Chapter 17 - § 17.12 • FOREIGN PRIVATE ISSUERS UNDER THE 1934 ACT

• Jurisdiction: Colorado

§ 17.12 • FOREIGN PRIVATE ISSUERS UNDER THE 1934 ACT

The stock markets in the United States are the largest stock markets in the world. Many companies, domestic and foreign, seek to take advantage of the capital-raising capabilities in the United States. More and more non-U.S. issuers that have their shares trading in markets in Europe, Asia, South America, Australia, Mexico, and Canada are also finding interest for their shares in the stock markets of the United States. This is especially true for Canadian companies whose shares may be trading on the Toronto or Montreal stock exchanges as well as in the over-the-counter market in the United States. The registration requirements of § 12(b) and § 12(g) of the 1934 Act²⁵⁸ apply to foreign (non-U.S.) companies to the same extent those requirements apply to companies organized in the United States:²⁵⁹

• When a company, domestic or foreign, has more than 500 shareholders of record and more than $10 million in assets at the end of any fiscal year, it is subject to the registration requirements of § 12(g), if
• The company directly or indirectly uses the jurisdictional means of interstate commerce in the United States.

Companies whose shares are quoted on one of the NASDAQ stock markets, an exchange, or the OTC Bulletin Board are required to be registered under § 12(b) and § 12(g) regardless of whether they meet the asset or shareholder tests.²⁶⁰

§ 17.12.1—International Disclosure Standards

The SEC historically has sought to balance the information needs of investors with the awareness that the interest of the public is served by opportunities to invest in a variety of securities, including foreign securities.²⁶¹ In its 1988 policy statement, the SEC noted that "[t]he goal in addressing international disclosure and registration problems should be to minimize regulatory impediments without compromising investor protection."²⁶² The globalization of the securities markets and new technological developments have challenged securities regulators around the world to adapt to the needs of market participants while maintaining their current levels of investor protection and preserving market integrity. Investors from the United States have proved to be increasingly interested in investing in foreign companies. Technological advances have made it easier for investors to do so. As these market forces have accelerated, the SEC periodically has reexamined its approach to regulating the U.S. securities markets, keeping in mind the fundamental need for investor protection.

Because capital is now flowing across national borders in unprecedented quantities, the SEC and other securities regulators around the world have an interest in ensuring that a high level of information is available to investors in all markets. The SEC's 1988 policy statement²⁶³ noted that "all securities regulators should work together diligently to create sound international regulatory frameworks that will enhance the vitality of capital markets." Worldwide regulatory consensus on high-level disclosure requirements means that companies complying with those requirements will find open doors to capital markets around the world. For this reason, the SEC has been actively involved in the International Organization of Securities Commission's²⁶⁴ efforts to develop a set of high-quality international disclosure standards.

The basic SEC disclosure requirements for U.S. companies derive from the 1933 Act, the 1934 Act, and Regulation S-K for non-financial disclosure, as well as Regulation S-X for financial statement disclosure. The 1933 Act requires extensive disclosure by companies seeking to raise money from public investors. This disclosure generally appears in the form of a public offering prospectus or a private placement memorandum. The 1934 Act requires extensive disclosure by companies whose shares are trading in the secondary markets (the stock exchanges and the over-the-counter market) in the United States. The 1933 Act and the 1934 Act give companies little flexibility; the rules promulgated by the SEC give foreign (non-U.S.) companies a significant amount of flexibility, depending on whether they fit within the definition of "foreign private issuers."²⁶⁵

§ 17.12.2—Trading Of Foreign Stocks In The United States

Many foreign issuers seek to establish a market for their securities in the United States for several reasons. Most importantly, the U.S. market for securities is perceived to be stable; even the OTC Bulletin Board is considered in some circles to offer better liquidity and have a better reputation than some foreign stock exchanges.²⁶⁶ Secondary trading of securities in the United States is frequently a precursor to a public offering in the United States to raise capital for the issuer's business operations in the United States or elsewhere.

§ 17.12.3—Form 10 — Full 1934 Act Registration

The SEC has established two methods by which foreign issuers can register under the 1934 Act, thereby complying with the requirements of NASDAQ and the OTC Bulletin Board and ensuring that current information is readily available to the brokerage community and the investing public. Any company can use the Form 10 registration...