Risk & Compliance

Express Checkout for Foreign Issuers

The Securities and Exchange Commission upgrades its ''Hotel California'' image by making it easier for foreign companies to exit U.S. markets.
Alan RappeportMarch 21, 2007

The Securities and Exchange Commission voted Wednesday to make it easier for foreign companies to delist from U.S. stock markets and deregister with the SEC.

The newly approved regulation — which will take effect before the June Sarbanes-Oxley audit deadline — allows a company to deregister if its trading in the United States represents less than 5 percent of its worldwide volume.

The current rule had saddled the SEC with a “Hotel California” image — a foreign issuer could “never leave” even when it had as few as 300 U.S. shareholders. That threshold, and the continuing requirement to comply with Sarbanes-Oxley, had been widely criticized for deterring foreign companies from listing on U.S. markets in the first place.

“In light of current market conditions, those rules are seriously outdated,” said SEC Chairman Christopher Cox. “We’re remedying a problem that’s been festering for decades.” Wednesday’s vote will give foreign issuers “meaningful options” and benefit U.S. investors by making the country’s stock markets more inviting to foreign investment, Cox added.

Regulation 12h-6, as it is known, will affect 29 percent of the 1,200 foreign companies governed by the SEC, according to John White, director of the Division of Corporate Finance. Although some companies have been waiting for the measure to pass and “will want to get into this window,” said White, “we don’t expect a substantial number of departures.”

Among the requirements for deregistration, a company may not have sold securities in the United States during the preceding year, must have maintained a listing on at least one other foreign exchange in a primary trading market, and must publish an annual report, in English, in its local trading market.

Cox praised the regulation for providing benchmarks that clarify when interest in a foreign company has waned. The SEC has helped to “make the ease of exit as high as the ease of entry” into America’s markets, he added.