Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreigh Private Issuers AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: We are proposing amendments to the rule that exempts a foreign private issuer from having to register a class of equity securities under Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") based on the submission to the Commission of certain information published outside the United States. The exemption allows a foreign private issuer to exceed the registration thresholds of Section 12(g) and effectively have its equity securities traded on a limited basis in the over-the-counter market in the United States. Currently, in order to obtain the exemption under Exchange Act Rule 12g3-2(b), a non-reporting foreign private issuer must submit to the Commission written materials in paper, including a list of information that the issuer must disclose publicly pursuant to its home jurisdiction laws or stock exchange requirements, or that is sent to its security holders, along with paper copies of documents containing the required information that the issuer has published for its last fiscal year. A successful applicant may maintain the exemption by submitting to the Commission paper copies of these documents on an ongoing basis. The proposed amendments would eliminate paper submission requirements by automatically granting the Rule 12g3-2(b) exemption to a foreign private issuer that meets specified conditions, which do not depend on a count of an issuers United States security holders, and which would require an issuer to publish electronically in English specified non-United States disclosure documents. As a result, the proposed amendments should make it easier for U.S. investors to gain access to a foreign private issuers material non-United States disclosure documents and make better informed decisions regarding whether to invest in that issuers equity securities through the over-the-counter market in the United States or otherwise. DATES: Comments must be received on or before April 25, 2008. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments:
All submissions should refer to File Number S7-04-08. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commissions Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments also are available for public inspection and copying in the Commissions Public Reference Room, 100 F Street, NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. 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 propose to amend Commission Rules 12g3-21 and 15c2-112 under the Exchange Act,3 Forms 15,4 15F,5 40-F,6 and 6-K7 under the Exchange Act, and Form F-68 under the Securities Act of 1933 (Securities Act).9
I. EXECUTIVE SUMMARY AND BACKGROUNDA. IntroductionCongress adopted Section 12(g) of the Exchange Act10 in order to provide investors trading in over-the-counter securities, in which there was significant public interest, with the same fundamental disclosure protections afforded to investors trading in securities listed on a national securities exchange.11 When read in conjunction with the subsequently adopted Exchange Act Rule 12g-1,12 Section 12(g) requires an issuer13 to file an Exchange Act registration statement regarding a class of equity securities within 120 days of the last day of its fiscal year if, on that date, the number of its record holders is 500 or greater, and the issuers total assets exceed $10 million.14 When adopting Section 12(g), Congress expressly granted the Commission the power to exempt any security of a foreign issuer from that section if it found that such exemption is in the public interest and is consistent with the protection of investors.15 The Commission initially adopted a provisional exemption from Section 12(g) for the securities issued by any foreign government, foreign national or foreign corporation so that it could study more fully the extent to which Section 12(g) should apply to foreign securities.16 This initiative involved a review of the disclosure requirements and practices of many of the foreign countries with issuers whose securities were traded in the United States over-the-counter market.17 Following completion of its work, in 1967 the Commission adopted Exchange Act Rule 12g3-2,18 which established two exemptions from Section 12(g) for foreign private issuers.19 Exchange Act Rule 12g3-2(a) exempts a foreign private issuer whose equity securities are held of record by less than 300 residents in the United States, although it has 500 or more record holders on a worldwide basis as of the end of its most recently completed fiscal year.20 An issuer that relies on this exemption must reassess the number of its U.S. shareholders at the end of each fiscal year in order to determine whether the exemption remains valid. Although, for this first exemption, the Commission used a traditional shareholder test to determine whether there was sufficient U.S. investor interest to warrant requiring Section 12(g) registration,21 it adopted a different approach for the second exemption. Exchange Act Rule 12g3-2(b)22 exempts a foreign private issuer from Section 12(g) registration if, among other requirements, the issuer furnishes to the Commission on an ongoing basis information it has made public or is required to make public under the laws of its jurisdiction of incorporation, organization or domicile, pursuant to its non-U.S. stock exchange filing requirements, or that it has distributed or is required to distribute to its security holders (collectively, its non-U.S. disclosure documents).23 The Commission adopted this exemption because there was improvement in the reporting of financial information by foreign issuers, due to changes in foreign corporate laws, stock exchange requirements, and voluntary disclosure by the foreign companies themselves.24 Because of the continued and expected improvement in the quality of information being made public by foreign issuers, the Commission determined that Section 12(g) exemptive relief was appropriate for a foreign private issuer that has not sought a public market in the United States for its equity securities, and that furnishes to the Commission its non-U.S.disclosure documents.25 These documents would then be available for review by U.S.investors through the Commissions public reference facilities. B. Current Rule 12g3-2(b) RequirementsAs a condition to obtaining the Exchange Act Rule 12g3-2(b) exemption, an issuer must initially submit to the Commission a list of its non-U.S. disclosure requirements as well as copies of its non-U.S. disclosure documents published since the beginning of its last fiscal year.26 The Rule clarifies that an issuer need only submit copies of information that is material to an investment decision for the purpose of obtaining or maintaining the exemption.27 As examples of material information, the Rule lists an issuers financial condition or results of operations, changes in its business, the acquisition or disposition of assets, the issuance, redemption or acquisition of securities, changes in management or control, the granting of options or other payment to directors or officers, and transactions with directors, officers or principal security holders. At the time of the initial submission, an issuer must also provide the Commission with the number of U.S. holders of its equity securities and the percentage held by them, as well as a brief description of how its U.S. holders acquired those shares.28 Rule 12g3-2(b) currently requires that an applicant submit all of the necessary non-U.S. disclosure documents and other information before the date that a registration statement would otherwise become due under Section 12(g).29 Once an issuer has timely submitted its application and obtained the exemption, the issuer may surpass the record holder thresholds as long as it maintains the exemption by submitting the required non-U.S. documents. From its inception, the Rule 12g3-2(b) disclosure regime has mandated paper submissions. Even after the adoption of EDGAR filing rules for foreign private issuers, the Commission has required a foreign private issuer to submit its initial Rule 12g3-2(b) supporting materials in paper.30 The Commission has based this treatment of Rule 12g3-2(b) materials on the analogous treatment of applications for an exemption from Exchange Act reporting obligations filed pursuant to Exchange Act Section 12(h).31 Once a foreign private issuer has obtained the Rule 12g3-2(b) exemption, it may have its equity securities traded on a limited basis in the over-the-counter market in the United States. Typically a foreign private issuer obtains the Rule 12g3-2(b) exemption in order to have established an unlisted, sponsored or unsponsored depositary facility for its American Depositary Receipts (ADRs).32 Establishing the Rule 12g3-2(b) exemption also facilitates resales of an issuer's securities to qualified institutional buyers (QIBs) under Rule 144A.33 It further permits registered broker-dealers to fulfill their current information delivery obligations concerning foreign private issuers securities for which they seek to publish quotations.34 The Rule 12g3-2(b) exemption has generally not been available to a foreign private issuer that had a class of securities registered under Exchange Act Section 12 or had a Section 15(d) reporting obligation, active or suspended, during the previous 18 months.35 The exemption has similarly been unavailable to an issuer that succeeded to the Exchange Act reporting obligations of another company following a merger, consolidation, acquisition or exchange of shares.36 However, in March 2007, the Commission adopted amendments to Rule 12g3-2, which enable a foreign private issuer to claim the Rule 12g3-2(b) exemption immediately upon the effectiveness of its termination of Exchange Act registration and reporting pursuant to newly adopted Exchange Act Rule 12h-6.37 While these amendments eliminated the 18-month and successor issuer prohibitions for issuers terminating their Exchange Act registration and reporting under Rule 12h-6, the prohibitions still apply to foreign private issuers that have exited the Exchange Act reporting regime under Exchange Act Rule 12g-4 or 12h-3.38 In order to maintain the Rule 12g3-2(b) exemption, an issuer must furnish to the Commission on an ongoing basis its non-U.S. disclosure documents. Until the March 2007 amendments, the Commission required an issuer to submit those documents in paper to the Commission. The March amendments require an issuer that has obtained the Rule 12g3-2(b) exemption, upon the effectiveness of its termination of registration and reporting pursuant to newly adopted Rule 12h-6, to publish its non-U.S. disclosure documents on an ongoing basis on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market, rather than submit that information in paper to the Commission.39 The amendments further permit a foreign private issuer that has obtained or will obtain the Rule 12g3-2(b) exemption, upon application to the Commission and not pursuant to Rule 12h-6, to publish electronically in the same manner its non-U.S. documents required to maintain the exemption.40 The March 2007 amendments further clarified the English translation requirements under Rule 12g3-2(b).41 The amendments provide that, when electronically publishing its non-U.S. documents required to maintain the Rule 12g3-2(b) exemption, at a minimum, a foreign private issuer must electronically publish English translations of the following documents if in a foreign language:
The March 2007 amendments also provide that, for a foreign private issuer that electronically publishes its non-U.S. disclosure documents, the Rule 12g3-2(b) exemption remains in effect for as long as the issuer fulfills the ongoing non-U.S. disclosure requirement, or until the issuer registers a class of securities under Section 12 of the Exchange Act or incurs reporting obligations under Section 15(d) of the Exchange Act.43 This is consistent with the Commissions treatment of issuers making paper submissions under Rule 12g3-2(b). C. Proposed Rule 12g3-2 AmendmentsSince the initial adoption of Rule 12g3-2(b) four decades ago, the globalization of securities markets, advances in information technology, the increased use of ADR facilities by foreign companies to trade their securities in the United States, and other factors have increased significantly the number of foreign companies that have engaged in cross-border activities, as well as increased the amount of U.S. investor interest in the securities of foreign companies. These developments led us recently to re-evaluate and revise the Commission rules governing when a foreign private issuer may terminate its Exchange Act registration and reporting obligations.44 We believe these same factors warrant reconsidering the Commission rules that determine when a foreign private issuer must enter the Section 12(g) regime as well. We propose to amend Exchange Act Rule 12g3-2 to permit a foreign private issuer to claim the Rule 12g3-2(b) exemption, without having to submit an application to the Commission, as long as:
All foreign private issuers that met the above requirements would be immediately exempt from Exchange Act registration under Rule 12g3-2(b) without having to apply to, or otherwise notify, the Commission, concerning the exemption. Thus, a foreign private issuer that exceeds the 300 U.S. holder threshold could automatically claim the exemption as long as it is not otherwise subject to Exchange Act reporting, meets the foreign listing condition, has 20 percent or less of its worldwide trading market in the United States, and electronically publishes the specified non-U.S. disclosure documents, as required under the proposed amendments.46 An issuer could also immediately claim the Rule 12g3-2(b) exemption upon the effectiveness of, or following its recent Exchange Act deregistration, whether pursuant to Rule 12g-4, 12h-3, or 12h-6, or the suspension of its reporting obligations under Section 15(d),47 if it met the above requirements absent the electronic publication condition for its most recently completed fiscal year. Since a recently deregistered company will already have filed its Exchange Act reports on EDGAR for its most recently completed fiscal year, such a prior year publication requirement is not necessary to protect investors. Like the March 2007 amendments, the proposed rules would require any issuer, whether a prior registrant or not, to maintain the Rule 12g3-2(b) exemption by publishing, on an ongoing basis and for each subsequent fiscal year, in English, on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market, the information specified for its last fiscal year. The proposed rules would require the electronic publication in English of the same types of information required under the March 2007 amendments. The proposed rules provide that the Rule 12g3-2(b) exemption will remain in effect for as long as a foreign private issuer satisfies the electronic publication condition, or until:
By requiring the electronic publication in English of specified non-U.S. disclosure documents for an issuer claiming the Rule 12g3-2(b) exemption, the proposed amendments should make it easier for U.S. investors to gain access to a foreign private issuers material non-U.S. disclosure documents, and make better informed decisions regarding whether to invest in that issuers equity securities through the over-the-counter market in the United States or otherwise. Thus, the proposed amendments should foster increased efficiency in the trading of the issuer's securities for U.S. investors. By enabling a qualified foreign private issuer to claim the Rule 12g3-2(b) exemption automatically, and without regard to the number of its U.S. shareholders, the proposed rule amendments should encourage more foreign private issuers to claim the Rule 12g3-2(b) exemption. That would enable the establishment of additional ADR facilities, make it easier for broker-dealers to fulfill their obligations under Exchange Act Rule 15c2-11 to investors with respect to the equity securities of a non-reporting foreign company, and facilitate the resale of a foreign companys securities to QIBs in the United States under Securities Act Rule 144A. Consequently, the proposed rule amendments should foster the increased trading of a foreign companys securities in the U.S. over-thecounter market, which could benefit investors. II. DISCUSSIONA. Proposed Non-Reporting ConditionProposed Exchange Act Rule 12g3-2(b) would require a foreign private issuer to have no reporting obligations under Exchange Act Section 13(a) or 15(d) as a condition to the exemption under the Rule.48 Like the current non-Exchange Act reporting condition of Rule 12g3-2(b),49 the purpose of this provision is to prevent an issuer from claiming the Rule 12g3-2(b) exemption when it already has incurred active Exchange Act reporting obligations. 1. Non-Reporting IssuersA foreign private issuer would satisfy the proposed non-reporting condition if it did not already have reporting obligations under either Exchange Act Section 13(a) or 15(d). Since Section 13(a) imposes reporting obligations on an issuer that has registered a class of securities under Section 12, a foreign private issuer that has an effective registration statement filed with the Commission under Section 12(b), for example, covering a class of debt securities, or Section 12(g), covering a particular class of equity securities, would be ineligible to claim the exemption. This treatment is consistent with the current Exchange Act reporting prohibition under Rule 12g3-2(b).50 Currently an issuer may apply for the Rule 12g3-2(b) exemption, although it may have exceeded the Section 12(g) shareholder thresholds on the last day of its most recently completed fiscal year, as long as the statutory 120-day period for filing a Section 12(g) registration statement has not lapsed.51 We propose to eliminate this 120-day submission requirement because, under the proposed revised Rule 12g3-2(b) exemptive scheme, we do not believe that this requirement is necessary to protect investors. The proposed revised exemptive scheme does not depend on an issuers determination of the number of its worldwide or U.S. shareholders, and does not require that it submit a written application disclosing that information. Instead, it requires a foreign private issuer to satisfy a U.S. trading volume standard measured for its most recently completed fiscal year, meet a foreign listing requirement, and electronically publish specified material non-U.S. disclosure documents in English. If we also required an issuer to claim the exemption within the 120-day period, we believe some issuers, particularly smaller ones, would be unable to meet that deadline.52 Assuming that those issuers continued to satisfy the other conditions to Rule 12g3-2(b), they would have to wait until the end of their current fiscal year and the start of a new 120-day period before they could claim the exemption. We see little benefit in making investors wait several months before being able to gain electronic access to the issuers material non-U.S. disclosure documents in English. As is currently the case, an issuer that, on the last day of its most recently completed fiscal year, has not exceeded the 500 worldwide holder threshold under Exchange Act Section 12(g), the 300 U.S. holder threshold under Rule 12g3-2(a), or the $10 million annual asset threshold under Rule 12g-1, could claim an exemption from Section 12(g) registration for a class of equity securities based upon one or more of those provisions, and would not have to comply with Rule 12g3-2(b)s conditions, if it chose not to rely on that rule for its exemption from Section 12(g) registration. However, such an issuer would have to claim the Rule 12g3-2(b) exemption, and satisfy all of its conditions, if it sought to have established an ADR facility for its equity securities. ADRs must be registered on a Form F-6, which requires an issuer of the deposited securities to be either an Exchange Act reporting company or have the Rule 12g3-2(b) exemption. 2. Deregistered IssuersA foreign private issuer that has suspended its Exchange Act reporting obligations upon the filing of Form 15, pursuant to Rule 12g-4 or 12h-3, or Form 15F, pursuant to Rule 12h-6, would satisfy the non-reporting requirement upon the effectiveness of its deregistration, assuming that it had not otherwise incurred additional Exchange Act reporting obligations. Similarly, a foreign private issuer that suspended its reporting obligations pursuant to the statutory terms of Section 15(d) would satisfy the non-reporting condition immediately upon its determination that it had less than 300 shareholders as of the beginning of its most recent fiscal year. Thus, unlike the current rule, the proposed provision would not require an issuer to look back over the previous eighteen months and determine whether it had Exchange Act reporting obligations during that period.53 We eliminated the eighteen month requirement when adopting the March 2007 rule amendments that granted the Rule 12g3-2(b) exemption automatically to a foreign private issuer upon the effectiveness of its termination of Exchange Act registration and reporting pursuant to Rule 12h-6. We see no reason to treat differently foreign private issuers that have terminated their Section 12(g) registration under the older Rule 12g-4 following the filing of a Form 15.54 Elimination of a lengthy waiting period would help hasten the publishing of a foreign private issuers non-U.S. disclosure documents required under the exemption and, thus, help improve the ability of U.S. investors to make informed decisions regarding that issuers securities. For the same reason, proposed Rule 12g3-2(b) would eliminate the current rules general prohibition against making the exemption available to an issuer that has had active or suspended reporting obligations under Section 15(d) during a prescribed period.55 The current rule precludes any issuer that suspended its reporting obligations under Section 15(d) from ever being able to obtain the Rule 12g3-2(b) exemption, no matter how much time has elapsed from the effectiveness of its suspension. We permitted an issuer to claim the Rule 12g3-2(b) exemption immediately upon the effectiveness of its deregistration under Rule 12h-6, although its reporting obligations derived from Section 15(d). Similarly, we propose that an otherwise eligible issuer could claim the Rule 12g3-2(b) exemption upon the effectiveness of the suspension of its reporting obligations under Section 15(d) or pursuant to Rule 12h-3 and following the filing of a Form 15. As long as it has not once again incurred active Section 15(d) reporting obligations,56 an issuer would be able to claim the Rule 12g3-2(b) exemption and publish its non-U.S. disclosure documents accordingly. Comment Solicited We solicit comment on the proposed non-Exchange Act reporting condition.
B. Proposed Foreign Listing ConditionAs a second condition to the use of the Rule 12g3-2(b) exemption, the proposed amendments would require an issuer currently to maintain 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 those securities. These proposed rule amendments are substantially similar to the foreign listing condition and definition of primary trading market adopted as part of the March 2007 amendments.57 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. This foreign listing condition 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 in the U.S. over-the-counter market. This foreign listing condition is also consistent with the Commission staffs past and current practice of administering the Rule 12g3-2(b) exemption. The proposed rule amendments define primary trading market to mean that at least 55 percent of the trading in the issuers 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 the issuers most recently completed fiscal year. The proposed amendments further instruct that, if a foreign private issuer aggregates the trading of its subject class of securities in two foreign jurisdictions for the purpose of this paragraph, 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. Like the 2007 amendments, the proposed amendments would permit an issuer to aggregate its securities over multiple markets in one or two foreign jurisdictions in recognition that many foreign private issuers have listings on more than one exchange in one or more non-U.S. markets. Unlike the earlier amendments, however, the proposed rule amendments would not require an issuer establishing the exemption, but not deregistering, to have maintained a foreign listing for the previous twelve months, or for some other specified period of time, since we see no reason to exclude newly listed foreign companies from eligibility. We note that many foreign exchanges require substantial initial disclosure before a listing is accepted. In addition, there is currently no similar requirement for a non-reporting company applying for the Rule 12g3-2(b) exemption. Under Rule 12h-6, an issuer must certify that, at the time it files its Form 15F,58 it meets that rules foreign listing requirement. That issuer would also have to meet the proposed foreign listing requirement upon the effectiveness of its Exchange Act termination of registration and reporting under Rule 12h-6 in order to be able to claim the Rule 12g3-2(b) exemption. Since typically that effectiveness occurs 90 days from the date of filing of the Form 15F, we expect most Form 15F filers will satisfy the proposed foreign listing requirement under Rule 12g3-2(b).59 Comment Solicited We solicit comment on the proposed foreign listing condition.
C. Proposed Quantitative Standard1. Trading Volume BenchmarkProposed Rule 12g3-2(b) would permit an otherwise eligible issuer to claim an exemption from Section 12(g) registration by meeting a quantitative standard that does not depend on a count of the issuers U.S. holders. Under the proposed rule amendments, regardless of the number of its U.S. holders, an issuer would be eligible to claim the Rule 12g3-2(b) exemption if the average daily trading volume of the subject class of securities in the United States for the issuers most recently completed fiscal year has been no greater than 20 percent of the average daily trading volume of that class of securities on a worldwide basis for the same period.60 We adopted a trading volume benchmark as part of the 2007 amendments concerning foreign deregistration because we believed it to be a more direct and less costly measure of the relative U.S. market interest in a foreign private issuers securities than one based on a count of the issuers shareholders.61 We believe the same considerations apply to the proposed amendments of the rules that determine when a foreign private issuer must register a class of equity securities under Section 12(g). If only 20 percent or less of an issuers worldwide trading volume occurs in the United States, we believe the relative U.S. market interest in those securities does not warrant subjecting the issuer to Exchange Act reporting requirements. The 2007 amendments established a trading volume standard that permits a qualified foreign private issuer to terminate its Exchange Act registration and reporting obligations if its U.S. average daily trading volume is no greater than 5 percent of its worldwide average daily trading volume. We believe it is appropriate to have a stricter trading volume standard for determining when an issuer may exit the Exchange Act registration and reporting regime compared to when it must enter that regime. In the former instance, an issuer has availed itself of U.S. market facilities and filed Exchange Act reports upon which U.S. investors have relied. A similar relationship exists between the current shareholder-based standards governing entrance into and exit from the Exchange Act reporting regime.62 The proposed rule amendments would require an issuer to calculate U.S. and worldwide trading volume in the same fashion as under Rule 12h-6.63 Under that rule, when determining its U.S. average daily trading volume, an issuer must include all transactions, whether on-exchange or off-exchange. When determining its worldwide average daily trading volume, an issuer must include on-exchange transactions, and may include off-exchange transactions. The sources of trading volume information may include publicly available sources, market data vendors or other commercial information service providers upon which an issuer has 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. The proposed amendments would require an issuer to measure its trading volume for its most recently completed fiscal year. In contrast, Rule 12h-6 enables an issuer to make its trading volume determinations for a recent 12-month period, which is defined as a 12-calendar-month period that ended no more than 60 days before the filing date of an issuers Form 15F.64 A rolling 12-month period is appropriate in the context of deregistration since the relevant rules do not require an eligible issuer to deregister within a particular time frame. However, we are not proposing a similar rolling 60-day window for the Rule 12g3-2 amendments since Section 12(g) posits the last day of an issuers fiscal year as the measuring date for determining whether an issuer must register a class of securities under that statutory section. 2. Rule 12h-6 IssuersAn issuer that terminates its Exchange Act registration and reporting regarding a class of equity securities under Rule 12h-6 must meet either that rules trading volume benchmark or its record holder standard.65 Rule 12h-6s trading volume standard requires an issuers U.S. trading volume to be no greater than 5 percent of its worldwide trading volume, and to be measured over a recent 12-month period.66 Rule 12h-6s alternative record holder standard requires an issuers worldwide or U.S. holders to be less than 300.67 An issuer that has proceeded under either of Rule 12h-6s quantitative provisions obtains the Rule 12g3-2(b) exemption upon the termination of its registration and reporting under Rule 12h-6. Because a Rule 12h-6 issuer will have met a more stringent trading volume test, although most likely for a different 12 month period, we do not believe it is necessary to require that issuer to recalculate its relative U.S. trading volume for the previous 12 months upon the effectiveness of its deregistration under Rule 12h-6 for the purpose of determining whether it may claim the Rule 12g3-2(b) exemption. Similarly, we believe that an issuer that has satisfied Rule 12h-6s strict record holder standard should continue to be able to claim the Rule 12g3-2(b) exemption upon the termination of its registration and reporting under Rule 12h-6 as long as it meets the proposed Rule 12g3-2(b) foreign listing requirement. Comment Solicited We solicit comment on the proposed Rule 12g3-2(b) quantitative provision.
D. Proposed Electronic Publishing of Non-U.S. Disclosure Documents1. Electronic Publishing Requirement to Claim ExemptionUnless in connection with or following a recent Exchange Act deregistration, in order to claim the Rule 12g3-2(b) exemption, the proposed amendments would require an issuer to have published in English, on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market, information that, from the first day of its most recently completed fiscal year, it:
These are the same categories of information that the Commission has historically required a non-reporting company to submit in paper when applying for the exemption under Rule 12g3-2(b).70 They also are the same non-U.S. disclosure documents that, more recently, the Commission has required an issuer to publish electronically in order to maintain its Rule 12g3-2(b) exemption claimed upon the effectiveness of its deregistration under Rule 12h-6.71 The purpose of this non-U.S. publication condition is to provide U.S. investors with ready access to material information when trading in the issuers equity securities in the over-the-counter market.72 This condition also would assist U.S. investors who are interested in trading the issuer's securities in its primary securities market. Moreover, having a foreign private issuer's key non-U.S. disclosure documents electronically published in English would assist broker-dealers in meeting their Rule 15c2-11 obligations to investors and facilitate resales of that issuer's securities to qualified institutional buyers under Rule 144A. As under the current rule, the proposed amendments would require an issuer only to publish electronically information that is material to an investment decision regarding the subject securities,73 such as:
As is currently required of an issuer that has terminated its Exchange Act registration and reporting obligations under Rule 12h-6,75 the proposed rule amendments would require any issuer claiming the Rule 12g3-2(b) exemption to publish electronically, at a minimum, English translations of the following documents if in a foreign language:
These are the same documents for which the Commission staff has historically required English translations because of their importance to investors.77 As proposed, an issuer that claimed the Rule 12g3-2(b) exemption, in connection with or following the recent effectiveness of its Exchange Act deregistration, would not have to comply with the electronic publication requirement for its last fiscal year.78 Since a recently deregistered company will already have filed its Exchange Act reports on EDGAR for its most recently completed fiscal year, such a prior year publication requirement is not necessary to protect investors. 2. Electronic Publishing Requirement to Maintain ExemptionIn order to maintain the Rule 12g3-2(b) exemption, the proposed amendments would require an issuer to publish the same information specified in the prior fiscal year provision, on an ongoing basis and for subsequent fiscal years, on its Internet Web site or through an electronic information delivery system in its primary trading market.79 This requirement would apply to any issuer claiming the exemption, whether or not a former Exchange Act registrant. Like the prior fiscal year publication condition, this ongoing publication condition would help assure that investors and other market participants have access to an issuers specified non-U.S. disclosure documents, in English, which are material to an investment decision. Similar to the current rule,80 the proposed rule amendments would require an issuer to publish electronically its non-U.S. disclosure documents promptly after the information has been made public, pursuant to its home jurisdiction laws, non-U.S. stock exchange rules, or shareholder rules and practices.81 As under current Commission staff practice, what constitutes promptly would depend on the type of document and the amount of time required to prepare an English translation. Currently an issuer typically must electronically publish or submit in paper a copy of a material press release on the same business day of its original publication. The proposed amendments would permit an issuer to meet Rule 12g3-2(b)s electronic publication requirement concurrently with the publishing in English of a non-U.S. disclosure document through an electronic information delivery system generally available to the public in its primary trading market. Thus, if an issuers non-U.S. stock exchange or securities regulatory authority permits the issuer to publish electronically a required report on its electronic delivery system, and the public has ready access to the report and other documents maintained on the system,82 that electronic publication solely would satisfy the proposed Rule 12g3-2(b)s electronic publishing requirements. Comment Solicited We solicit comment on the proposed condition requiring an issuer to publish electronically its non-U.S. disclosure documents.
E. Proposed Elimination of the Written Application RequirementCurrently in order to obtain the Rule 12g3-2(b) exemption, if not proceeding under Rule 12h-6, a foreign private issuer must submit written materials, typically in the form of a letter application, to the Commission. These materials must include a list of the issuers non-U.S. disclosure requirements, the number of U.S. holders of its subject securities and the percentage of outstanding shares held by them, the circumstances in which its U.S. holders acquired those securities, and the date and circumstances of the most recent public distribution of the securities of the issuer or its affiliate.84 As part of the written application, an issuer must also submit copies of its non-U.S. disclosure documents published since the first day of its most recently completed fiscal year.85 An issuer must submit this information, together with all of the supporting documents, in paper only. We are proposing to eliminate Rule 12g3-2(b)s written application process for all foreign private issuers. As proposed, an issuer may claim the Rule 12g3-2(b) exemption as long as it satisfies the rules conditions. This proposal is consistent with our adoption of an automatic grant of the Rule 12g3-2(b) exemption upon the effectiveness of an issuers deregistration under Rule 12h-6. Moreover, since we are proposing to permit an issuer to claim the Rule 12g3-2(b) exemption based on a trading volume measure, regardless of the number of its U.S. shareholders, the current shareholder information requirement would be of marginal use. Further, since, as proposed, as a condition to claiming and maintaining the Rule 12g3-2(b) exemption, an issuer would have to publish electronically its non-U.S. disclosure documents, investors would be able to ascertain many of the issuers non-U.S. disclosure requirements from a review of those publicly available documents.86 Comment Solicited We solicit comment on the proposed elimination of the written application process for the Rule 12g3-2(b) exemption.
F. Proposed Duration of the Amended Rule 12g3-2(b) ExemptionThe proposed Rule 12g3-2(b) exemption would remain in effect for as long as a foreign private issuer satisfies the electronic publication condition, or until:
This proposed duration would apply to both non-reporting issuers as well as issuers claiming the Rule 12g3-2(b) exemption following their deregistration pursuant to Rule 12h-6, 12g-4, or 12h-3 or the statutory terms of Section 15(d). The proposed duration of the amended Rule 12g3-2(b) exemption is similar to the duration of the current exemption. Both depend on an issuers continued compliance with the non-U.S. publication requirements. Under both provisions, Section 12 registration or the incurrence of Section 15(d) reporting obligations terminates the exemption.88 Moreover, currently, if an issuer can no longer claim the Rule 12g3-2(b) exemption because it has not complied with the rules non-U.S. publication requirements, it must determine on the last day of the fiscal year whether, because of its record holder count, it must register a class of securities under Section 12(g). The same would hold true under the proposed rule amendments for a non-compliant issuer. As proposed, an issuer would lose the Rule 12g3-2(b) exemption if it no longer was listed on an exchange in its primary trading market. We believe this provision is necessary in order to help ensure the continued availability of a set of non-U.S. disclosure documents to which investors may turn when making decisions regarding an issuers securities. We imposed a similar foreign listing condition when we adopted Rule 12h-6, although we did not explicitly provide that an issuer that ceased to meet the foreign listing condition would not be eligible to claim or maintain the Rule 12g3-2(b) exemption following its deregistration under Rule 12h-6. The proposed amendments would clarify that, because of the importance of the foreign listing requirement, any issuer that ceases to comply with that requirement would lose the Rule 12g3-2(b) exemption. Under the proposed rule amendments, if relying on Rule 12g3-2(b)s 20 percent trading volume standard, an issuer would have to determine at the end of each fiscal year, other than the year in which it first claims the exemption, whether it still met that standard, even if the issuer was in compliance with the non-U.S. publication requirements. We believe this treatment is warranted in order to protect investors. Moreover, trading volume information is more easily obtainable than information regarding a foreign private issuers U.S. and worldwide shareholders, and the trading volume standard provides a more direct measure of relative U.S. market interest in an issuers securities. An issuer would not have to make the trading volume determination for the fiscal year in which the issuer first claimed the exemption, however, in order to provide a reasonably long enough period to assess relative U.S. market interest for the issuers securities. Comment Solicited We solicit comment on the proposed duration of the Rule 12g3-2(b) exemption.
G. Proposed Elimination of the Successor Issuer ProhibitionCurrently an issuer may not obtain the Rule 12g3-2(b) exemption if, following the issuance of shares to acquire by merger, consolidation, exchange of securities or acquisition of assets, it has succeeded to the Exchange Act reporting obligations of another issuer.89 The sole exception has been for Canadian companies that registered the securities to be issued in the transaction on specified MJDS registration statements under the Securities Act.90 As part of the 2007 rule amendments, we adopted a provision that permits a successor issuer to terminate its newly acquired Exchange Act reporting obligations as long as it meets Rule 12h-6s substantive requirements for equity or debt securities issuers.91 That provision permits a successor issuer to take into account the reporting history of its predecessor when determining whether it meets Rule 12h-6s prior reporting condition.92 Under that rule, a non-Exchange Act reporting foreign private issuer that has acquired a reporting foreign private issuer in a transaction exempt under the Securities Act, for example, under Rule 80293 or Securities Act Section 3(a)(10),94 may 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 acquired company's reporting history fulfills Rule 12h-6's prior reporting condition and the successor issuer meets the rule's other conditions. When adopting Rule 12h-6s successor issuer provision, we amended Exchange Act Rule 12g3-2(d) to permit a successor issuer to claim the Rule 12g3-2(b) exemption upon the effectiveness of its termination of Exchange Act registration and reporting under Rule 12h-6. We see no reason to treat differently a successor issuer that qualifies for deregistration under one of the older exit rules or under Section 15(d). Accordingly, we propose to eliminate the successor issuer provision in its entirety, which would permit a successor issuer to claim the Rule 12g3-2(b) exemption upon the effectiveness of its exit from the Exchange Act reporting regime whether under Rule 12h-6, 12g-4 or 12h-3 or Section 15(d). Comment Solicited We solicit comment on the proposed elimination of the successor issuer prohibition.
H. Proposed Elimination of the Rule 12g3-2(b) Exception for MJDS FilersWhen the Commission adopted its Multijurisdictional Disclosure System (MJDS) for Canadian issuers, it amended Rule 12g3-2 to make the Rule 12g3-2(b) exemption available to Canadian issuers that have only filed with the Commission specified MJDS registration statements,95 although they may have filed those registration statements within the previous 18 months or to effect transactions in which they would succeed to Exchange Act reporting obligations.96 The reason for these exemptions was to encourage Canadian issuers to use the MJDS.97 Bercause the proposed amendments would eliminate the 18 month and successor issuer prohibitions under Rule 12g3-2(b), they would remove as unnecessary the MJDS filer exceptions to those prohibitions. When adopting the MJDS, the Commission also permitted a Canadian issuer that already had the Rule 12g3-2(b) exemption, but that subsequently acquired Exchange Act reporting obligations as a MJDS filer, for example, with regard to a class of debt securities, to retain the Rule 12g3-2(b) exemption for its equity securities. The Commission permitted that issuer to submit its non-U.S. disclosure documents simultaneously to fulfill its Exchange Act reporting obligations under the MJDS and its non-U.S. publication obligations under Rule 12g3-2(b). The Commission then amended Form 40-F98 and Form 6-K99 to require an issuer to disclose on the cover page that it was filing the form for that dual purpose.100 Under the current rules, a Canadian issuer that checks the appropriate box on the cover of each filed Form 40-F and submitted Form 6-K is able to use those Exchange Act reports to maintain its Rule 12g3-2(b) exemption as well. This dual use of MJDS Exchange Act reports was reasonable at the time that the Commission adopted the MJDS since a Canadian issuer had to file or submit substantially the same Canadian disclosure documents for Exchange Act purposes as it did to maintain the Rule 12g3-2(b) exemption. However, this is no longer the case. Since the enactment of the Sarbanes-Oxley Act,101 and Commission rules adopted under that Act, Canadian issuers must respond to several U.S. disclosure requirements when preparing their Form 40-F annual reports.102 Accordingly, we are proposing to eliminate the current, but rarely used, ability of a Canadian company, which has Exchange Act reporting obligations solely from having filed an effective MJDS registration statement under the Securities Act, to claim simultaneously the Rule 12g3-2(b) exemption. Under the proposed rule amendments, a MJDS registrant would be eligible to claim the Rule 12g3-2(b) exemption on the same grounds as other foreign registrants. If it has recently exited the Exchange Act reporting regime under Rule 12h-6, 12g-4 or 12h-3 or Section 15(d), it could claim the exemption, assuming it satisfied the proposed rule amendments other conditions. Otherwise, the filing of a MJDS registration statement under the Securities Act or Exchange Act would trigger Exchange Act reporting obligations and preclude that issuer from claiming the exemption.103 Comment Solicited We solicit comment on the proposed elimination of the Rule 12g3-2(b) exception for MJDS filers.
I. Proposed Elimination of the Automated Inter-Dealer Quotation System Prohibition and Related Grandfathering ProvisionUnder the existing rules, a foreign private issuer generally may not claim the Rule 12g3-2(b) exemption if it has securities or ADRs quoted in the United States on an automated inter-dealer quotation system,104 which, until recently, referred to the inter-dealer quotation system administered by the National Association of Securities Dealers Inc., and known as Nasdaq. The Commission adopted this prohibition in 1983 because of its belief that, since its establishment in 1971, Nasdaq had so matured into a trading system with substantial similarities to a national securities exchange that Nasdaqtraded companies should be required to meet the same disclosure standards as exchange-traded companies.105 We are proposing to eliminate this prohibition because Nasdaq has since become a national securities exchange.106 When the Commission adopted the automatic inter-dealer quotation system prohibition, it recognized that the general prohibition could cause some Nasdaq-quoted foreign companies that already had obtained the Rule 12g3-2(b) exemption to withdraw from Nasdaq. Therefore, the Commission excepted from that prohibition securities that:
Since the adoption of this grandfathering provision, only nine of the grandfathered issuers remain listed on Nasdaq.108 Pursuant to Commission order, Nasdaq is now a national securities exchange, and these issuers must register their securities under Exchange Act Section 12(b)109 by August 1, 2009 if they wish to remain listed on Nasdaq.110 Given these developments, we no longer believe it is necessary to maintain the grandfathering provision for those Nasdaq-listed companies. Pursuant to the terms of the Commission order, as long as the nine grandfathered issuers continue to comply with the conditions of Rule 12g3-2(b), brokers and dealers may trade their securities in reliance on the Rule 12g3-2(b) exemption until the above deadline for Exchange Act registration. Comment Solicited We solicit comment on the proposed elimination of Rule 12g3-2(b)s automatic inter-dealer quotation system prohibition and related grandfathering provision.
J. Proposed Revisions to Form F-6We propose to make one revision to Form F-6, the registration statement used to register ADRs under the Securities Act. Currently a registrant of ADRs must state on Form F-6 that the issuer of the deposited securities against which the ADRs will be issued is either an Exchange Act reporting company or furnishes public reports and other documents to the Commission pursuant to Rule 12g3-2(b). The proposed revision would require a Form F-6 registrant to state that, if the issuer of deposited securities is not an Exchange Act reporting company, such issuer publishes information in English required to maintain the Rule 12g3-2(b) exemption on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market. The registrant would also have to disclose the issuers address of its Internet Web site or the electronic information delivery system in its primary trading market.111 Currently an ADR facility may be either sponsored or unsponsored.112 Under our current regulations, in order for a depositary bank to establish an ADR facility with respect to the shares of a specific foreign private issuer, the issuer must either be an Exchange Act reporting company or furnish public reports and other documents to the Commission pursuant to Rule 12g3-2(b). As a result, a foreign private issuer that does not seek to have its securities traded in the United States in the form of ADRs is able, by not formally claiming the Rule 12g3-2(b) exemption and submitting documents to the Commission, to restrict the ability of ADR depositary banks to establish an unsponsored ADR facility. We are not proposing to revise our requirement under Form F-6 that the issuer of the deposited securities be either an Exchange Act reporting company or be exempt from registration under Rule 12g3-2(b). Because we are proposing to expand the availability of the Rule 12g3-2(b) exemption so that it will be available to all otherwise eligible foreign private issuers that post materials to their Web sites or make them available through an electronic information delivery system in their primary trading market, ADR depositaries will be able to establish unsponsored ADRs on this expanded group of foreign private issuers. ADR depositaries will also be able to establish sponsored ADR facilities with foreign private issuers that choose to have their shares represented by ADRs in the United States. Comment Solicited
K. Proposed Amendment of Exchange Act Rule 15c2-11Exchange Act Rule 15c2-11113 contains requirements that are intended to deter broker-dealers from initiating or resuming quotations for covered over-the-counter securities that may facilitate a fraudulent or manipulative scheme. The Rule currently prohibits a broker-dealer from publishing (or submitting for publication) a quotation for a covered over-the-counter security in a quotation medium unless it has obtained and reviewed current information about the issuer.114 One of the specified types of information required by Rule 15c2-11 is information furnished to the Commission pursuant to Rule 12g3-2(b). A broker-dealer must make this information reasonably available upon request to any person expressing an interest in a proposed transaction involving the security with the broker-dealer.115 We propose to amend Rule 15c2-11 to conform to the proposed rule amendments so that a broker-dealer must have available the information that, since the beginning of its last fiscal year, the issuer has published in order to maintain the Rule 12g3-2(b) exemption. Because some issuers currently still make paper submissions to maintain their Rule 12g3-2(b) exemption, we expect that, during the first year of the amended rules effectiveness, a broker-dealer may have to resort to both paper submissions and electronically published materials in order to fulfill its Rule 15c2-11 obligations regarding a particular issuer. Eventually, however, a broker-dealer will only have to look to an issuers electronically published materials for the purpose of Rule 15c2-11. The proposed amended Rule 15c2-11 would still require a broker-dealer to make reasonably available upon request the information published pursuant to Rule 12g3-2(b). However, a broker-dealer would be able to satisfy this requirement by providing the requesting person with appropriate instructions regarding how to obtain the information electronically. This reflects our view that most investors will have ready access to the electronically published documents of Rule 12g3-2(b)-exempt issuers. Comment Solicited We solicit comment on the proposed amendments to Rule 15c2-11.
L. Proposed Transition Periods1. Regarding Section 12 Registration While we believe most issuers that currently have the Rule 12g3-2(b) exemption will continue to be able to claim the exemption upon the effectiveness of the proposed rule amendments, some may not be able to do so because their U.S. trading volume exceeded 20 percent of their worldwide trading volume on the last day of their most recently completed fiscal year. Those issuers would have to file a Section 12 registration statement if they are unable to meet all of the amended rules conditions. In order to provide those issuers with sufficient time to prepare for and complete the Section 12 registration process, including obtaining required audited financial statements, we are proposing to require that those issuers become Exchange Act registrants no later than three years from the effective date of the proposed rule amendments.116 We believe this proposed three-year transition period is necessary for the benefit not just of issuers, but of broker-dealers and investors as well. If a currently exempt issuer is unable to claim the Rule 12g3-2(b) exemption upon the effectiveness of the proposed amendments because it cannot satisfy the trading volume threshold, but meets the amended rules other conditions, it may continue to rely on the exemption during the transition period as long as it complies with the electronic publishing and other conditions, except for the trading volume condition, required to maintain the exemption. Accordingly, during this transition period, a broker-dealer would be able to rely on that issuers electronic postings to meet its Rule 15c2-11 obligations to investors and to facilitate resales of that issuers securities in Rule 144A transactions. Comment Solicited We solicit comment on the proposed three-year transition period.
2. Regarding Processing of Paper Submissions Although the 2007 amendments permitted an issuer that received the Rule 12g3-2(b) exemption upon application to the Commission to publish electronically its non-U.S. disclosure documents required to maintain the exemption, many issuers still submit those documents in paper. The Commission continues to process those paper documents and make them publicly available in the Public Reference Room at its Washington, D.C. headquarters. We expect that, following the effectiveness of the proposed rule amendments, some Rule 12g3-2(b)-exempt companies will continue to submit their non-U.S. disclosure documents in paper to the Commission either because they are unaware of the amendments or lack electronic publishing capabilities. Because there may be some investors who currently do not have ready access to the Internet, we are proposing to continue to process paper Rule 12g3-2(b) submissions and make them publicly available in the Public Reference Room for three months following the effectiveness of the rule amendments. Thereafter, the Commission will no longer process paper Rule 12g3-2(b) submissions. An issuer that continues to make Rule 12g3-2(b) submissions in paper after this three-month period, and does not publish the submitted documents electronically as required, would no longer be able to claim the Rule 12g3-2(b) exemption. We anticipate that three months would be sufficient time for all Rule 12g3-2(b)exempt issuers to develop the capabilities to publish electronically their non-U.S. disclosure documents. We further anticipate that the proposed three-month transition period would be sufficient to permit investors and other interested persons to determine how and where to access those electronically published documents. Comment Solicited We solicit comment on the proposed three-month transition period for the processing of paper Rule12g3-2(b) submissions.
M. Revisions to Form 15As part of the 2007 amendments, we revised Exchange Act Rules 12g-4 and 12h-3, the older exit rules, by eliminating foreign private issuer provisions that were no longer needed because of the adoption of Rule 12h-6, and by renumbering the remaining provisions accordingly.117 However, we did not correspondingly revise the cover page of Form 15, which requires an issuer to indicate under which provision of Rule 12g-4 or 12h-3 it is terminating its Section 12(g) registration or suspending its Section 15(d) reporting obligations. Because Form 15 refers to the pre-March 2007 version of Rules 12g-4 and 12h-3, it has understandably engendered some confusion among issuers seeking to file the form. We are today adopting revisions to the cover page of Form 15 to reflect the current version of Rules 12g-4 and 12h-3.118 General Request for Comments We solicit comment on the proposed amendments to Rule 12g3-2(b), (c), (d), (e), and (f), Rule 15c-2(11), and Forms F-6, 40-F, 6-K, and 15F, as well as to all other aspects of the proposed rule amendments. Here and throughout the release, when we solicit comment, we are interested in hearing from all interested parties, including members and representatives of the investing public, representatives of foreign companies and foreign industry groups, representatives of broker-dealers, domestic issuers, and other participants in U.S. securities markets. We are further interested in learning from all parties what aspects of the proposed rule amendments they deem essential, what aspects they believe are preferred but not essential, and what aspects they believe should be modified. III. PAPERWORK REDUCTION ACT ANALYSISThis rule proposal contains "collection of information" requirements within the meaning of the Paperwork Reduction Act of 1995 ("PRA").119 We are submitting our proposal to the Office of Management and Budget ("OMB") for review in accordance with the PRA.120 The title of the affected collections of information are submissions under Exchange Act Rule 12g3-2 (OMB Control No. 3235-0119) and Securities Act Form F-6 (OMB Control No. 3235-0292). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Compliance with the proposed amendments to Rule 12g3-2 and Form F-6 will be mandatory. 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, on an ongoing basis, either submits copies of its material non-U.S. disclosure documents to the Commission in paper or publishes those documents on its Internet Web site or through an electronic information delivery system in its primary trading market. 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. Securities Act Form F-6 is the form used to register American Depositary Receipts (ADRs), which are a special type of security issued by a U.S. bank, representing a specified amount of securities issued by a foreign company that are deposited with the bank. We adopted Form F-6 in order to provide investors with information concerning a foreign companys ADRs, as disclosed in the deposit agreement, which must be attached as an exhibit to the Form F-6. The hours and costs associated with making submissions under Exchange Act Rule 12g3-2(b) and preparing, filing and sending Form F-6 constitute reporting and cost burdens imposed by those collections of information. We based our estimates of the effects that the proposed rule amendments would have on those collections of information primarily on our review of the most recently completed PRA submissions for Rule 12g3-2(b) documents and Form F-6, on the particular requirements for those submissions and form, and on other information, for example, concerning relative U.S. trading volume for foreign private issuers whose equity securities trade in the U.S. over-the-counter market. The proposed amendments to Exchange Act Rule 12g3-2 would permit a foreign private issuer to claim the Rule 12g3-2(b) exemption, without having to submit paper copies of written materials to the Commission, if, among other requirements, its U.S. average daily trading volume has been no greater than 20 percent of its worldwide average trading volume for its most recently completed fiscal year. The proposed amendments would require a qualifying issuer to publish on an ongoing basis copies of its non-U.S. disclosure documents required by Rule 12g3-2(b) on its Internet Web site, or through an electronic information delivery system in its primary trading market, instead of permitting their submission in paper to the Commission. The proposed amendments of Form F-6 would require a registrant to state that the issuer of the deposited securities, which is not an Exchange Act reporting company, publishes information in English required to maintain the Rule 12g3-2(b) exemption on the issuers Internet Web site or through its primary trading markets electronic information delivery system. The proposed amendments would also require the registrant to disclose the address of the issuers Internet Web site or electronic information delivery system. A registrant that already has an effective Form F-6 would have to disclose the address of where the issuer electronically publishes its non-U.S. disclosure documents under Rule 12g3-2(b) when the registrant first amends its Form F-6 following the effective date of the proposed rule amendments. We have prepared the annual burden and cost estimates of the proposed rule amendments on Rule 12g3-2(b) submissions or publications and Form F-6 based on the following current estimates and assumptions:
A. Rule 12g3-2(b) Submissions or PublicationsWe estimate that, under current Rule 12g3-2(b), on an annual basis:
We estimate that, on an annual basis, approximately 150 additional foreign private issuers could claim the Rule 12g3-2(b) exemption as a result of the proposed amendments to Rule 12g3-2. This increase in the number of Rule 12g3-2(b) exempt issuers would cause:
B. Form F-6We currently estimate that, on an annual basis:
We estimate that, on an annual basis, approximately 150 additional registrants could file Form F-6 as a result of the proposed rule amendments. We further estimate that, as a result of the proposed rule amendments, the burden required to produce each Form F-6 would increase by .5 hours. This increase in the number of Form F-6s and burden hours would cause:
IV. COST-BENEFIT ANALYSISA. Expected BenefitsThe proposed rule amendments are designed to encourage more foreign companies with relatively limited U.S. market interest to claim the Rule 12g3-2(b) exemption, and thereby publish on the Internet material documents in English, enhancing the ability of U.S. investors to trade equity securities of such companies in the U.S. overthe-counter market. The Rule 12g3-2(b) exemption permits a foreign company to have established an ADR facility under which its equity securities are traded as ADRs in the U.S. over-the-counter market for the convenience of U.S. investors, even if its U.S. investors exceed the Section 12(g) shareholder thresholds.135 The Rule 12g3-2(b) exemption also permits a foreign company to trade its equity securities in the form of ordinary shares through the U.S. over-the-counter market, makes it easier for broker-dealers to fulfill their obligations under Exchange Act Rule 15c2-11 to investors, and facilitates the resale of a foreign companys securities to qualified institutional buyers in the United States under Securities Act Rule 144A. By encouraging more foreign companies to claim the Rule 12g3-2(b) exemption, the proposed rule amendments should benefit investors by enhancing their ability to invest in foreign securities in the United States over-the-counter market. The proposed rule amendments would encourage more foreign companies to claim the Rule 12g3-2(b) exemption by reducing the costs of obtaining that exemption for foreign private issuers in two ways. First, the proposed amendments would enable an otherwise eligible issuer to claim the Rule 12g3-2(b) exemption, regardless of the number of its U.S. security holders, as long as the U.S. trading volume for its subject class of equity securities was no greater than ten percent of its worldwide trading volume for its most recently completed fiscal year. Currently Rule 12g3-2(b) requires an issuer to disclose the number of its U.S. security holders and the percentage of its outstanding securities held by them when applying for the Rules exemption from Exchange Act registration.136 Since it is typically more difficult for a foreign company to calculate the number of its U.S. holders than to determine its relative U.S. trading volume, the proposed rule amendments should make it easier for more foreign companies to determine whether they qualify for the exemption. Second, the proposed rule amendments would eliminate the current written application process that requires an issuer to submit in paper specified information concerning, for example, its non-U.S. disclosure requirements, along with paper copies of its non-U.S. disclosure documents published since the beginning of its last fiscal year. Since outside law firms typically perform most of the work required for the application, the proposed rule amendments should reduce Rule 12g3-2(b) costs for foreign companies and encourage more of them to claim the Rule 12g3-2(b) exemption. The proposed rule amendments would further benefit investors by requiring any foreign company that claims the Rule 12g3-2(b) exemption to publish in English specified non-U.S. disclosure documents on its Internet Web site or through an electronic information delivery system that is generally available to the public in its primary trading market. Currently an issuer that has obtained the Rule 12g3-2(b) exemption upon application may submit its non-U.S. documents on an ongoing basis in paper to the Commission. By requiring the electronic publication in English of specified non-U.S. documents for any issuer claiming the Rule 12g3-2(b) exemption, the proposed amendments should make it easier for U.S. investors to gain access to a foreign private issuers material non-U.S. disclosure documents and make better informed decisions regarding whether to invest in that issuers equity securities. B. Expected CostsInvestors could incur costs from the proposed rule amendments to the extent that the proposed amendments encourage more foreign companies, which otherwise would be required to register their equity securities under the Exchange Act, to claim the Rule 12g3-2(b) exemption, where the information, enforcement remedies, and other effects of registration are valuable to investors. We estimate that, on an annual basis, approximately 150 additional foreign private issuers could claim the Rule 12g3-2(b) exemption as a result of the proposed amendments to Rule 12g3-2. Some less technologically capable investors may also incur costs resulting from the search and retrieval of a foreign companys electronically published documents. A foreign company would incur costs resulting from the amended rules requirement to publish electronically specified non-U.S. disclosure documents in English to the extent that it is not already required to, or does not already, do so pursuant to any applicable law or rule. A foreign private issuer would also incur costs resulting from its required annual determination regarding whether it is still in compliance with the Rule 12g3-2(b) conditions. If, because of those costs, the foreign company does not claim or maintain the Rule 12g3-2(b) exemption, U.S. investors interested in trading in the securities of that company would have to resort to trading in the companys non-U.S. primary trading market. Those U.S. investors could incur costs associated with finding and contracting with a broker-dealer who is able to trade in the foreign reporting company's primary trading market. U.S. investors could also face additional costs resulting from currency conversion and higher transaction costs trading the securities in a foreign market. Comment Solicited We solicit comment on the costs and benefits to U.S. and other investors, foreign private issuers, and others who may be affected by the proposed amendments to Exchange Act Rule 12g3-2 and the associated proposed rule amendments. We request your views on the costs and benefits described above as well as on any other costs and benefits that could result from adoption of the proposed rule amendments. We also request data to quantify the costs and value of the benefits identified. We are particularly interested on receiving information concerning an issuers expected costs of determining its relative U.S. trading volume under the proposed rule compared to its costs of having to determine the number of its U.S. holders and the percentage of shares held by them as required under the current rule. V. CONSIDERATION OF IMPACT ON THE ECONOMY, BURDEN ON COMPETITION AND PROMOTION OF EFFICIENCY, COMPETITION AND CAPITAL FORMATION ANALYSISA. Small Business Regulatory Enforcement Fairness Act of 1996 ConsiderationsFor purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 ("SBREFA"),137 we solicit data to determine whether the rule proposals constitute a "major" rule. Under SBREFA, a rule is considered "major" where, if adopted, it results or is likely to result in:
We request comment on the potential impact of the proposed rule amendments on these factors. Commenters are requested to provide empirical data and other factual support for their views if possible. B. Securities Act Section 2(b) and Exch |
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