M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, September 24, 2007

The Foreign Delisting Wave

Dealbook today has a post today on the rise in delistings by foreign issuers.  The post quotes a USA Today story and states: 

Big foreign companies, mostly from Europe, are saying non, nein and nee to being listed on U.S. exchanges.

A surge of foreign companies are bidding adieu to U.S. markets and their American depositary receipts, as lackluster trading in many foreign listings and a feeling the costs of having a stock listed in the U.S. aren’t worthwhile have dampened enthusiasm. . . . Already this year, 34 foreign companies have delisted from the New York Stock Exchange, and nine more have announced they plan to do so, says the exchange. That tops the 21 foreign companies that have joined the N.Y.S.E. Another 20 have said this year they plan to leave the Nasdaq or have done so already.

However, as I stated back on May 30 don't believe that this is a sign that the U.S. markets are losing their status as the premier place for foreign listings.  Though they may indeed be losing their status though, this delisting wave is just caused by other reasons.  As I stated: 

Expect to see more announced delistings from U.S. stock markets by foreign issuers in the next few weeks.  This is because the SEC's new rules liberalizing the ability of foreign issuers to deregister their securities and terminate their reporting requirements under the Exchange Act take effect on June 4.  Prior to this rule, the Exchange Act was a lobster trap -- deregistering equity securities and terminating or suspending reporting requirements once these securities had been registered was prohibitively difficult if not impossible.  Now, under the SEC's new rules if the average daily U.S. trading volume of a foreign issuer is 5 percent or less of its worldwide trading volume it can freely deregister and terminate its Exchange Act reporting requirements.  To do so, however, the foreign issuer must also delist its securities from the U.S. stock market (i.e., Nasdaq or NYSE). 

So, the new rules will release pent-up demand of foreign issuers who previously desired to deregister their securities and now do so.  Most if not all of these issuers will cite Sarbanes-Oxley to justify the termination of their listing.  But don't always believe it.  These issuers originally listed in the United States for a variety of reasons, and for many a delisting will simply mean the reasons no longer exist (and probably haven't for a long time).  For example, many a foreign high-tech company listed on the Nasdaq during the tech bubble seeking the extraordinary high equity premium accorded Nasdaq-listed tech stocks.  Post-crash, many of these foreign companies still exist but are much smaller or have remained locally-based and a foreign listing is no longer appropriate for them.

All-in-all, though, the rules are a step in the right direction.  Permitting foreign issuers to more freely delist will encourage them to experiment with a U.S. listing in the first place.  The SEC would also do well to take the next step and consider whether all foreign listings need to be regulated at the current level.  Does the SEC really need to regulate ICI [a company listed on the LSE who recently announced a delisting from the U.S.]  to begin with?  It is, after all, regulated by the FSA and LSE in England.  A form of mutual recognition system for issuers listed in foreign countries who provide an acceptable level of regulation would go a long way to making the U.S. more competitive in the global listings market.  It would also provide greater access for U.S. investors to foreign investments.  Both good things. 

For more on this see my forthcoming article Regulating Listings in a Global Market.


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