Freshfields Bruckhaus Deringer
Two Exchange Square
Jonathan G. Katz
United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
By E-mail and Hand
3 December 2001
Dear Mr. Katz
Release Nos. 33-8016, 34-44868; International Series Release No. 1250; File No. S7-18-01 (collectively, the Release)
Thank you for the opportunity to comment on the proposed amendments (the Proposed Amendments) to the rules and forms relating to the Commission's Electronic Data Gathering, Analysis and Retrieval system (EDGAR) which are contained in the Release. With a few exceptions, the Proposed Amendments would require foreign private issuers, foreign governments and other specified foreign persons (in the context of cross-border tender and exchange offers, rights offerings and business combination transactions) to use EDGAR when making filings with the Commission. We are commenting based on our experience in representing underwriters, foreign issuers and investors involved in international securities transactions. The views expressed in this letter are solely our own and may not coincide with those of our clients.
From the dual standpoints of protecting US investors and promoting efficient US capital markets, the Proposed Amendments are a timely response to recent global advances in information technology. They would operate to present information about foreign persons to the market on the same basis and with the same speed, broad dissemination and ease as information relating to domestic persons. Foreign issuers would reap the benefits currently enjoyed by domestic issuers filing by EDGAR: increased efficiencies in the filing process, enhanced staff review, greater market exposure and faster and more efficient storage, retrieval and analysis of financial and other information. The Proposed Amendments are also consistent with other recent changes aimed at placing foreign and domestic issuers on a more equal footing, such as the decreased availability of confidential filings for follow-on offerings by foreign issuers1 and the greater consistency between the disclosure requirements for foreign and domestic issuers.2 By moving toward more equal treatment of foreign and domestic issuers, the Commission is helping to make the US capital markets as efficient a home for foreign issuers as they are for domestic issuers and to ensure that US investors in foreign securities are as well protected as US investors in domestic securities.
We respectfully submit, however, that portions of the Proposed Amendments may violate this equal treatment principle by placing disproportionate burdens on foreign filers, many of which, because of their linguistic and regulatory environment and geographic distance from the US, deserve special consideration. Although the specific purpose of the Proposed Amendments may be best served by having foreign filers follow existing EDGAR procedures applicable to US persons as closely as possible, we suggest that certain accommodations be made to avoid having the costs of the Proposed Amendments outweigh the benefits to foreign filers and to the US capital markets. The Commission has adopted similar accommodations in the past, including the initial exclusion of foreign issuers from EDGAR filing requirements. Without continued accommodations for foreign filers, the goals of promoting access by foreign issuers to US capital markets and providing US investors with increased opportunities for diversification into foreign securities may be undercut.
We respectfully propose the following changes to the Proposed Amendments:
Our recommendations are explained more fully below.
Treatment of foreign language documents
Form 20-F and registration statements. Currently, persons submitting documents in paper form to the Commission have the option of filing or furnishing a foreign language document accompanied by a "summary, version or translation in the English language."3 Under the Proposed Amendments, foreign filers would need to comply with Rule 306 of Regulation S-T, which requires the use of the English language in all EDGAR filings. Absent a temporary hardship or a continuing hardship exemption4 or other limited circumstances,5 foreign filers would need to prepare a "fair and accurate"6 English language translation of all foreign language documents submitted to the Commission and would no longer have the option of filing a "summary" or "version" of a foreign language document.
To date, the EDGAR translation requirement has not burdened domestic EDGAR filers, because the vast majority of their documentation originally is in the English language and thus requires no translation. In contrast, many foreign issuers are not fluent in the English language and instead conduct business and communicate with regulators, exchanges and security holders in their local language. We urge the Commission, therefore, to reevaluate the Proposed Amendments in light of the burdens that requiring full translation of foreign language documents into the English language would impose on issuers in much of the non-English speaking world.7
The Release suggests that the Proposed Amendments may not impose a significant new burden on foreign issuers because their adoption would only be an extension of the current Commission practice of requiring full English language translations of important exhibits. In addition to the exhibits mentioned in the Release, however, Form 20-F also requires the filing of many other exhibits that, under the current rules, typically are filed in their original language accompanied by an English language summary and that, under the Proposed Amendments, would need to be translated in full. These exhibits include: "material contracts"; certain directors', officers' and promoters' contracts; contracts on which the registrant's business is "substantially dependent"; certain contracts for the acquisition or sale of property, plant or equipment; and material leases and certain compensatory plans.8 These exhibits as a whole can be quite voluminous, and therefore translation would be an additional transaction cost and could lead to transaction delays for first-time issuers.9 Often, only a small portion of a contract is material, and the additional cost of translating the remainder of the contract would be a significant burden. Also, many contracts and other exhibits contain highly technical vocabulary and complex structures, and therefore the incremental cost of an accurate translation of these documents, in particular, is especially high.
In our experience translations, when required, are normally undertaken by professional translation companies.10 By contrast, preparation of an English language summary of a foreign language original document usually does not require the services of a professional translation company. Instead, a bilingual US lawyer typically handles the task alone, applying both his or her linguistic ability and professional judgment to identify material terms for inclusion in the summary. In any case, summaries of many such documents would normally be created for inclusion in the body of the prospectus.
Accordingly, we respectfully suggest that the Commission revise the Proposed Amendments to permit the submission of summaries of required foreign language documents in identified circumstances. For example, the Commission might adopt a rule formally identifying those exhibits that require full English language translation absent a specific waiver from the Commission. For Form 20-F, we would suggest that the Commission continue to require full English language translation for articles of incorporation, memoranda of association, bylaws, instruments defining the rights of security holders, voting agreements and financial statements. The remaining foreign language exhibits, however, could be filed in paper form in the original language accompanied by an electronically filed English language summary (which would cover all material points). We note that some non-US exchanges listing companies from multiple jurisdictions follow a similar approach.11
Form 6-K. By deleting most of General Instruction D to Form 6-K, the Proposed Amendments would require an Exchange Act reporting foreign private issuer to provide full English language translation of all material information which it (i) makes public pursuant to the laws of its home jurisdiction, (ii) files publicly with any foreign stock exchange on which its securities are listed or (iii) distributes to its security holders. Form 6-K must be "furnished promptly" to the Commission after the required information is made public.
Where material foreign language documents distributed outside the US are voluminous, such as detailed reports filed with non-US regulators and documents relating to business combination transactions or securities offerings in reliance on Regulation S under the Securities Act, the English language translation requirement may make the prompt furnishing of Form 6-K extremely difficult. Foreign private issuers would in practice need to start translating material documents well before they are finalized for distribution outside the US. As it is quite common for the local documents not to be finalized until immediately prior to release, having an English language translation ready for prompt submission to the Commission would often require preparing two versions of the documents, one in the original language and one in the English language, and making simultaneous changes to both.12
Dual-tracking documents in this manner can be expensive, especially if the foreign private issuer must use a local financial printer with local-language expertise and an international financial printer, possibly in another country, with EDGAR capabilities.13 This additional burden is particularly significant in situations where the issuer does not otherwise intend to distribute the documents to US investors. It is our experience that only a very small number of (mostly US-based) financial printers currently offer EDGAR capabilities in non-US locations. As we have discussed above, this additional translation requirement would place a burden on foreign issuers that domestic issuers do not face. Form 6-K was designed as an accommodation for foreign private issuers wishing to access US capital markets so that they need not engage in periodic reporting under two separate regulatory schemes.14 For foreign private issuers in non-English language jurisdictions, the Proposed Amendments would markedly reduce the degree to which Form 6-K presents such an accommodation.
With one exception, we concur with other commentators that foreign private issuers should be permitted to furnish Form 6-K initially on paper so long as an EDGAR version is submitted electronically within a reasonable grace period thereafter. In the case of the submission of a press release without accompanying materials, however, we have no objection to requiring a full English language translation. Press releases by reporting foreign private issuers already are made available in the English language as a matter of course, and the cost and coordination required to translate a few pages of text and submit it by EDGAR does not appear to us to be unduly burdensome.
Form CB. Limited exemptions and safe harbors adopted in January 2000 for cross-border rights offerings, tender offers and exchange offers were intended to "facilitate US investor participation" in such transactions.15 Unfortunately, the Proposed Amendments could, in our view, diminish the attractiveness of these exemptions.
Under the Proposed Amendments, Form CB would be required to be furnished by EDGAR in two instances: (i) where the bidder or acquirer filing Form CB is an Exchange Act reporting company and thus an EDGAR filer and (ii) where a foreign company that is the subject of the transaction covered by Form CB is an Exchange Act reporting company, even if the bidder or acquirer is not. In the first case, we concur that the additional burden imposed on the foreign bidder is not substantial.
In the second case, the foreign bidder may have no previous experience with EDGAR and indeed may have no previous experience with the US capital markets. Often, tender or exchange offer documentation normally would be prepared by local financial printers with only local language capabilities, who will have little other incentive to provide EDGAR services. Unfortunately, US securities counsel often is not involved in the transaction early or directly enough to influence the selection of printers. In these circumstances, these local printers will need to upgrade their capabilities, or the bidder will need to hire an EDGAR-competent printer. We are not well placed to evaluate the increased costs these options might entail, although the early experience with EDGAR in the US may be a rough guide.
The extension of EDGAR to Form CB also would raise the translation issues we discuss above. Although Form CB already requires an English language translation of home jurisdiction disclosure documents delivered to US holders, supplemental information and documents incorporated by reference into the home jurisdiction document or required to be put "on display" under home country rules currently may be submitted to the Commission in paper form with an English language summary.16 With a mandated EDGAR filing, such materials, which may be voluminous, would have to be translated into the English language prior to being submitted by EDGAR a single business day after dissemination in the home jurisdiction. Given the often time-sensitive nature of Form CB transactions, any added risk of delay caused by an English language translation requirement may preclude a bidder from seeking to use the cross-border exemptions altogether.
The Commission notes in its Release that Form CB was filed by non-Exchange Act reporting companies just eight times in year 2000 and appears to suggest based on this data that extending the EDGAR requirement would therefore not affect a significant number of foreign bidders.17 While the actual number of Form CBs filed by non-Exchange Act reporting foreign bidders may be small, we respectfully submit that this fact may not necessarily be reflective of the true level of offshore transactions that might qualify for the relevant exemptions. In our experience, a significant number of cross-border tender and exchange offers, which would qualify for the limited exemptions, are not extended to US holders. We believe that any additional costs associated with mandated EDGAR filing may eliminate the already apparently small degree to which foreign bidders who are not Exchange Act filers have relied on the cross-border exemptions. While we agree with the Commission that investors will "expect to have electronic access to all filings about the reporting foreign company,"18 we feel that, given a choice, investors would probably prefer to have access to all tender and exchange offers involving that company, even if paper filing is the only method of communication employed.
In order to maximize the benefits offered by the limited exemptions for cross-border rights offerings, tender offers and exchange offers, we respectfully propose that furnishing of Form CB by EDGAR remain voluntary-at least for foreign persons who are not already Exchange Act filers. Alternatively, the Commission could permit the furnishing via EDGAR of English language summaries of "home jurisdiction documents" that are not in the English language, together with full original language copies of such documents in PDF (Portable Document Format). This would facilitate immediate transmission of material information to US holders.
Requirement of "written representation" as to "fair and accurate" translation
The Release solicits comment on whether the Commission should eliminate the provision of Rule 306(a) of Regulation S-T that requires a "designated officer" of an EDGAR filer to submit to the Commission a "written representation"19 (the Representation) that an English language translation of any required foreign language document filed by EDGAR is "fair and accurate."20 We respectfully suggest that the Commission eliminate the Representation, for the reasons set forth below.
First, Rule 306(a) is vague. It is unclear whether the officer is making the Representation on his or her own behalf or on behalf of the filer. Second, the officer providing the Representation, if he or she did not personally handle the translation, often will not be able to check the fairness and accuracy of the translation, which limits the value of an individual giving the Representation. Third, the Representation adds little (if anything) to the protections already afforded US investors under the antifraud provisions of the Securities Act and the Exchange Act. Sections 11 and 12 of the Securities Act and Sections 10(b) and 18 of the Exchange Act provide suitable incentives for filers to make certain that their English language translations are "fair and accurate." Lawyers already play a key role in ensuring that English language summaries of foreign language documents submitted to the Commission are accurate and contain all material information.
EDGAR filing hours
Currently, the Commission accepts EDGAR filings by direct transmission from 8:00 a.m. until 10:00 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is in effect (every day except for Saturdays, Sundays and US federal holidays).21 EDGAR filings submitted by direct transmission commencing after 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is in effect, are deemed filed as of the next business day.22 Though the Release proposes no change to the current EDGAR filing hours, we would like to respond to the Commission's request for comment on this issue.
We would suggest that the Commission investigate the possibility of accepting EDGAR filings 24 hours a day, or at a minimum further extending EDGAR filing hours. Current EDGAR filing hours are inconvenient for foreign issuers in non-US time zones. EDGAR filing hours have only partial overlap with normal business hours in Europe, and almost no overlap with normal business hours in Asia. United Kingdom companies, for example, must wait until 1:00 p.m. London time during either Eastern Standard Time or Eastern Daylight Saving Time to begin transmitting their EDGAR filings. Hong Kong and Singapore companies may make their EDGAR filings only between the hours of 9:00 p.m. and 11:00 a.m. Hong Kong and Singapore time during Eastern Standard Time and 8:00 p.m. and 10:00 a.m. Hong Kong and Singapore time during Eastern Daylight Saving Time. This presents special challenges for foreign issuers that prepare and submit their EDGAR filings without the assistance of a professional financial printer. If domestic and foreign issuers are indeed to receive equal treatment, then foreign issuers should also be able to submit EDGAR filings during their local business hours. The same argument applies to the expedited provision of EDGAR codes in response to a faxed or Internet-accessible Form ID and generally to improved access to the Commission for foreign issuers in non-US time zones. It is inconsistent with the goals of EDGAR and the technological advances given as the basis for the Proposed Amendments to limit the receipt of filings to the current EDGAR filing hours, especially if expansion of the filing window would not pose substantial technical hurdles.
Extended EDGAR filing hours would send a strong signal to foreign issuers that the Commission is serious about treating them in a manner consistent with the treatment afforded domestic issuers. For example, an earlier EDGAR opening hour would mean that European issuers no longer would need to wait until 1:00 p.m. London time or 2:00 p.m. Paris time to begin transmitting their EDGAR filings. Similarly, an extension of EDGAR filing hours to 12:00 a.m. (midnight) Washington time (1:00 p.m. Hong Kong and Singapore time and 2:00 p.m. Tokyo time during Eastern Standard Time, and 12:00 p.m. Hong Kong and Singapore time and 1:00 p.m. Tokyo time during Eastern Daylight Saving Time) would create a much-needed three- or four-hour "window" during which normal Hong Kong business hours would coincide with EDGAR filing hours. Although we are not familiar with the technical reasons for limiting EDGAR filing hours, it seems likely to us that current computer and networking technology would permit EDGAR filing 24 hours a day.
We appreciate your consideration of our comments. Please call Tim Steinert in Hong Kong at +852 2846 3478 if you have any questions about or otherwise require clarification of our comments.
FRESHFIELDS BRUCKHAUS DERINGER
By: /s/ Tim Steinert
Timothy A. Steinert
|1||See Division of Corporation Finance, International Financial Reporting and Disclosure Issues, Part III.B.1: Staff Willingness to Review Draft Submissions (1 May 2001); see also Division of Corporation Finance, Current Issues and Rulemaking Projects Quarterly Update, Part V: Internationalization of the Securities Markets, Confidential Processing of Foreign Issuer Filings (31 March 2001).|
|2||See Commission Release Nos. 33-7745, 34-41936; International Series Release No. 1205; File No. S7-3-99 (30 September 2000).|
|3||Rule 403(c) of Regulation C under the Securities Act, and Rule 12b-12(d) of Regulation 12B under the Exchange Act.|
|4||See Rules 201 and 202 of Regulation S-T.|
|5||See Rules 101(b) and 101(c) of Regulation S-T.|
|6||Rule 306(a) of Regulation S-T.|
|7||The Commission observes that about 18% of foreign private issuers already voluntarily file using EDGAR. See Release, Part III.B. However, the Release gives no geographic breakdown of these issuers. We suspect that the percentage is considerably lower in emerging markets, where in a number of jurisdictions English is less prevalent, and the use of information technology and the Internet in business is less common.|
|8||See Form 20-F, Instructions as to Exhibits, Instructions 4(a), 4(b)(i)-(iv) and 4(c).|
|9||Although we do not have comprehensive data, based on our experience, the Commission's estimate (see Release, Part V) that only an additional 18 pages per Form F-1 or Form 20-F will need to be translated seems low. Furthermore, we have found in the case of Chinese-English language translation that translation costs are higher than the Commission's estimate (see Release, Part V) of US$75 per page. For a standard page of 1,000 Chinese characters, professional Chinese-English language translation companies in Hong Kong charge from US$80 to US$190.|
|10||The supply of translation services in most relevant jurisdictions is adequate, although quality can sometimes vary considerably.|
|11||Consider, for example, the United Kingdom Listing Authority (UKLA). Chapter 6 of the Financial Services Authority Listing Rules (the Listing Rules) specifies the information that may be required to be included in "listing particulars" filed with the UKLA (equivalent to a US prospectus). In connection with the listing of shares or convertible debt securities, Rule 6.C.8 of the Listing Rules provides that where the memorandum and articles of association, trust deed, material contracts, directors' service contracts, terms and conditions of a transfer of assets or liabilities or of a takeover offer and various financial and auditors' statements are not in the English language, translations into the English language must also be available for inspection. An English language translation of a summary of material contracts may be made available for inspection if the UKLA so agrees. In connection with the listing of debt securities, Rule 6.J.8 (a rule substantively equivalent to Rule 6.C.8) applies.|
|12||General Instruction B to Form 6-K requires that a foreign private issuer furnish on Form 6-K only "that which is material with respect to the issuer and its subsidiaries" (emphasis added), but the Release states that the Proposed Amendments would require a foreign private issuer submitting a report on Form 6-K via EDGAR to provide an English language translation of "any foreign language document that is the subject of the Form 6-K report" (Release, Part II.D.3; emphasis added). Consider the example of a foreign private issuer who undertakes an offering of securities not available to US investors. Only a small portion of the local (foreign) prospectus may contain information that is material to US security holders. We would appreciate it if the Commission could clarify whether the Proposed Amendments would require a full English language translation and the furnishing of the entire local prospectus, instead of simply an English language press release or similar announcement summarizing the material aspects of the local offering.|
|13||We note, as observed by the Commission, that the major financial printers may advertise a presence in a long list of foreign countries. It is our experience, however, that many of these offices are no more than a communication site providing only a narrow spectrum of the services normally offered by printers in major US cities. Whether the Proposed Amendments will lead to an expansion of these services outside the US is difficult for us to assess, although it does appear that the leading US financial printers are expanding their in-house translation capabilities in anticipation of offering bundled printing, EDGAR and translation services to foreign private issuers.|
|14||See Commission Release No. 34-7749 (16 November 1965); see also Commission Release No. 34-8069 (28 April 1967).|
|15||See Commission Release Nos. 33-7759, 34-42054, 39-2378; International Series Release No. 1208; File No. S7-29-98 (24 January 2000), at 1.|
|16||See Form CB, Part II.|
|17||See Release, Part III.B.|
|18||Release, Part II.B.4.|
|19||Rule 306(a) of Regulation S-T.|
|20||Rule 306(a) of Regulation S-T.|
|21||See Rule 12(c) of Regulation S-T.|
|22||See Rule 13(a)(2) of Regulation S-T. Registration statements and post-effective amendments thereto filed pursuant to Rule 462(b) by direct transmission commencing on or before 10:00 p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever is in effect, are deemed filed on the same business day. See Rule 13(a)(3) of Regulation S-T.|