Speech by SEC Commissioner:
Opening Statement on Foreign Private Issuer Deregistration Final Rules
Commissioner Annette L. Nazareth
U.S. Securities and Exchange Commission
SEC Open Meeting
March 21, 2007
I would like to thank the Division of Corporation Finance, especially John White, Mauri Osheroff, Paul Dudek, and Elliot Staffin, for their thoughtful recommendation to adopt rules concerning when a foreign private issuer may exit the Exchange Act registration and reporting regime. I am pleased to support the recommendations, which touch on a global issue with far-reaching implications.
Much has been said in recent months about maintaining the competitiveness of our capital markets, with no less than three blue-ribbon efforts focused on examining ways to maintain the preeminence of U.S. capital markets in the face of increased global competition. Our goal, broadly speaking, should be to ensure that our markets continue to be an attractive, cost-effective venue for raising capital, while at the same time maintaining a high level of market integrity and investor protection.
As we consider the Commission's response to this challenge, it will be critical to identify the key causes of inefficiencies in the U.S. capital markets and pursue effective ways to address them. I believe that the Commission has already begun initiatives that squarely address such inefficiencies. For example, last December we took a number of actions to address serious concerns with Sarbanes-Oxley Section 404 implementation costs, culminating in our proposed management guidance and the PCAOB's related AS5 proposal. Our goal is to maintain the benefits of Section 404 while emphasizing efficiency and innovation instead of a one-size-fits-all approach.
Another initiative that should improve the competitive posture of U.S. markets is financial accounting. The Commission has expressly supported and encouraged the efforts of the Financial Accounting Standards Board and International Accounting Standards Board to achieve convergence between U.S. GAAP and IFRS. This undertaking is designed to achieve one common set of high-quality accounting standards. As it currently stands, foreign private issuers must reconcile their financial statements to U.S. GAAP if their filed financials use IFRS—which is a costly requirement that many believe is of limited utility. In 2005, our staff laid out a "Roadmap" to eliminate the reconciliation requirement by 2009. Great progress has been made to date on this initiative and we must continue to encourage timely progress.
Today's amendments represent yet another definitive step by the Commission to maintain the competitiveness of U.S. markets, while not compromising investor protection or market integrity. The amendments would liberalize the criteria under which foreign private issuers may exit our Exchange Act registration and reporting regime, making their departure far less burdensome than under our current rules. As counter-intuitive as it may appear at first blush, I believe that these amendments will make the U.S. a more inviting place to do business and more foreign private issuers potentially will choose to list on our markets. If these issuers understand that they may leave once they have met the new conditions set forth in the amendments, their decision to utilize U.S. markets in order to raise capital should be much easier.
And yet, the amendments would not liberalize the exit regime at the expense of investor protection. Instead, they contain built-in safeguards, such as a prior reporting condition, which ensures that investors will still have the information that they need to make investment decisions regarding foreign private issuers. Thus, by ensuring that the U.S. capital markets remain attractive, while at the same time providing sufficient investor protection, I believe that the amendments are consistent with our policy goals.
I am particularly pleased to see that the staff's recommendations today represent a practical and balanced approach to the modernization of the Exchange Act exit provisions. Our approach in this area has been through several iterations as it has evolved, and I believe that the amendments before us today are the product of careful consideration and necessary adjustments by the Commission on an important issue.
One of the primary changes to the final rules, as compared to rules we reproposed last December, is a trading volume benchmark that will permit a foreign private issuer to exit the U.S. system when its U.S. trading volume is no greater than 5% of its worldwide trading volume. This benchmark should provide an appropriate measure of when the interest of U.S. shareholders in the equity securities of a foreign private issuer may have waned. Also, it is my understanding that the number of foreign private issuers eligible to exit will be roughly equivalent to the number that would have been eligible under the reproposed trading volume benchmark. Overall, the final rules reflect many points raised by commenters, and the staff has shown good judgment in recommending appropriate revisions.
I am confident that, by taking action on today's recommendations, and on other initiatives, the Commission can help to maintain the preeminence of the U.S. capital markets. Today's action is certainly a step in that direction, and I am happy to support it.