020 7972 9600
(FAX: 020 7972 9602)
November 13, 2001
Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
RE: Release Nos. 33-8016, 34-44868, International Series Release No. 1250 (the "Releases"); File Number S7-18-01
Dear Mr. Katz:
We appreciate the opportunity to comment on the proposed amendments (the "Proposed Amendments") to the rules and forms governing the Commission's Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system, which would, among other things, require foreign issuers to file substantially all of their U.S. securities documents electronically through EDGAR. Our comments are based on our experience representing non-U.S. issuers, although the comments are solely our own and are not intended to represent the views of our clients.
We share the Commission's desire to improve the availability of information to the capital markets about companies whose securities trade in the U.S. markets. The use of EDGAR by domestic issuers has widened access to information about these companies to anyone with a desktop computer and an Internet link. It is a laudable goal to provide similar access to information by non-U.S. issuers that have securities that trade in the U.S. markets. However, there is also a competing goal that must also not be thwarted in the process. That goal is to encourage non-U.S. issuers to access the U.S. capital markets. The preeminence of the U.S. capital markets will only continue if this goal is also met. Today's capital markets are increasingly competitive. Non-U.S. issuers have numerous choices on where to raise capital. It is therefore important to weigh the benefits U.S. investors will obtain from having Internet access to information about non-U.S. companies with the disadvantage that added costs and requirements could deter non-U.S. issuers from seeking financing or listing in the U.S. capital markets.
We respectfully urge as described below that the Commission (i) give non-U.S. issuers a grace period during which to submit Form 6-Ks electronically so long as a paper filing is made promptly, (ii) re-evaluate the proposed requirement to translate all non-English language documents given the significant added cost and burden the requirement will entail and (iii) not require the filing of Form CBs for persons availing themselves of the Tier I exemption.
Our suggested changes try to take into account the differences in the disclosure requirements that are applicable to domestic and non-U.S. issuers. In general, a domestic issuer knows when it will make a filing well in advance of the filing. For its filings on Form 10-Q and Form 10-K, it generally knows at the beginning of the year what day it plans to make the filings. As a result, through advance planning, it can take into account the extra time needed to prepare filings under EDGAR. Since the protocol used by EDGAR is not a common one, these issuers often deploy internal technical staff or third party service providers to facilitate the filing on EDGAR.
A foreign private issuer is required to file an Annual Report on Form 20-F or, in the case of an MJDS Canadian issuer, Form 40-F, which is comparable to a domestic issuer filing a Form 10-K. Since foreign private issuers are subject to their home jurisdiction reporting requirements, the U.S. securities laws do not impose upon them a duplicate set of interim disclosure obligations, such as a quarterly filing on a Form 10-Q. A foreign private issuer is instead required to submit a report on Form 6-K if material information about it or its subsidiaries (i) is made public in its home jurisdiction pursuant to the laws of that country, (ii) is filed with any foreign stock exchange on which its securities are listed and made public by such exchange or (iii) is distributed to its security holders. Many foreign private issuers submit a Form 6-K any time they issue a press release in their home securities markets.
Because of the frequency and, in many cases, short lead time with which foreign private issuers submit Form 6-Ks, they would be less able than their domestic counterparts to plan and coordinate the "real time" electronic submission of such reports. Foreign private issuers already need to contend with translating press releases into different languages and coordinating their release into multiple trading markets. If the Proposed Amendments are adopted, these companies' ability to issue a press release will be further complicated by the need to EDGARize the text of the press release and coordinate its "prompt" filing. Since many press releases cannot be preplanned, the EDGAR process will add significant burdens on these non-U.S. companies every time they issue a press release or need to make a filing with their domestic stock exchange. Since they are less likely to have technical people in-house to deal with EDGAR filings, they will in most cases need to rely on third party service providers, which will add another layer of coordination as well as expense to the process of distributing public releases.
We propose that the Proposed Amendments be modified in the following ways:
1. Foreign private issuers should be given the option to continue to submit Form 6-K on paper as long as an electronic version is submitted via EDGAR within a grace period thereafter.
The Proposed Amendments would require that foreign private issuers submit reports on Form 6-K electronically through EDGAR. Because of the way Form 6-K works in practice as described above, this requirement would result in foreign private issuers experiencing greater burdens and incurring higher costs than domestic filers.1
In order to help alleviate such burdens and costs and encourage the continued flow of submissions on Form 6-K in accordance with the current business practices of foreign private issuers, we suggest that foreign private issuers be permitted to submit Form 6-K on paper as long as an electronic version is submitted via EDGAR within a reasonable period of time thereafter. We suggest a 30-day grace period during the first year after adoption of the Proposed Amendments and a 15-day grace period during subsequent years. This grace period would give foreign private issuers adequate time to EDGARize documents and make any necessary English translations. It would reduce the costs of such submissions due to the "non rush" basis on which such tasks could be completed. A subsequent EDGAR filing will, however, facilitate the creation of an electronic record of each filing by foreign private issuers. We believe this balanced approach will alleviate much of the added burden imposed by the Proposed Amendments.
2. The proposed requirement that any foreign language document be translated into English should be revised.
Under the Proposed Amendments, any foreign language document must be replaced with a fair and accurate English translation. This requirement would force many issuers to engage services to translate numerous documents and would result in prohibitive additional costs for non-U.S. issuers. It will also add time consuming steps to the process of filing documents with the Commission with lengthy foreign language documents and exhibits. The additional cost burden should not be underestimated particularly for large documents. In order to avoid these consequences we suggest the following.
First, we suggest that, given the significant added cost and burden relative to the benefit achieved, the Commission reconsider the proposed English translation requirement. We respectively suggest that the Commission defer this new requirement until it has investigated fully other possible alternatives. We believe that the Commission could adopt a rule that provides for translation of key documents (e.g., charter, bylaws) or portions of key documents and reduce significantly the cost and burdens of translating entire documents. This would result in decreased costs for non-U.S. issuers without compromising investor understanding. Foreign private issuers should not be saddled with significant additional costs because the EDGAR system cannot accommodate languages other than English. Moreover, any requirement that adds significant costs should be balanced to reduce such costs where no or little benefit is served.
Second, we suggest that an exception to the English translation requirement be created for documents that already contain an English language translation but have foreign language provisions set forth therein. Quebec-based companies are an example of one type of foreign private issuer who would benefit from this exception because many of their contracts are required by the Charter of French Language to recite in both English and French and in the same paragraph that the parties have agreed to contract in the English language only. We also suggest an exception be created for documents containing a foreign language provision that states the document is available in such foreign language. Many Canadian companies include one or two French language sentences in what is otherwise an English language version of their annual reports indicating that a French version of the report can be obtained upon request. Absent an exception, these companies would have to create a second U.S. filing version of a document simply to remove a small number of French language sentences. We submit that requiring such an exercise is unnecessarily burdensome.
3. Companies availing themselves of a Tier I exemption should not be required to file their Form CBs electronically via EDGAR.
The Tier I exemption was established to encourage offerors to include U.S. shareholders in a tender or exchange offer of a non-U.S. company. Requiring an EDGAR filing of the Form CB in any context will make the process of complying with the Tier I exemption requirements more burdensome and may undermine the advantages of using the Tier I exemption. As a result, this rule change could lead to the exclusion of U.S. security holders from such tender or exchange offers. We therefore believe that EDGAR filing should not be mandated for Form CBs submitted by companies in connection with a Tier I transaction.
We appreciate your consideration of our comments. Please call Timothy E. Peterson at 44 207 972 9676 or Kenneth R. Blackman at 212 859 8280 of our Firm if you have any questions about or require clarification of our comments.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By:___/s/ Timothy E. Peterson________________________
Timothy E. Peterson
|1||These are the very reasons foreign issuers were initially excluded from the EDGAR regime. See Section I.B. of Release Nos. 33-8016 and 34-44868 and International Series Release No. 1250.|