs. 1, 2, 84 Stat. 1497; sec. 105(b) 88 Stat. 1503; secs. 8, 9, 10, 18, 89 Stat. 117, 118, 119, 155; sec. 308(b), 90 Stat. 57; secs. 202, 203, 204, 91 Stat. 1494, 1498, 1499, 1500; secs. 8, 30, 31(c), 38(a), 54 Stat. 803, 836, 838, 841; 74 Stat. 201; 84 Stat. 1415; 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 781, 78m, 78o(d), 78w(a), 80a-8, 80a-29, 80a-30(c), 80a-37(a).]

By the Commission.

³ Copies of the comment letters received are located in File S7-915 and are available for public inspection and copying at the Commission's Public Reference Room. In Release No. 33-6235 (September 2, 1980) [45 FR 63693], the Commission solicited comments on the general concept of an integrated disclosure system for foreign private issuers. Those comments are in File S7-849.

⁴ The instructions as to the use of Form 18 and Form 18-K are revised to delete references to obsolete forms. The revisions are technical and correct an oversight in failing to make the revisions in 1967 when Form 21 was repealed. The Commission finds that these revisions are editorial in nature and comments need not be solicited.

⁵ See Items 8 and 9 of Form 20-F and Items 301, 303, and 502 of Regulation S-K.

⁶ The provisions relating to "essentially U.S. issuers" have been moved to the definition of foreign issuer in Rule 3b-4. Rule 3a12-3has been revised similarly. It is intended that a similar revision will be made to Rule 12g3-2 in connection with the project concerning that rule.

⁷ See Rule 3-10 of Regulation S-X for the financial statements requirement.

⁸ Rule 3-20(b) of Regulation S-X.