Comments by the Federation of European Stock Exchanges (FESE) on the

U.S. SEC Draft Release No. 33-7637 – International Disclosure Standards

File No. S7-3-99

Ladies and Gentlemen,

01) The Federation of European Stock Exchanges takes pleasure in commenting below briefly on the proposals by the United States Securities and Exchange Commission as laid down in draft release 33/7637 on International Disclosure Standards.


02) The Federation of European Stock Exchanges represents the 18 main Stock Exchanges of the 15 European Union countries as well as the Stock Exchanges of Switzerland, Norway, and Iceland and also represents the Stock Exchanges of Hungary, Slovenia, and Poland, which are Associate Members of the Federation.

03) First of all, the Federation would like to express its appreciation for the active approach that the United States Securities and Exchange Commission has taken in making these proposals to revise the disclosure requirements for foreign private issuers to conform to the international disclosure standards endorsed and agreed by the International Organisation of Securities Commissions in September 1998.

04) The Federation supports efforts by the US-SEC as well as by European and other securities regulators to come to international standards and internationally agreed regulation, in order to insure that issuers of securities as well as investors benefit more fully from the further integration of the world’s capital markets and are not unduly burdened by differing regulatory and administrative requirements.

05) The Federation believes that national regulations wherever possible and feasible should be brought into conformity with international standards in order also to insure that no two-tiered regimes are being set-up and that issuers may make use of one set of regulatory requirements. At the same time the Federation supports efforts to maintain and wherever feasible increase investor protection, among others by maintaining or increasing transparency.

06) The Federation hopes that the approach taken by US SEC would indeed help to create a international passport to the world’s capital markets. The Federation will make its best endeavours to help European Securities Commissions and other European Regulatory Authorities to wherever possible to make their contribution to such an international passport as well.

07) Generally the Federation supports the various amendments to the United States Securities Legislation and Regulation where these broaden the applicability of the international passport, for instance where the US SEC proposes to extend the new regime to cover all types of registration statements and annual reports.

08) The Federation believes that the US-SEC takes the right approach by exempting foreign private issuers from US proxy rules, especially so since proxy rules are either absent or very different in European regulatory systems.

The Federation also supports the exemption for compliance with short-swing trading rules, but poses a question mark at the exemption of the requirement of company insiders not to file reports of beneficial ownership.

The Federation would suggest that in cases where company insiders by legislation or regulation in the country where the company is registered, are already required to file reports, that such reports – even if different in format - need also to be filed in the US. At the same time the Federation considers that reports filed by issuers with the US-SEC should also be automatically filed publicly with the Securities Commission in the country where the company is incorporated.

09) The Federation puts a question mark at the definition of foreign private issuer relating to the requirement or not, of US ownership. With today’s rapid integration of financial markets e.g. the internationalisation of fund management and the increased liquidity in especially European equity markets, a company, if at all able to look through nominee and custodial accounts, could find itself suddenly subject to different rules, even if US ownership maybe calculated to be above 50% for only a short while. The Federation agrees that the issuer should be required to take into consideration any information reported to it or otherwise provided to it.

10) The Federation certainly believes that foreign issuers would realise significant efficiencies. The Federation would argue that the number of additional disclosures required to satisfy specific national requirements should be limited to the minimum.

11) The Federation is satisfied that the proposed arrangements will apply equally to foreign companies listing in the US as to American companies listing in Europe and elsewhere.

12) The Federation notes the proposed changed requirement of disclosure of beneficial ownership at 5% rather than the 10% currently required by US-SEC Form 20-F. The Federation confirms that the minimum required by the European Union directive is 10% but in most but not necessarily all European markets national legislative requirements have created a minimum of 5%. Some national requirements on European countries are even below that figure.

13) The Federation believes that few foreign issuers would look at the United States, as the only jurisdiction outside their home country where they register or list their securities. Internationally minded companies, the Federation believes, will look at listing and registering their securities in most if not all cases, in three or more markets.

14) The Federation supports the rejection of the alternative of creating a two-tiered system of disclosure requirements. The confusion created by an elective approach would endanger the very essence of the proposals by IOSCO. The regulatory simplification is an important benefit of the proposals as there are now.

15) The Federation notes that the proposals would not affect the financial statement reconciliation requirements relating to generally accepted accounting principles and repeats its desire that the International Accounting Standards Committee and IOSCO reach an agreement soon.

16) The Federation notes that the proposal does not alter liabilities under federal securities laws nor, perhaps more importantly, change procedures for offering securities in the United States nor change core procedures and practises for reviewing file documents. The Federation believes no change in that respect is beneficial.

17) The Federation notes that there is no international consensus yet on the disclosure of market risk and that therefore this is not addressed in the international disclosure standards. However, as in many European jurisdictions there is currently a discussion about risk paragraphs in disclosure documents, the Federation believes it is important that on this item international consensus be created rather soon. The Federation will work with European regulators in that perspective.

18) The Federation notes the emphasis to reflect plain English drafting principles. As in many European

Jurisdictions filing of documents is permitted in the English language, with or often without an original or translation in the national language, the Federation believes this is an important point.

The Federation notes that recent High Court decisions in Europe also underlined the need to reflect plain drafting principles, so as to enable the knowledgeable private investor to better understand disclosure documents.

19) The Federation notes the proposal to add expanded requirements for management compensation plans and expresses the opinion that these would indeed create an additional burden to some foreign issuers.

However, the Federation believes, in line with increased perspective that these requirements in one form or other will soon apply in most European jurisdictions anyhow, this addition to your requirements is not unreasonable.

20) The Federation notes the flexibility the US-SEC shows in the proposal relating to the 12 or 15-month age of audited financial statements. In view of European regulatory standards and in order to maintain or increase transparency, the Federation believes that the 12 or 15-month requirements are reasonable and should be maintained unless urgent circumstances would dictate otherwise. The Federation does not believe that the provisions should be different for securities other than common equity.

21) The Federation recognises the criteria for the determination whether a company is a foreign private issuer or not. As above however, the Federation questions the 50% majority US ownership as this is a factor that may change in a relatively short time and is anyhow difficult to ascertain with precision. This is not or less the case with the requirements relating to the majority of the executive officers, the 50% of assets, or the business administration requirement.

The presumption that shares deposited in ADR programmes are held solely by US residents, seems reasonable to the Federation, if indications to the contrary are indeed acceptable.

22) The Federation appreciates having been given the opportunity to comment on the SEC proposals and apologises for its late deposition.

Yours Sincerely,

Paul Arlman

Secretary General FESE