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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Opening Remarks before the Commission Open Meeting


Elliot B. Staffin

Special Counsel
Office of International Corporation Finance, Division of Corporation Finance
U.S. Securities and Exchange Commission

Washington, D.C.
August 27, 2008

Thank you, Conrad, John, Chairman, and Commissioners. We recommend that the Commission adopt amendments to Exchange Act Rule 12g3-2(b), which provides an exemption from registration under Exchange Act Section 12(g) for equity securities of a foreign private issuer based on the submission to the Commission of information that the issuer has published pursuant to the laws of its home jurisdiction, the rules of its non-U.S. securities exchange, or that it has distributed to its security holders. The exemption allows a foreign private issuer to have its equity securities traded on a limited basis in the over-the-counter market in the United States although it exceeds the registration thresholds of Section 12(g).

The amendments would eliminate the current rule's written application and paper submission requirements by enabling a foreign private issuer to claim the Rule 12g3-2(b) exemption as long as it meets the following conditions. First, an issuer would have to maintain a listing of the subject class of securities on one or more foreign exchanges in one or two jurisdictions constituting its primary trading market. The rule defines primary trading market to mean that at least 55 percent of the trading in the issuer's securities took place in no more than two foreign jurisdictions during the issuer's most recently completed fiscal year. The purpose of the foreign listing condition is to help assure that there is a non-U.S. jurisdiction that principally regulates and oversees the issuance and trading of the issuer's securities, which makes more likely the availability of a set of non-U.S. disclosure documents to which a U.S. investor may turn for material information when making investment decisions about the issuer's securities.

Second, in order to claim the Rule 12g3-2(b) exemption, unless in connection with an Exchange Act deregistration, the amendments would require an issuer to have published in English, on its Internet web site or through an electronic information delivery system generally available to the public in its primary trading market, specified non-U.S. disclosure documents published since the beginning of its most recently completed fiscal year. An issuer would also have to publish electronically those specified non-U.S. disclosure documents in English on an ongoing basis for subsequent fiscal years in order to maintain the exemption. As a result, the amendments should make it easier for U.S. investors to gain access to a foreign private issuer's material non-U.S. disclosure documents in English and make better informed decisions regarding whether to invest in that issuer's equity securities in the U.S. over-the-counter market or otherwise.

Third, the amended rule would continue to require a foreign private issuer not to have any reporting obligations under Exchange Act Section 13(a) or 15(d). Like the current non-Exchange Act reporting condition of Rule 12g3-2(b), the purpose of this provision is to prevent an issuer from claiming the Rule 12g3-2(b) exemption when it already has incurred active Exchange Act reporting obligations. However, unlike the current rule, the amended rule would not require an issuer to look back 18 months and determine whether it had any active or suspended reporting obligations during that period. Elimination of a lengthy waiting period would help hasten the electronic publishing of a foreign private issuer's non-U.S. disclosure documents to the benefit of investors.

These final rule amendments are substantially similar to the amendments proposed last February, with one exception. In addition to the primary trading market condition, we proposed to require that the U.S. average daily trading volume of an issuer's class of equity securities in the United States be no greater than 20 percent of the average daily trading volume of that class on a worldwide basis for the issuer's most recently completed fiscal year. Most commenters opposed this separate trading volume condition primarily on the grounds that it would likely discourage foreign issuers from establishing or maintaining sponsored ADR facilities or otherwise engage in exempted offerings in the U.S., such as private placements and Rule 144A resales, to the detriment of U.S. investors.

After consideration of the comments, we have determined that adopting these amendments without the 20 percent trading volume condition is consistent with the protection of U.S. investors. We expect that the primary trading market provision, which is trading volume-based, will serve to protect U.S. investors by precluding a foreign issuer from claiming the exemption when the U.S. market is a dominant market, and by making it more likely that foreign companies claiming the exemption will be subject to disclosure requirements in their principal non-U.S. market. In addition, an issuer would lose the Rule 12g3-2(b) exemption, not only if it incurred Exchange Act reporting obligations or if it ceased publishing electronically its non-U.S. disclosure documents, as is currently the case, but also if it no longer maintained a listing on an exchange in its primary trading market. We believe this provision is necessary in order to help ensure the continued availability of a set of non-U.S. disclosure documents to which investors may turn when making decisions regarding an issuer's securities.

We recommend establishing, as proposed, a three-year transition period to accommodate a currently exempt issuer that would lose the exemption upon the effective date of the revised rule because, for example, it did not satisfy the foreign listing/primary trading market condition. We also recommend establishing, as proposed, a three-month transition period following the effectiveness of the amendments to permit issuers to comply fully with the electronic publishing requirement and enable investors to determine how best to access those electronically published documents.

In conclusion, we believe the rule amendments will benefit investors by increasing their access to a foreign private issuer's non-U.S. disclosure documents while at the same time reducing that issuer's costs of compliance under Rule 12g3-2(b).

Thank you, and now Felicia will present the next set of rule amendments.


Modified: 08/27/2008