Speech by SEC Commissioner:
Remarks at the Open Meeting: Foreign Private Issuer Deregistration
Commissioner Roel C. Campos
U.S. Securities and Exchange Commission
March 21, 2007
Thank you, Chairman Cox. I'm also pleased to support the final rules regarding foreign private issuer deregistration, and I'd like to congratulate John White and his staff, particularly Mauri Osheroff, Paul Dudek and Eliott Staffin, for their fine work, as well as Ethiopis Tafara and the Office of International Affairs, and the Office of General Counsel.
In summary, this is an excellent rule. While you can't satisfy everyone all the time, this rule certainly will please nearly everyone this time. As evidence of this, we don't need to look much further than the comment letters, which were uniformly and vigorously supportive of the trading volume test. Moreover, I believe we were responsive to the few significant comments that we did receive on the reproposal. As has been noted, I definitely think it was the right decision to use worldwide trading volume in the denominator. Similarly, it makes sense to permit the inclusion of off-market transactions when calculating worldwide trading volume.
In practical terms, I understand that nearly 60% of European issuers listed in the U.S will be eligible to deregister under the new rules. Now, I don't believe that there will be a rush to the exits. I am sure that foreign issuers realize that there are many benefits to being in the U.S. Our markets have the lowest cost of capital in the world. Cross-listings in the U.S. produce a premium averaging 30 percentage points over the price of stock in the home country. Further, the U.S. is, to use a military term, "target rich." In other words, nowhere else in the world are there more potential merger partners. Almost all U.S. companies are available for sale — at the right price. Of course, having securities already registered in the U.S. provides great flexibility in making acquisitions.
While this rule is important, in and of itself, I think it is also very significant in the larger context of today's global economy. And it shows that the U.S. is willing to make accommodations to reflect this new reality. On the one hand, the rule will make it easier for foreign private issuers to delist and deregister if they believe that the U.S. market does not present an attractive opportunity. On the other hand, we have also adopted rules and committed ourselves to making the U.S. regulatory environment more compelling for foreign companies. For example, we are in the midst of right-sizing and reducing the burdens of Section 404 of the Sarbanes-Oxley Act. And, as we emphasized just a few weeks ago, we're also committed to the roadmap designed to end the GAAP-IFRS reconciliation requirement.
Recently, our staff has written and spoken about mutual recognition and cooperative approaches with other jurisdictions and their regulators, particularly with respect to foreign trading screens and foreign broker-dealers. We cannot be blind to globalization and the pressures that it places on our agency to accommodate cross-border trading and transactions. The recent NYSE/Euronext merger, for example, will likely bring requests from the combined entity to allow the sale of listed European securities in the U.S., and vice versa. It is only a matter of time. So it is surely appropriate to get in front of these issues.
I believe that there is much promise in the recent SEC staff proposal that which would provide for foreign securities to be sold through foreign screens directly to U.S. investors through a U.S. registered broker-dealer. Many details must be worked out, such as whether this proposal would be limited to large investors like QIBs. So, I look forward to progress leading to a rule proposal in this regard, hopefully before the end of the year. I also think it is time to consider the broader issue of mutual recognition and to what extent this could be accomplished. Our agency needs to look at, for example, foreign broker-dealer rules and affiliates, and consider the possibility of recognizing foreign regulators' examination and determination of foreign securities offerings to allow direct sales in the U.S.
There are many other issues and details to consider, not the least of which has to do with the resources that may be required in examining the degree of convergence on a principled and objective basis between foreign regulatory approaches and the U.S. system. We must, of course, be cautious and true to our mandate: to protect our investors and to promote the integrity of our markets and the efficiency of capital formation in the U.S. I certainly look forward to contributing to these discussions within the agency. The discussions no doubt will take considerable time.
Let me conclude by returning to foreign deregistration. There's been a great deal of talk recently about the SEC's dual mandate. Sometimes, there can be a tension between protecting investors and promoting capital formation. However, I think this rule accomplishes both and sacrifices nothing. The rule provides an easily workable and fair means for foreign issuers to deregister if they so desire, while at the same time maintaining protections for U.S. investors if there is significant market interest. I have no questions, and again, I appreciate all of the hard work by our staff in putting together such an excellent rule. I'm very pleased to support it.