December 22, 2005
SEC Eases Foreign Exit Rules
The SEC has voted to propose rules that will ease exit from United States filing requirements by foreign companies. Foreign companies after the passage of Sarbanes-Oxley in 2002 have been reluctant to list their shares on United States exchanges. Foreign companies are uncomfortable with the enhanced filing requirements and with the prospect of Congress or the SEC continuing to increase those requirements in the future. Once a foreign company lists in the United States under the current rules, it is very difficult to leave. A company can leave only under current rules only if it reduces its United States shareholders to less than 300. So the SEC, in attempt to encourage foreign companies to list in the United States has proposed rules that make it easier to leave. Rules Under the proposed rules a foreign company can deregister if 1) United States investors owns less than 5% of the company's world wide public float or 2) if United States investors own less than 10% of the company's world wide public float and the average United States daily trading volume is less than 5% of the average daily trading volume in the company's home market. The company must have filed in the United States for two years and not have sold stock in a public or private offering in the United States of one year. The SEC estimates that 26% of the foreign companies currently registered in the United States could chose to deregister under the proposed rules.
The most interesting part of the proposal perhaps is the added condition that a company may exit only on the condition that it maintain a web site that has, in English, the information specified in Rule 12g3-2(b)(primarily information filed, disclosed or distributed to shareholders in its home country). This is yet another example of the SEC's backdoor, grudging use of the Internet. Someday all United States companies as well will meet their disclosure requirements primarily through Internet sites rather than through paper filings and mailings.
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