Accessing the U.S. Capital Markets — A Brief Overview for Foreign Private Issuers
Important Note
The following discussion reflects the views of the staff of the Division of Corporation Finance of the United States Securities and Exchange Commission (the "Commission"). It is not a Commission statement and the Commission has neither approved nor disapproved its contents.
In the discussion that follows, we present a general outline of various U.S. federal securities law issues applicable to Foreign Private Issuers, as well as additional matters these issuers may wish to take into account when considering having their securities trade in the U.S. capital markets. It is not a comprehensive manual on the regulation of foreign issuers under the U.S. federal securities laws and the information presented may not be current. It is not intended to provide legal advice of the Commission or the staff and is not a substitute for, and may not be relied on instead of, the federal securities laws, the Commission’s regulations and forms, and the advice of knowledgeable advisors.
This document includes links to various statutes and rules that may lead to pages with lists of rules and regulations. Before clicking on a link, please remember the name or number of the rule or regulation that you seek.
All the Commission laws, rules, forms and regulations associated with the Securities Act of 1933 and the Securities Exchange Act of 1934 are accessible from the Commission's home page by clicking on "Divisions – Corporation Finance" and then clicking "Statutes, Rules, and Forms."
Please feel free to address questions to:
Office of International Corporate Finance
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-3628
(202) 551-3450
Questions may also be submitted by on-line
form.
Date: February 13, 2013
- Introduction
- Foreign Private Issuer Status
- Registration and Ongoing Reporting Obligations
- Activities and Circumstances Requiring Registration
- The Process of Registration and Periodic Reporting for Foreign Private Issuers
- Beneficial Ownership Disclosure Obligations Arising from Registration
- Deregistration
- Exemptions from Securities Act Registration — Initial Distributions and Resales
- The Use of American Depositary Receipts ("ADRs")
I. Introduction
The U.S. capital markets have long been a favored destination for foreign companies wishing to raise capital or establish a trading presence for their securities. The following information provides a general overview of the relevant laws and regulations governing the U.S. securities markets with which foreign companies wishing to access the U.S. capital markets should be familiar.
Two of the most important laws applicable to companies wishing to access the
U.S. capital markets are the Securities Act of
1933 (the “Securities Act”) and
the Securities Exchange Act of
1934 (the “Exchange Act”). In very
broad overview, the Securities Act requires
companies wishing to offer and sell securities in
the United States to register the transaction with
the Commission or to follow the requirements of an
exemption from the registration requirements. The
Exchange Act requires companies to register
classes of equity securities in order to list
these securities on a national securities exchange
in the United States, or if certain asset and
shareholder thresholds are exceeded. The Exchange
Act also requires companies to make periodic
filings with the Commission to disclose
information about their business operations,
financial condition, and management.
In the discussion that follows, this overview outlines several considerations for foreign companies wishing to raise capital or establish a presence for their securities in the United States, specifically with reference to foreign private issuers. These include:
- conducting a registered offering under the Securities Act;
- conducting an offering exempt from registration under the Securities Act;
- registering a class or classes of securities under the Exchange Act;
- establishing and maintaining exemptions from registration under the Exchange Act;
- meeting reporting obligations under the Exchange Act; and
- establishing an American Depositary Receipt (ADR) program.
This discussion does not address special regulatory provisions such as the
Multijurisdictional Disclosure System available to
Canadian issuers, the special regulations
applicable to blank check or shell companies, the
provisions of the U.S. federal securities laws
relating to foreign governmental issuers eligible
to register transactions on Schedule B, or the
rules applicable to cross-border rights offers,
tender offers, exchange offers, or business
combinations.
II. Foreign Private Issuer Status
A key consideration for a foreign company is whether it qualifies as a foreign
private issuer as defined in Rule 405 of Regulation C under
the Securities Act and Rule 3b-4 under the Exchange Act.
If a company does not qualify as a foreign private
issuer, it is subject to the same registration and
disclosure requirements applicable to domestic
U.S. entities.
A. Definition and Determination of Eligibility
There are two tests to determine whether a foreign company qualifies as a
foreign private issuer: the first relates to the
relative degree of its U.S. share ownership, and
the second relates to the level of its U.S.
business contacts. Foreign private issuer status
is not determined solely by the country in which a
company is organized. Companies organized under
the laws of a foreign country that have certain
characteristics that make them substantially
similar to U.S. companies will not be considered
foreign private issuers. In contrast, a company
that is incorporated in a state, territory, or
possession of the United States can never qualify
as a foreign private issuer, regardless of the
location of its shareholders, assets, or
management.
A foreign company will qualify as a foreign private issuer if 50% or less of its
outstanding voting securities are held by U.S.
residents; or if more than 50% of its outstanding
voting securities are held by U.S. residents and
none of the following three circumstances applies:
the majority of its executive officers or
directors are U.S. citizens or residents; more
than 50% of the issuer’s assets are located in the
United States; or the issuer’s business is
administered principally in the United States.
These tests are found in Securities Act
Rule 405 and Exchange Act
Rule 3b-4.
If a foreign company determines that 50% or less of its outstanding voting
securities are held by U.S. residents, it would
qualify as a foreign private issuer and it need
not consider the second test relating to business
contacts. If a foreign company, however,
determines that over 50% of its outstanding voting
securities are held by U.S. residents, the foreign
company must consider the extent of its U.S.
business contacts. The tests are discussed further
below.
1. Shareholder Test
As an initial matter, a foreign company must determine whether more than 50% of
its outstanding voting securities are held “of
record” by U.S. residents. For purposes of this
test, foreign companies must “look through” the
record ownership of brokers, dealers, banks, or
nominees holding securities for the accounts of
their customers, and also consider any beneficial
ownership reports or other information available
to the issuer.
In recognition of the global nature of modern-day securities holdings and the
potentially significant burden created by
requiring a “look through” in jurisdictions where
the likelihood of finding U.S. holders is small,
foreign companies need only examine voting
securities held of record in three jurisdictions:
the United States; the issuer’s home jurisdiction;
and the primary trading market for the issuer’s
voting securities, if different from the issuer’s
home jurisdiction. Additionally, if the issuer is
not able to obtain information about the record
holders’ accounts after reasonable inquiry, the
issuer may rely on the presumption that such
accounts are held in the broker’s, dealer’s,
bank’s, or nominee’s principal place of
business.
2. Business Contacts Tests
If more than 50% of a foreign company's voting securities are held by U.S. residents, the determination of foreign private issuer status will depend upon the business contacts the issuer has with the United States. Specifically, an issuer must consider whether:
- the majority of its executive officers or directors are U.S. citizens or residents;
- more than 50% of the issuer's assets are located in the United States; or
- the issuer's business is administered principally in the United States.
If a foreign company has more than 50% of its voting securities held by U.S.
residents and any of the above factors is true,
then an issuer will not qualify as a foreign
private issuer.
a) Citizenship and Residency
Under the foreign private issuer definition, a foreign company must determine
whether a majority of both its executive officers
and directors are either U.S. citizens or U.S.
residents. The citizenship and residency of each
of the foreign company’s executive officers and
directors must be analyzed separately. The terms
"executive officer" and
"director" may have different meanings
in jurisdictions outside of the United States;
therefore, foreign companies should refer to the
definition of "executive officer"
contained in Securities Act Rule 405 and Exchange Act
Rule 3b-7 (a person or position
involved in performing policy making functions for
the issuer) to determine the individuals for which
they should perform the analysis. When performing
the analysis for "directors," foreign
companies should consider individuals that perform
the functions generally performed by a board of
directors of a U.S. company.
b) Location of Assets
Under the foreign private issuer definition, a foreign company must consider the
location of its assets, including both tangible
and intangible assets.
c) Administration of Business
Under the foreign private issuer definition, a foreign company must determine whether its business is administered principally in the United States. To make this determination, a foreign company could consider certain factors, including the locations of:
- the company’s principal business segments or operations;
- its board and shareholders' meetings;
- its headquarters; and
- its most influential key executives (potentially a subset of all executives).
B. Timing of Determination
Generally speaking, a foreign company must determine its status as a foreign
private issuer on an annual basis, as of the end
of its second fiscal quarter. When filing a
registration statement under the Securities Act or
the Exchange Act for the first time, a foreign
company may, however, make a determination as to
foreign private issuer status up to 30 days before
filing its initial registration statement. Upon
registration, a foreign company would determine
its status on an annual basis, as of the end of
its second fiscal quarter.
If a registrant determines that it no longer meets the definition of a foreign
private issuer, it must transition to domestic
reporting status and it becomes subject to the
reporting requirements for a domestic company
beginning on the first day of the next fiscal
year. An issuer that no longer qualifies as a
foreign private issuer as of the end of its second
fiscal quarter in 2012, for example, would file a
Form 10-K in 2013 for its 2012 fiscal year. The
issuer would also begin complying with the proxy
rules and Section 16, and become subject to
reporting on Forms 8-K and 10-Q, on the first day
of its 2013 fiscal year.
Once an issuer that is registered under the Securities Act or the Exchange Act
no longer meets the definition of a foreign
private issuer because it incorporates in a state,
territory or possession of the United States, it
must immediately begin filing domestic
reports.
III. Registration and Ongoing Reporting Obligations
The Commission has adopted specific rules applicable to foreign private issuers that are designed to recognize international and home jurisdiction standards. In general, and subject to certain conditions discussed below, the rules provide that:
- Foreign private issuers may present financial statements pursuant to U.S. generally accepted accounting principles ("GAAP"), International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), or home country accounting standards with a reconciliation to U.S. GAAP;
- Foreign private issuers are exempt from the proxy rules under Rule 3a12-3(b) of the Exchange Act;
- Insiders of foreign private issuers are exempt from filing beneficial ownership reports required by Section 16(a) of the Exchange Act and are not subject to the short-swing trading rules under Section 16(b) of the Exchange Act;
- Foreign private issuers are exempt from the disclosure requirements of Regulation FD;
- Foreign private issuers may use particular registration and reporting forms designed specifically for them; and
- Foreign private issuers may use a special exemption from registration under the Exchange Act.
Additionally, on April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (the "JOBS Act"), which amends the Securities Act and the Exchange Act in several respects. Relevant JOBS Act amendments to the Securities Act and the Exchange Act are encompassed in the discussions below, including section "III.B.1.c — JOBS Act and Emerging Growth Companies."
A. Activities and Circumstances Requiring Registration
Under the U.S. federal securities laws, a foreign private issuer must register an offering of its securities under the Securities Act or a class of securities under the Exchange Act, or both, as explained below, in the following circumstances:
- The foreign private issuer wishes to conduct a public offering of its securities in the United States;
- The foreign private issuer wishes to have a class of its securities listed on a national securities exchange or quoted on the Over the Counter Bulletin Board ("OTCBB"); or
- The foreign private issuer's worldwide assets and worldwide/U.S. shareholder bases reach certain levels.
The particular registration
requirements depend upon whether the
foreign private issuer is registering a
transaction or a class of securities, as outlined
below. After registration under either the
Securities Act or the Exchange Act, a company
becomes subject to periodic reporting
requirements, and is required to report
information to the Commission in annual and other
reports, as discussed below.
1. U.S. Public Offering
Under the U.S. federal securities laws, every offer or sale of securities must
either be registered pursuant to the Securities
Act or exempt from such registration. Although
specific exemptions exist with respect to both the
type of security and type of transaction at issue,
those most often relevant to foreign private
issuers include offerings made on a limited basis
(either not to the general public or outside the
United States). Please see below for a general
overview of exemptions and safe harbors
available to foreign private issuers. If no
exemption or safe harbor applies, offers and sales
must be effected by means of a publicly-filed
Securities Act registration statement.
2. U.S. Listing
Under Section 12(b) of the Exchange
Act, registration under the Exchange Act is
required for securities to be listed on a national
securities exchange such as the New York Stock
Exchange, the NYSE Amex and the NASDAQ Stock
Market.
3. Quotations in the U.S. Over-the-Counter Market
Under the rules relating to the OTCBB, in order to be quoted on the OTCBB, an
issuer must be required to file reports under the
Exchange Act. To meet this requirement, issuers
may voluntarily register a class of securities
under Section 12(g) of the Exchange
Act. Once registered under Section 12(g), the
Exchange Act requires an issuer to file periodic
and current reports to the same extent as issuers
with a class of securities registered pursuant to
Section 12(b) and listed on an exchange. Foreign
private issuers may also register a class of
securities under Section 12(g) to facilitate
trading in other U.S. over-the-counter markets.
Foreign private issuers interested in having a
class of securities quoted in other segments of
the over-the-counter market should review the
information on the
over-the-counter market on the
Commission’s website.
4. Asset and Shareholder Thresholds; Rule 12g3-2(b) Exemption
Foreign private issuers may be required to register a class of equity securities
under the Exchange Act based upon the size of the
company and the nature of its share ownership,
both globally and within the United States. Under
Exchange Act Section 12(g), Rule 12g-1, and
Rule 12g3-2(a), a foreign private issuer is
generally required to register a class of equity
securities if:
- the issuer has over $10 million in assets as of the end of its fiscal year;
- the number of its record holders is either 2,000 or greater worldwide, or 500 persons who are not accredited investors or greater worldwide; and
- the number of its U.S. resident holders is 300 or more.
In measuring the number of shareholders, issuers must "look through"
the record ownership of brokers, dealers, banks,
or nominees holding securities for the accounts of
their customers, and consider any beneficial
ownership reports or other information provided to
the issuer in order to determine the residency of
shareholders. In addition to raising the asset and
record holder thresholds, the JOBS Act made
certain changes to the
definition of "held of record" that may
be considered by issuers in
determining whether Section 12(g) registration is
required.
Under Rule 12g3-2(b), a foreign private issuer is provided an automatic exemption from registration under Section 12(g) if it meets the following three conditions:
- The foreign private issuer is not required to file reports under Exchange Act Sections 13(a) or 15(d) (such obligations arising generally as a result of a public offering of securities, a listing on a national securities exchange, or voluntary registration under the Exchange Act);
- The foreign private issuer maintains a listing of the subject class of securities on one or two exchanges in a non-U.S. jurisdiction(s) that comprise more than 55% of its worldwide trading volume (its "Primary Trading Market"); and
- The foreign private issuer publishes in English on its website (or through an electronic information delivery system generally available to the public in its Primary Trading Market) material items of information that:
- It has made public or been required to make public pursuant to the laws of the country of its incorporation, organization or domicile;
- It has filed or been required to file with the principal stock exchange in its Primary Trading Market on which its securities are traded and which has been made public by that exchange; or
- It has distributed or been required to distribute to its security holders.
The exemption provided by Rule 12g3-2(b) is self-executing; it does not require
foreign private issuers to make a formal
application to the Commission for the exemption or
submit materials to the Commission to maintain the
exemption.
To establish the exemption initially, the foreign private issuer must have
published electronically in English its non-U.S.
disclosure documents published since the first day
of its most recently completed fiscal year. To
maintain the exemption, the foreign private
issuer’s non-U.S. disclosure documents must, on an
on-going basis, be electronically published in
English on its website promptly.
B. The Process of Registration and Periodic Reporting for Foreign Private Issuers
1. Disclosure by Foreign Private Issuers Under the Securities Act and the Exchange Act
As noted earlier, an issuer may register a public offering of securities under
the Securities Act or may register a class of
equity securities under the Exchange Act (or
both). In either case, a registration statement
containing information required by the
Commission’s regulations must be filed with the
Commission and become effective. Under the
Securities Act, a registration statement contains
a prospectus, along with other information
required by the Commission’s regulations.
The Commission has adopted a series of forms available to foreign private
issuers consisting of the "F" series
registration statements and Forms 20-F and 6-K
disclosure forms for annual and current reports,
respectively. As discussed below, the disclosure
forms available to foreign private issuers have
been designed with reference to international
disclosure standards, both in scope and timing
requirements for filing. Most foreign private
issuers opt to file under those forms instead of
the forms available to domestic issuers. While
foreign private issuers may voluntarily choose to
register and report using domestic forms (e.g.,
"S" series registration statements and
Forms 10-K, 10-Q, and 8-K), they lose some of the
provisions available to foreign private issuers
using the foreign filing regime (for example,
foreign private issuers using the domestic forms
must meet the earlier filing deadline of Form
10-K, file Form 10-Q quarterly reports, and file
Form 8-K current reports).
a) Form 20-F
Form 20-F is the primary disclosure document for foreign private issuers under
both the Securities Act and the Exchange Act.
Although Form 20-F is most often filed as an
annual report under the Exchange Act, it is also
used to register classes of securities under the
Exchange Act. In addition, the disclosure required
by each Securities Act registration statement form
cross-references the disclosure requirements of
Form 20-F.
The disclosure requirements of Form 20-F are, in large part, very similar to those required of domestic issuers. There are, however, several significant differences, mostly with respect to financial statement and executive compensation disclosure. These differences include:
- Foreign private issuers may provide financial statements prepared in accordance with U.S. GAAP, IFRS as issued by the IASB, or home country accounting standards that comprise a comprehensive basis of accounting. If a foreign private issuer prepares financial statements pursuant to home country accounting standards or non-IASB IFRS, it must also provide a reconciliation to U.S. GAAP, consisting of a discussion and quantification of the material differences between the financial statements presented and the requirements of U.S. GAAP.
- The Division of Corporation Finance has published informal, non-authoritative guidance on financial reporting matters in its Financial Reporting Manual; in particular, Topic 6 of this manual addresses matters specific to foreign private issuers.
- Foreign private issuers are permitted to disclose executive compensation on an aggregate basis and need not supply a Compensation Discussion & Analysis, as is required for domestic companies. To the extent a foreign private issuer discloses more extensive executive compensation information in accordance with home market requirements or voluntarily, such information must also be disclosed under Form 20-F.
b) Smaller Reporting Companies
If a foreign private issuer chooses to use the domestic forms, it may be able to
present its disclosure in Commission filings in
compliance with alternative, scaled disclosure
requirements if it qualifies as a
"smaller reporting
company," which is defined in
Securities Act Rule 405 and Exchange Act
Rule 12b-2 as a company with a
public float (the aggregate worldwide value of
shares of its voting and non-voting common equity
held by non-affiliates) of less than $75 million.
If an issuer has no common equity outstanding, or
there is no market price for its outstanding
common equity, it may qualify as a smaller
reporting company if it had less than $50 million
in revenues in the last fiscal year.
Importantly, all eligible companies (including foreign private issuers) that
elect to use the scaled disclosure regime for
smaller reporting companies must file on the forms
applicable to domestic issuers and present their
financial statements in accordance with U.S.
GAAP.
c) JOBS Act and Emerging Growth Companies
The JOBS Act created a new category of issuer under the federal securities laws:
an "emerging growth company," which is
defined in the Securities Act and the Exchange Act
as an issuer with "total annual gross
revenues" of less than $1 billion during its
most recently completed fiscal year. Foreign
private issuers that qualify as emerging growth
companies may take advantage of applicable
provisions of the JOBS Act to the same extent as
U.S. companies.
The JOBS Act provides modified disclosure requirements for emerging growth
companies, including, among other things, two
years of audited financial data in the Securities
Act registration statement for an initial public
offering of common equity securities and no
requirement for Sarbanes-Oxley Act Section 404(b)
auditor attestations of internal control over
financial reporting.
The JOBS Act also permits emerging growth companies to submit initial Securities
Act registration statements for review on a
confidential basis, as discussed below.
d) Other Financial Disclosure Issues
(1) Registration with the PCAOB
Foreign audit firms whose audit reports on the financial statements of issuers
are included in SEC filings are required to be
registered with the Public Company Accounting
Oversight Board (the "PCAOB"). Under
Section 102 of the Sarbanes-Oxley Act, it is
unlawful for any audit firm that is not registered
with the PCAOB to prepare, issue, or participate
in the preparation or issuance of any audit report
with respect to any issuer.
(2) Quality of Audits and Reconciliations to US GAAP
A foreign auditor practicing before the SEC must comply with the requirements of
Article 2 of Regulation S-X and is expected to
demonstrate sufficient knowledge and experience in
applying U.S. GAAP, IFRS as issued by IASB, PCAOB
Auditing Standards, SEC financial reporting rules,
and SEC independence requirements.
In addition, in April 2003, the PCAOB adopted interim quality control standards
and related rules. The rules established minimum
requirements (commonly referred to as
"Appendix K") for the review of foreign
private issuer filings and "Draft
Registration Statements" by a designated
"filing reviewer" within the U.S. firm
or international organization knowledgeable about
U.S. GAAP, PCAOB Auditing Standards, SEC financial
reporting rules, and SEC independence
requirements.
2. The Process of Registration and Filing of Registration Statements
All registration statements and other material filed with the Commission must be
submitted in electronic format on the Commission’s
Electronic Data Gathering and Retrieval
("EDGAR") system and are subject to
staff review and comment. The Division of Corporation
Finance has published a
description of its review
process on its website.
Various registration forms are available exclusively to foreign private issuers under the Securities Act and Exchange Act, depending upon the purpose for registration. In general, each form applies to the following circumstances:
Securities Act Offerings:
- Form F-1 is the form prescribed for initial public offerings and other first-time registrations by foreign private issuers. It is also the default form for transactions for which no other form is authorized or prescribed.
- Form F-3 is a "short form," providing for incorporation by reference of an annual report and other reports filed with the Commission. Form F-3 is available to foreign private issuers that have been subject to Exchange Act reporting requirements for at least 12 months, have filed all required reports in a timely manner for at least the last 12 months, have filed at least one annual report on Form 20-F, have not defaulted on certain payment obligations, and have an aggregate worldwide public float of common stock of at least $75 million. Form F-3 may be available in other circumstances as well.
- Form F-4 is the form prescribed for business combinations and exchange offers.
- Form F-6 is the form for American Depositary Receipts.
Exchange Act Registration:
- Form 20-F is the form generally used by foreign private issuers that wish to register their securities under Section 12(b) of the Exchange Act and list on a national securities exchange. Foreign private issuers that wish to voluntarily register their securities under Section 12(g) may also file a Form 20-F to register their securities under the Exchange Act. Foreign private issuers that meet certain shareholder and asset thresholds both globally and within the United States and that do not qualify for the Rule 12g3-2(b) exemption are also required to register using Form 20-F under Section 12(g) of the Exchange Act.
a) Pre-Filing Issues
When foreign companies plan to list or offer securities in the United States,
management may identify many procedural or
substantive compliance questions. Issuers are
encouraged to contact the staff of the Office of
International Corporate Finance to discuss these
questions. Questions about the required financial
statements or unusual accounting and financial
reporting issues may be directed to the
Chief Accountant’s Office in the
Division of Corporation
Finance.
While the staff will often respond to inquiries about form requirements or
procedures informally, more complex or sensitive
disclosure and accounting issues are usually best
submitted to the staff on a
pre-filing basis in writing. The
inquiry should identify clearly the company, its
country of organization and the issue on which
staff guidance or relief is requested. Where an
inquiry relates to financial disclosures, as the
form, content and periods of financial information
required in an SEC filing may vary depending on
the securities or transaction being registered,
the request should also describe the company’s
capital structure and listing or offering plans.
The request should also identify the comprehensive
basis of accounting and reporting currency to be
used in the company’s financial statements, as
well as the number of periods being reconciled to
U.S. GAAP (if any). The request should indicate
whether the company’s auditor has been consulted
about the matter, and whether it concurs with the
company’s conclusion. The extent of information
provided about the company’s business will depend
on the nature of the issue, but should be
sufficient to permit the staff to make an informed
analysis of the question. The request should
explain clearly the basis for the company’s
conclusion or need for relief.
b) Non-Public and Confidential Registration
Submissions
The Division of Corporation Finance staff recognizes that foreign private
issuers and foreign governments often face unique
circumstances when accessing U.S. public markets
in connection with the initial registration of
their securities. The Division affords certain
first-time foreign private issuers and foreign
governments the ability, in limited circumstances,
to submit registration statements and amendments
to the staff on a non-public basis. This allows
the staff to review and comment on the disclosure
for certain issuers and the issuers to respond to
staff comments before a public filing is made
through the EDGAR system. The Division’s notice on
non-public submissions from
foreign private issuers summarizes
the limited circumstances under which an issuer
may submit non-public registration statements in
connection with an initial registration of
securities. As with any registration statement
filed with the Commission, a registration
statement confidentially submitted to the staff
must be complete in all material respects at the
time of first submission. The staff will defer the
review of an incomplete or deficient non-public
registration statement.
In addition, Section 106 of the JOBS Act added Section 6(e) to the Securities
Act under which an emerging growth company may
confidentially submit to the
Commission an initial registration statement under
the Securities Act for confidential, non-public
review by the Commission staff before public
filing, provided that the initial confidential
submission and all amendments thereto are publicly
filed not later than 21 days before the date on
which the issuer conducts a road show, as this
term is defined in Securities Act Rule
433(h)(4).
For information about the procedures for the confidential submissions, please
refer to the Division announcement
regarding confidential submission of draft
registration statements under the JOBS
Act.
3. Periodic and Ongoing Reporting Obligations
After a foreign private issuer has completed an offering registered under the Securities Act or registered as a class of securities under the Exchange Act, it is required to file reports with the Commission on an ongoing basis. In broad outline, these reporting obligations are as follows:
Annual Reports — foreign private issuers file annual
reports on Form 20-F. Foreign private issuers are
required to file Form 20-F within four months of
the end of the fiscal year.
Other Reports — foreign private issuers meet their other reporting obligations under the Exchange Act by filing reports on Form 6-K. Quarterly reports are not required. Foreign private issuers must disclose on Form 6-K the material information that the foreign private issuer (i) makes or is required to make public pursuant to the law of its domicile, incorporation, or organization, (ii) files or is required to file with a stock exchange on which its securities are traded and which was made public by that exchange, or (iii) distributes or is required to distribute to its security holders. Form 6-K refers to general areas of disclosure, including:
- changes in business;
- changes in management or control;
- acquisitions or dispositions of assets;
- bankruptcy or receivership;
- changes in registrant’s certifying accountants;
- the financial condition and results of operations;
- material legal proceedings;
- changes in securities or in the security for registered securities;
- defaults upon senior securities;
- material increases or decreases in the amount outstanding of securities or indebtedness;
- the results of the submission of matters to a vote of security holders;
- transactions with directors, officers or principal security holders;
- the granting of options or payment of other compensation to directors or officers; and
- any other information which the foreign private issuer deems of material importance to security holders.
Form 6-K must be filed promptly after the material contained in the report is
made public. Under the Form 6-K reporting regime,
interim reporting for foreign private issuers
parallels the requirements of the issuer’s home
country regulatory and stock exchange
practices.
English Translations — All filings made with the
Commission must be in
English. If a filing or submission
requires the inclusion of a document that is in a
foreign language, the issuer must submit instead a
fair and accurate English translation of the
foreign language document pursuant to
Rule 403 under the Securities Act
and Rule 12b-12 under the Exchange
Act. Whereas summaries may be provided for certain
documents, others require a full translation.
Among other
requirements, any summary
submitted must both fairly and accurately
summarize the terms of each material provision
contained in the foreign language document as well
as describe the terms that have been omitted or
abridged.
C. Beneficial Ownership Disclosure Obligations Arising from Registration
One of the consequences for investors in a corporation registered under the
Exchange Act is the application of beneficial
ownership reporting requirements. Exchange Act
Sections 13(d) and 13(g) and corresponding
Exchange Act Regulation 13D-G establish a
comprehensive reporting system for information
relating to an issuer’s beneficial ownership
(generally defined as the direct or indirect
ability to vote or dispose of voting equity
securities registered under Section 12 of the
Exchange Act). This system is designed to provide
investors and the issuer with information about
accumulations of securities that may have the
potential to change or influence control of the
issuer. These requirements are the same for
foreign private issuers as for other
companies.
D. Deregistration
In 2007, the Commission adopted a
separate regime that facilitates the ability of
foreign private issuers to deregister and
terminate their reporting obligations under the
Exchange Act, should a foreign private issuer
decide that registration of its securities is no
longer desired.
1. Equity Securities
For equity securities, there are two alternatives for deregistration. The first,
pursuant to Exchange Act Rule 12h-6(a)(4)(i), permits
deregistration of equity securities if the average
daily trading volume of the subject class in the
United States for a recent 12-month period is no
more than five percent of the average daily
trading volume of that class of securities on a
worldwide basis for the same period.
The second, pursuant to Exchange Act Rule 12h-6(a)(4)(ii), permits
deregistration of equity securities if, on any
date within 120 days before filing for
deregistration, the foreign private issuer has
less than 300 record holders worldwide. As with
measuring such shareholders for the purpose of
registration, deregistration requires issuers to
"look through" the record ownership of
brokers, dealers, banks, or nominees holding
securities for the accounts of their customers,
and also consider any beneficial ownership reports
or other information provided to the issuer in
order to determine the residency of
shareholders.
In addition to the specific requirements for each alternative, a foreign private
issuer must also meet three general conditions in
order to deregister. First, a registrant must have
at least one year of Exchange Act reporting, be
current in filing all reports under the Exchange
Act, and have filed at least one Exchange Act
annual report. Second, the registrant must not
have sold securities in a registered offering in
the United States during the 12 months preceding
deregistration, except for specified exceptions
noted in the rule. Third, the registrant must have
maintained a listing of the subject class of
securities in the registrant’s primary trading
market for at least the 12 months preceding
deregistration.
2. Debt Securities
A foreign private issuer may deregister and terminate its reporting obligations
for debt securities registered under the Exchange
Act if two conditions are met, as provided in
Exchange Act Rule 12h-6(c). First, the foreign
private issuer must have filed or furnished all
reports required under the Exchange Act, including
at least one Exchange Act annual report. Second,
the foreign private issuer must, on any date
within 120 days before filing for deregistration,
have had less than 300 record holders
worldwide.
IV. Exemptions from Securities Act Registration — Initial Distributions and Resales
Foreign private issuers may raise capital in the United States through a
registered offering of securities or through
offerings that are exempt from the registration
requirements. Exemptions from registration are
strictly construed, however, and the burden of
proof is on the issuer claiming the exemption. As
a result, issuers must take precautions when
offering and selling securities pursuant to an
exemption, to ensure, if assessed at a later time,
that the facts surrounding the issuance supported
such an exemption.
A. Private and Limited Offering Exemptions
Foreign private issuers may make private or limited offerings of securities in
the United States by relying on exemptions from
the registration requirements of the Securities
Act. These exemptions are described in
"Small Business and the
SEC," and most are generally
available to foreign private issuers. Two of the
most frequently used means by which issuers make
private or limited offerings are by the exemption
provided in Securities Act Section
4(a)(2) and the safe harbor
provisions outlined in Regulation D of the Securities
Act.
B. Offshore Sales and Regulation S
Regulation S
provides that offers and sales of securities
occurring outside of the United States are not
subject to the registration requirements contained
in Section 5 of the Securities Act. Regulation S
sets forth non-exclusive safe harbors for
extraterritorial offers, sales, and resales of
securities in Rules 903 and 904 under the
Securities Act. If an offering fails to qualify
for coverage under Regulation S, it may still
qualify as a valid non-public offering under one
of the other available exemptions. Additionally,
securities may be offered and sold outside the
United States pursuant to Regulation S at the same
time as those offered and sold pursuant to
Regulation D. In such cases, the number of
purchasers and the total proceeds raised pursuant
to Regulation S are not included in calculating
the limits set forth in Regulation D.
The structure of Regulation S consists of General Conditions applicable to any
offshore transaction, followed by an Issuer Safe
Harbor and a Resale Safe Harbor.
1. General Conditions
In general, an offering may qualify for non-registration pursuant to Regulation S if it meets two conditions:
- The offer or sale is made in an "offshore transaction"; and
- There are no “directed selling efforts” in the United States.
An Offshore Transaction is defined as one in which:
- The offer is not made to a person in the United States; and
Either:
- At the time the buy order is originated, the buyer is outside the United States, or the seller and any person acting on the seller’s behalf reasonably believe that the buyer is outside the United States; or
- For the purposes of:
- the issuer safe harbor, the transaction is executed in, on or through a physical trading floor of an established foreign securities exchange that is located outside the United States; or
- the resale safe harbor, the transaction is executed in, on or through the facilities of a designated offshore securities market, and neither the seller nor any person acting on its behalf knows that the transaction has been pre-arranged with a buyer in the United States.
Directed Selling Efforts means any activity undertaken for the purpose of, or
that could reasonably be expected to have the
effect of, conditioning the market in the United
States for any of the securities being offered in
reliance on Regulation S, including placing an
advertisement in a publication “with a general
circulation in the United States” that refers to
the offering of securities being made in reliance
upon Regulation S.
2. Issuer Safe Harbor
The issuer safe harbor contains three categories of offerings, based on the
nationality and reporting status of the issuer,
and degree of U.S. market interest in its
securities. The three categories have varying
levels of procedural safeguards imposed which are
designed to assure that the securities offered
pursuant to a Regulation S offering are not part
of an unregistered distribution of securities in
the United States.
a) Category 1
The first issuer safe harbor under Regulation S contains the least restrictive
conditions and is for offerings of securities of
foreign companies with no substantial U.S. market
interest in these securities, securities offered
and sold in overseas directed offerings,
securities backed by the full faith and credit of
a foreign government, and securities offered and
sold pursuant to certain employee benefit plans.
For offerings in this category, there are no
requirements other than the Regulation S General
Conditions.
b) Category 2
The second issuer safe harbor under Regulation S applies to offerings that are
not eligible for Category 1 and are equity
securities of a reporting foreign company, or debt
securities of a reporting issuer (either foreign
or U.S. domestic) or a non-reporting foreign
company. In addition to the Regulation S General
Conditions, certain other offering restrictions
apply and no offer or sale may be made to a U.S.
person or for the account or benefit of a U.S.
person (other than a distributor) for a period of
40 days.
c) Category 3
The third issuer safe harbor under Regulation S contains the most restrictive conditions and applies to all securities not eligible for Categories 1 and 2. This includes equity securities of a reporting U.S. domestic issuer, any securities of a non-reporting U.S. domestic issuer, and equity securities of a non-reporting foreign company that has a substantial U.S. market interest in its equity securities. In addition to the Regulation S General Conditions, certain other offering restrictions apply and no offer or sale may be made to a U.S. person or for the account or benefit of a U.S. person (other than a distributor) for the following periods:
- Equity securities of non-reporting issuers: one year
- Equity securities of reporting issuers: six months
- Debt securities: 40 days
C. Resales of Securities Sold in Unregistered Offerings
The registration requirement under Section 5 of the Securities Act generally
applies on a transaction-by-transaction basis. As
a result, securities sold initially pursuant to an
exemption or safe harbor from registration may not
then be resold unless either an exemption is
available or the resale is then registered under
the Securities Act. The availability of resale
exemptions should be an important consideration to
a foreign private issuer; it may not only affect
the price and ability to initially place the
issuer’s securities, but the availability of the
issuer’s initial exemption or safe harbor as
well.
1. Resales — Rule 144
Rule 144 under
the Securities Act provides a safe harbor under
which non-affiliates of an issuer may resell
"Restricted Securities" (as described
below) without registration and affiliates of an
issuer may resell any type of security (restricted
or not) without registration. Resales of
securities by ordinary investors (persons that are
not issuers, underwriters or dealers) are
generally exempt from registration under Section
4(a)(1) of the Securities Act. However, in certain
circumstance, investors may be deemed
underwritiers if they act as links in a public
distribution of securities. Rule 144 supplies a
safe harbor for resales of restricted securities
by providing that a resale will not be deemed a
public distribution if particular criteria are
met. In this way, the selling security holder will
not be deemed an underwriter, and the Section
4(a)(1) exemption will be available.
Pursuant to Rule 144, an affiliate is defined as a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, an issuer. "Restricted Securities" include those that are acquired:
- directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering;
- from the issuer and subject to the resale limitations under Regulation D;
- in a transaction or chain of transactions involving Rule 144A; or
- equity securities of a U.S. issuer that were acquired in a transaction or chain of transactions subject to the conditions of Regulation S.
To qualify for the Rule 144 safe harbor, resale transactions involving “restricted securities” must meet the following requirements, depending upon whether the seller is an affiliate:
- Non-affiliates may resell restricted securities of a reporting issuer that is current in its reporting obligations without any other restriction after a six-month holding period. Non-affiliates holding restricted securities of a reporting issuer that is not current in its reporting obligations, or securities of a non-reporting issuer, must meet a one-year holding period.
- As long as an issuer’s current public information requirements have been met and the resale is effected in compliance with Rule 144’s manner of sale, volume, and filing requirements, affiliates may resell restricted securities of a reporting issuer after a six-month holding period, and those of a non-reporting issuer after a one year holding period.
Rule 144 should be carefully followed by affiliates and non-affiliates who seek
to rely on the Rule.
2. Resales — Regulation S
The resale safe harbor under Regulation S is
available for any securities of an issuer, not
simply those initially acquired in a Regulation S
transaction. This safe harbor is available for
resales by any persons other than the issuer, a
distributor or their respective affiliates, any
officer or director of the issuer who is an
affiliate solely by virtue of holding such
position, and persons acting on such persons’
behalf. In addition to the two Regulation S
General Conditions, certain additional
restrictions are imposed for resales by dealers
and persons receiving selling concessions, as well
as resales by certain affiliates.
3. Resales — Rule 144A
Rule 144A
provides another safe harbor for the resale of
restricted securities.
In order to qualify for the safe harbor under Rule 144A, the following
conditions must be met: the securities at issue
must be offered and sold only to Qualified
Institutional Buyers ("QIBs"), which are
large institutions meeting specific requirements
outlined in Rule 144A, or entities the seller (or
person acting on its behalf) reasonably believes
to be QIBs; the seller (or person acting on its
behalf) must take reasonable steps to ensure that
the purchaser is aware the seller may rely on the
safe harbor provided by Rule 144A; the securities
sold must not, when issued, be of the same class
as a class listed in the United States; and
purchasers are entitled upon request to receive
reasonably current information about the
issuer.
Issuers subject to reporting under the Exchange Act, foreign governments and
other entities eligible to register offerings
under Schedule B, and foreign private issuers
exempt from registration pursuant to Rule
12g3-2(b) are all exempt from such information
requirement.
V. The Use of American Depositary Receipts ("ADRs")
Many foreign companies use American Depositary Receipts ("ADRs") as a
means of raising capital or establishing a trading
presence in the United States. An ADR is a
negotiable certificate that evidences ownership of
American Depositary Shares ("ADSs")
which, in turn, represent an interest in a
specified number (or fraction) of a foreign
company’s shares. The use of a ratio allows ADSs
to be priced at an amount more typical for U.S.
markets. While an ADR is the physical certificate
evidencing an ADS, the terms ADR and ADS are often
used interchangeably by market participants. ADRs
trade in U.S. dollars and clear through U.S.
settlement systems, allowing ADR holders to avoid
effecting transactions in a foreign currency.
ADRs are issued by a depositary bank in the United States, and represent the
deposit of the foreign company’s shares in a
custodian bank, usually in the foreign company’s
home jurisdiction. Pursuant to the terms of the
underlying deposit agreement, ADR holders may
exchange ADRs for the representative number of
shares in the foreign company. Conversely, those
holding shares in the underlying foreign company
may deposit such shares in exchange for ADRs.
ADRs may be "sponsored" or "unsponsored." Sponsored ADRs are
those in which the foreign private issuer enters
into an agreement directly with the U.S.
depositary bank to arrange for record keeping, the
forwarding of shareholder communications, the
payment of dividends, and other services as
described above. An unsponsored facility is set up
without the cooperation of the foreign private
issuer and may be initiated by a broker-dealer
wishing to establish a trading market.
An ADR facility may not be established unless the issuer is either subject to
the reporting requirements under the Exchange
Act or is exempt from the reporting
requirements pursuant to Rule 12g3-2(b). Because an ADR
essentially represents two separate securities,
ADSs and the underlying shares of the foreign
company, a registration analysis must be made for
each security.
ADSs are always registered on Form F-6. Disclosure under Form
F-6 relates only to the contractual terms of
deposit under the deposit agreement and includes
copies of the agreement, a form of ADR
certificate, and legal opinions. A Form F-6
registration statement contains no information
about the foreign private issuer. If a foreign
private issuer with ADRs wishes to raise capital
in the United States, it would separately file a
registration statement on Form F-1, F-3 or F-4, as
described earlier.
Market participants have generally categorized ADRs into three "levels," depending on the extent to which the foreign company has accessed the U.S. markets:
- Level 1 ADR programs establish a securities market presence in the United States but may not be used to raise capital. It is the only type of facility that may be unsponsored and, as a result, may be quoted only on the over-the-counter market. Form F-6 would be the only form required to be filed, because exemption from registration pursuant to Rule 12g3-2(b) is sufficient to establish eligibility for an ADR facility.
- Level 2 ADR programs establish a securities market presence in the United States (on a national securities exchange) but may not be used to raise capital. Again, Form F-6 would be used to register the ADRs. Filing a Form 20-F would also be necessary in order to register the underlying class of securities the ADR represents.
- Level 3 ADR programs may be used not only to establish a securities market presence in the United States, but also to raise capital for the foreign company. As such, in addition to the Form F-6 used to register the ADSs, a registration statement on Form F-1, Form F-3 or Form F-4 must be filed with the Commission.