On August 27, 2008 in an open meeting the US Securities and Exchange Commission (the “Commission”) voted unanimously to update and modernize the disclosure requirements for foreign companies offering securities in the US markets. The Commission adopted three sets of rule amendments regarding foreign private issuers under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Securities Act of 1933, as amended (the “Securities Act”). The rule amendments specifically related to Rule 12g3-2(b), the foreign issuer reporting enhancements (“FIRE”) and the cross-border exemptions for business combination transactions, which are all relevant to London capital markets. We are pleased that the Commission has reflected several comments made by the Forum in its comment letters in the adoption of these new rules.


While the amendments were considered as separate items, the Commission Chairman Christopher Cox stressed that each of the amendments “contribute[d] to the same key policy goal that the Commission has long sort to achieve – to strengthen the protection of US investors and the vibrancy of US markets in trading the securities of not only US companies but foreign issuers as well.”


Revisions to Securities Exchange Act Rule 12g3-2(b)


Rule 12g3-2(b) sets out the circumstances where a foreign private issuer with a class of widely held equity securities may be exempt from registration of that class of securities under the Exchange Act. By utilizing the exemption the qualifying foreign private issuer is able to have its equity securities traded on a limited basis in the United States over the counter market.


The Commission voted unanimously to eliminate the 40-year old written paper based application process and the paper submission requirements previously required under Rule 12g3-2(b). The written exemption application process will be replaced with an automatic exemption for foreign private issuers from Section 12(g), provided that they meet specified conditions, such as maintaining a listing of their securities in their primary trading markets outside the United States. In addition, to maintain the automatic exemption foreign private issuers will have to electronically publish, in English, certain non-US disclosure documents on an ongoing basis, which are made publicly available in their home country.


The Commission hopes that these rule amendments to Rule 12g3-2(b) will help US investors to gain better access to a foreign private issuer’s disclosure documents, which will help investors to make better informed investment decisions. Additionally, the removal of the paper based system will help to reduce the cost of compliance for foreign private issuers.


Foreign Issuer Reporting Enhancements


The FIRE amendments relate to the filing and disclosure requirements of foreign private issuers who report to the Commission on an ongoing basis. Prior to these amendments, these rules had not been comprehensively reviewed for over 20 years. In response to recent market developments, new technologies and changes in US securities regulations, the Commission unanimously voted to enact eight improvements to the content and timing of disclosure and in determining eligibility for foreign private issuer status.


For example, one amendment will permit foreign issuers to assess their eligibility to use the special forms and rules available to foreign private issuers once a year, rather than on a continuous basis, as is now required. Foreign issuers will now be able to assess their eligibility on the last business day of their fiscal year.


Another amendment will accelerate the reporting deadline for foreign private issuers to file their annual reports on Form 20-F. The reporting deadline has been shortened from six months to four months after the foreign private issuers’ fiscal year end. The Commission felt that the four month deadline was appropriate as many foreign private issuers currently registered with the Commission had a three to four month due date for filing annual reports in their home country and the Commission’s requirement would therefore be consistent with other foreign country filing requirements.


Cross-Border Exemptions


The Commission also voted to adopt amendments to the rules relating to cross-border business transaction exemptions. Eight years ago the Commission put in place new rules to facilitate the inclusion of US investors in M&A transactions involving foreign issuers. Since that time US investment in foreign companies has grown significantly, so the amendments to these rules are more important.


John White, the Director of the Commission’s Division of Corporate Finance, stated that after eight years of practice the rules regarding cross-border exemptions needed fine tuning, so that the rules achieved the intended purpose of the inclusion of US investors. The amendments in this area address the regulatory conflicts that frequently arise in cross border transactions, and will facilitate the inclusion of US investors in cross-border transactions as well as reducing the need for no action relief to be granted on an individual basis.


Generally speaking, the new rules represent an expansion and refinement of the previous Tier I and Tier II exemptions applicable for cross border business transactions, and in some areas, they codify relief previously granted only on an individual basis. The rule changes include:


· refinement of the tests for calculating U.S. ownership of the target company for purposes of determining eligibility to rely on the cross-border exemptions in both negotiated and hostile transactions;


· expanding relief under Tier I for affiliated transactions subject to Rule 13e-3;


· extending the specific relief afforded under Tier II to tender offers not subject to Sections 13(e) or 14(d) of the Exchange Act; and


· expanding the relief afforded under Tier II in several ways to eliminate recurring conflicts between U.S. and foreign law and practice.


Transition periods apply to all three rule amendments so that foreign private issuers who were eligible under the previous regimes but are now no longer eligible will have the time to react to the new rule amendments.


The full text of the detailed releases concerning these items will be posted to the Commission’s Web site as soon as possible.


For the full press release please visit: http://www.sec.gov/news/press/2008/2008-183.htm


This update is a summary for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice.



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