Publications

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At its open meeting held on March 21, 2007, the Securities and Exchange Commission approved new rules that make it easier for foreign private issuers[1] (FPIs) to deregister their securities and terminate the associated reporting obligations under Section 12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).

When it becomes effective, new Rule 12h-6 will make the process of exiting the US capital markets simpler, more certain, and more streamlined for FPIs.

Under the current rules, deregistration is dependent on the number of US security holders, which has proven difficult for many FPIs to measure. Under the new rules, however, the test for whether an FPI can deregister will require a comparison of the average daily trading volume (the ADTV) of the class of securities to be deregistered in the US to the worldwide ADTV for that class of securities.

In addition, under the new rules FPIs will be able to permanently terminate, rather than suspend, Exchange Act reporting obligations.

Current Rules Can Prove Costly and Cumbersome

Under the current regulatory regime, an FPI may “exit” Exchange Act registration and reporting requirements with respect to a class of securities if fewer than 300 US residents are record holders of those securities. This “headcount” test requires an FPI to look through the record ownership of institutional and nominee holders on a global basis.

Historically, this process has proven cumbersome, costly, and, often, uncertain. Moreover, under the existing regime, even if an FPI were to satisfy the 300 US resident test, reporting obligations may be renewed if, at any point, more than 300 US persons acquire that class of securities.

Thus, an FPI may find itself in the position of indefinitely incurring reporting obligations, which have become more complicated in the Sarbanes-Oxley era, even though there may be only modest interest in the issuer’s securities from US investors in comparison to interest from other capital markets.

To address these issues, and as one step to enhance the attractiveness of the US capital markets for foreign companies, the SEC proposed new deregistration rules in December 2005.[2] After receiving numerous comments, the SEC re-proposed the deregistration amendments on December 22, 2006.[3]

New Rule 12h-6: An Alternative to “Headcounts”

The newly adopted Rule 12h-6 provides an alternative to the headcount approach for demonstrating low US market interest.

An FPI may satisfy the new rules by demonstrating, as a threshold matter, that the ADTV of the class of equity securities in the US it proposes to deregister represents 5 percent or less of the worldwide ADTV[4] of that equity security during the 12-month period ending within 60 days of a deregistration application. Under this formulation, the number of US security holders is irrelevant to a deregistration application.[5]

In public comments, the SEC has acknowledged that, in comparison to a pure headcount methodology, a benchmark based solely on trading volume is a better measure of US market interest in an FPI’s securities at any given time. In addition, trading volume data is more accurate, less costly, and easier to obtain than the information required for identifying record holders.

In addition to satisfying the trading volume test, an FPI must meet the following conditions in order to permanently terminate its registration and reporting requirements:

· The issuer has maintained a listing of the class of securities in a foreign jurisdiction which is the primary trading market for that class of securities for at least 12 months;

· The issuer must have been an Exchange Act reporting company for at least 12 months, have submitted all Exchange Act report during such period and filed at least one annual report; and

· The issuer must not, with limited exceptions, have sold any securities in a registered offering in the US, during the preceding 12-month period.

To Deregister, File Form 15F

An FPI seeking to deregister must file a Form 15F with the SEC certifying that it has satisfied the conditions for deregistration and termination of reporting obligations. The Form 15F filing immediately suspends the issuer’s reporting obligations for the class of securities that were the subject of the Form 15F.

Under the new rules, the suspension automatically becomes permanent if the SEC fails to object within 90 days after the Form 15F is filed. The issuer must withdraw the Form 15F if, during this 90-day waiting period, it obtains information that causes it to reasonably believe it was not eligible for deregistration at the time that it filed the application.

12g3-2(b) Exemption from Reporting Obligations

Under the current rules, an 18-month waiting period applies prior to suspension of reporting obligations. However, when the new rules become effective, the reporting exemption under Exchange Act Rule 12g3-2(b) will be immediately available to an FPI upon deregistration, as long as the issuer publishes the English-language disclosure required by 12g3-2(b) on its website or other publicly available information delivery system.

Waiting Periods

In order to avoid creating an incentive for FPIs to terminate US trading facilities solely for the purpose of decreasing US ADTV to a level that would permit deregistration, the new rules impose waiting periods for deregistration after delisting or termination of an American Depositary Receipts (ADR) facility.

If an FPI delists its securities from a US exchange or terminates an ADR facility, it must wait 12 months from the delisting or termination date in order to deregister unless, during the 12-month period preceding the delisting or ADR termination, it satisfies the 5 percent ADTV test described above.

Delistings or ADR terminations that took place prior to March 21, 2007 will be exempt from the 12-month waiting periods.

Timing

We expect publication of the new rules in the Federal Register shortly. The new rules will become effective 60 days after publication. If the final rules become effective prior to June 30, 2007, FPIs with annual reports on Form 20F may be able to deregister before making a filing for fiscal year 2006.

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