Speech by SEC Commissioner:
Remarks at the Open Meeting:
Foreign Private Issuer Deregistration
Commissioner Roel C. Campos
U.S. Securities and Exchange Commission
December 13, 2006
Thank you, Chairman Cox. I'm also pleased to support reproposing the new rules regarding foreign private issuer deregistration, and I'd like to congratulate John White and his staff, particularly Paul Dudek and Eliott Staffin, for their fine work.
In my role at times of representing my distinguished colleagues in the international forum, I've had a chance to talk to representatives of foreign issuers and foreign securities regulators about the difficulties with our current Exchange Act exit regime. I understand that some will be surprised, and perhaps concerned, that we've chosen to re-propose rules in this regard, instead of approving final rules. This is especially true given that we committed to proposing new deregistration rules by the end of 2005, which we did, but now here we are almost exactly a year later, again proposing but not adopting rules. I understand the concern about the delay, but I think in this case it's fully justified.
Simply put, we received a great deal of comments on our original proposal regarding the "public float" test. The differing concerns and opinions in this regard caused us to consider this aspect of the proposal very carefully, and, after all was said and done, we've now proposed to eliminate the public float test in favor of a much simpler trading volume test. I believe that most commenters will be in favor of what we've done, but, given that we've gone in a direction that wasn't precisely foreshadowed in the original proposing release, we at the Commission can't be sure of that. Therefore, it seems prudent and fair to give interested parties the opportunity to comment on the proposed trading volume test. However, as the release makes clear, the comment period will be relatively short, and I hope we will be in a position to adopt final rules very shortly.
Let me turn to the substance of the new proposals. I was particularly struck by commenters who pointed out that, in contrast to the United States, many European securities markets impose relatively few restrictions on the ability of a foreign issuers to delist and to terminate reporting and compliance obligations in those markets. At its heart, this is an issue of fairness. And, as these commenters noted, there is surely something unfair about this disparate treatment. This is especially true given the positive changes that many of the European markets have made in recent years with respect to disclosure, corporate governance and accounting standards. The bottom line is that we in the U.S. should be confident enough in the competitiveness of our markets to allow companies to exit our reporting regime when there is relatively little U.S. interest in the securities of those companies. If there is enough U.S. investor interest, these companies will stay. If not, they should be free to go. It seems to me that part of making our markets as attractive as possible to foreign issuers, is removing the concern that once in the U.S. markets, a company would be stuck here. And I am sure that some foreign issuers that do not have significant investor interest or much business in the U.S. will deregister. However, I point out that there are many reasons that our markets will remain competitive and attractive to foreign issuers. Our low cost capital remains an extraordinary advantage. Second, our markets continue to offer many potential targets for mergers and acquisitions, and having registered stock in the U.S. allows foreign companies to use that currency for acquisitions. As has been noted, it is a little ironic that it is today that we issue this particular proposal, when we are on the eve of essentially fixing the implementation of Section 404. Hopefully, foreign companies who were concerned about Section 404 will consider the management guidance that the SEC is putting out and the new work on AS2 that the PCAOB will publish next week.
With that said, let me turn to one specific aspect of the new proposal - that is, the new trading volume standard. I'll keep this brief because the Division has already provided an excellent overview, and I don't want to be too repetitive, given the length of today's calendar. In short, it's my hope that we'll have significant agreement about our proposal to use average daily trading volume as the key quantitative measure, given that I think it has a number of advantages. For example, it is a specific and direct measure of the relative U.S. market interest in a particular security. It also does not draw a distinction between different types of U.S. shareholders. Moreover, from a cost and practical perspective, trading volume data is far easier to obtain than public float or record holder data, and thus, the new standard should help issuers reduce costs when determining whether to exit our markets. Finally, and importantly, I think the five percent standard is truly such that it should ensure that U.S. interest is low - if less than one-twentieth of the trading occurs in the U.S. markets, it is hard to argue that there is significant U.S. interest.
As one commenter noted, in order to be effective, the new rules must achieve three goals: (1) they must be practical and easy to apply; (2) they must result in an appreciable increase in the number of foreign issuers eligible to deregister, if there is little U.S. interest in those issuers; and (3) they must balance the interests of investors and issuers. In short, I think our new proposal - particularly the trading volume test and the revisions to the other substantive deregistration conditions - satisfies these three goals. I note that the new proposed rule would likely allow a significant percentage of foreign issuers to deregister if they choose - significantly more than under our former proposal.
I have just one question. As discussed, there are a number of advantages of moving to a market volume test over a public float test. That said, I was wondering if there are any significant disadvantages of moving away from the public float test.
Let me conclude by saying that I hope these new proposed rules will provide an easily workable and fair means for foreign issuers to deregister if they so desire, while at the same time maintaining investor protections for U.S. investors. I have no additional questions, and again, I appreciate all of the hard work by our staff in putting together such an excellent proposal. I'm very pleased to support it.