Foreign Private Issuers Exemption from Registration Under 1934 Act


Corporate & Finance Alert

October 14, 2008

By: Kevin S. EvansCheryl A. Gorman

Last Thursday (October 10, 2008), the SEC’s eagerly awaited amendments to Rule 12g3-2(b) became effective.

The new Rules automatically exempt certain foreign private issuers from registering a class of equity securities under Section 12(g) of the Exchange Act. The Rules also enables a qualified foreign private issuer to have a class of its equity securities traded on a limited basis in the over-the-counter (OTC) market in the United States, while avoiding the Exchange Act’s periodic reporting requirements and provisions of the Sarbanes-Oxley Act of 2002.

The amendments greatly simplify qualifying for the exemption, including eliminating the 40-year-old requirement to submit a written application to the SEC. The amended Rule 12g3-2(b) is self-executing. A foreign private issuer qualifies for the exemption without submitting a written application to, or otherwise notifying, the SEC.

A foreign private issuer must satisfy three conditions to qualify for the revised Rule 12g3-2(b) exemption:

    • It must maintain a listing of the subject class of equity securities on one or more exchanges in a foreign jurisdiction that, either singly or together with the trading of the same class of the issuer’s securities in another jurisdiction, constitutes the primary trading market for those securities. Essentially, this condition requires that at least 55% of the trading in the subject class of securities on a worldwide basis take place in, on or through the facilities of a securities market or markets in a single foreign jurisdiction;
    • It must not have any reporting obligations under Section 13(a) or 15(d) of the Exchange Act with respect to any of its classes of equity securities; and
  • It must electronically publish in English its material non-US disclosure documents that were required to be publicized, filed or distributed to securityholders outside the United States since the beginning of its last fiscal year. In order to maintain the exemption, it must continue to publish such documents promptly on an ongoing basis.

The SEC has adopted a three-year transition period during which currently qualified foreign private issuers will continue to be exempt. If an issuer has not complied with the new conditions by the expiration of the three-year period it will need to register under Section 12(g) or qualify for another exemption. Separately, to provide sufficient time for foreign private issuers to develop their capabilities to publish electronically their non-US disclosure documents and to translate such documents into English, the SEC has established a three-month transition period following October 10, 2008 during which time it will continue to accept and process paper applications.