On December 27, 2005, the SEC published a Release proposing new rules affecting “foreign private issuers”. (This definition includes most non-U.S. companies that are currently subject to reporting requirements under U.S. federal securities laws.) In its Release, the SEC noted that several decades had passed since it had first adopted rules governing a foreign private issuer’s ability to terminate its requirement to file reports with the SEC and that, in the intervening years, the number of foreign companies listing their securities on U.S. exchanges had increased dramatically. Recently, according to the Release, representatives of foreign companies and others have expressed concern that the existing SEC rules covering a foreign private issuer’s ability to exit the SEC reporting system have become outdated.

Under current rules, most foreign private issuers can terminate or suspend their obligations to file periodic reports with the SEC only if the issuer can determine that fewer than 300 U.S. residents are holders of the subject class of shares. Moreover, the rule on how a foreign private issuer must count the number of U.S. residents is quite burdensome, in that it requires the issuer to look through the actual record ownership of brokers, dealers, banks or other nominee holders on a worldwide basis and to count the number of separate accounts of customers resident in the U.S. for which the nominee is holding the securities.

Under the proposed new rules, a foreign private issuer would be able to terminate its SEC reporting obligations with respect to a class of equity securities if it meets all of the following requirements:

• The issuer has been an SEC reporting company for the past two years, has filed or furnished all required reports during this period, and has filed at least two annual reports with the SEC.
• The issuer’s securities have not been sold in the U.S. in either a registered or unregistered offering during the preceding 12 months, except for sales to employees, sales by selling security holders in non-underwritten offerings, sales of certain types of securities that are exempt under U.S. securities laws, and certain private sales of commercial paper.
• The applicable class of equity securities has been listed on a stock exchange in the issuer’s home country for the preceding two years, and this exchange is the primary trading market for such securities.
• The issuer satisfies one of the three following criteria:
  (1) U.S. residents held no more than 5 percent of the issuer’s worldwide public float at a date within 120 days before the date it files a Form 15F (described below) with the SEC. (As used here, “public float” means all outstanding voting and non-voting equity securities of the issuer regarding which there are reporting obligations under U.S. federal securities laws, held by non-affiliates).
  (2) The issuer is a “well known seasoned issuer” (meaning that the issuer’s outstanding voting and non-voting common equity held by non-affiliates worldwide has a market value of $700 million or more, and the issuer satisfies certain other criteria), and either
  (i)(A) the U.S. average daily trading volume of the subject class of equity securities is no more than 5% of the average daily trading volume of that class of securities in the primary trading market during a recent 12-month period and (B) U.S. residents held no more than 10 percent of the issuer’s worldwide public float at a date within 60 days before the end of the same 12-month period described in clause (A); or
  (ii) U.S. residents held no more than 5 percent of the issuer’s worldwide public float at a date within 120 days before the date it files a Form 15F.
  (3) The subject class of equity securities was held by less than 300 persons worldwide, or by less than 300 U.S. residents, at a date within 120 days before the date the issuer files a Form 15F.

For foreign private issuers subject to the SEC’s reporting requirements solely because they previously sold debt securities in a registered offering, the proposed requirements for de-registration are somewhat less detailed and onerous.

The proposed rules provide for a new form, Form 15F, to be filed by an issuer desiring to terminate its registration. The Form 15F requires certain specific information regarding the issuer and the subject securities intended to assist the SEC in determining whether the requirements for deregistration are met. Immediately upon filing of the Form 15F, the issuer’s reporting obligations would be suspended. If the Form 15F is not withdrawn and the SEC does not object to it within 90 days, then the issuer’s reporting obligations would be terminated. At least 15 business days before filing a Form 15F, an issuer must publish a notice in the U.S. disclosing its intent to terminate its reporting obligations.

The proposed rules ease somewhat the requirement that an issuer look through nominee holders to count individual U.S. resident customer accounts. Issuers would be required only to look through nominee holders located in the U.S., or in the issuer’s home country and the country where the issuer’s primary trading market is located (if different than the issuer’s home country), rather than having to look through all nominee holders worldwide.

The comment period for the proposed rules ended on February 28, 2006. The SEC is considering the comments it has received on the proposed rules. We will update you further if revised or final rules are issued.

Lee J. Potter, Jr.
212.492.3281
potter.lee@arentfox.com

Eberhard Röhm
212.484.3970
rohm.eberhard@arentfox.com