The Securities and Exchange Commission (SEC) is asking for feedback on the treatment of Foreign Private Issuers.
The public comment period will remain open for 90 days following publication of the concept release in the Federal Register.
In brief, issuers who are based outside the United States may benefit from a treatment different from that of domestic issuers. This can be a lower level of disclosure on an offering. The SEC is pondering whether changes should be made, as there has been a “significant change” in the number of foreign issuers since 203.
SEC Chairman Paul S. Atkins says the SEC wants to attract foreign firms to the US. Still, there must be a balance between catering to foreign issuers and public disclosure, as well as the competitive disadvantage created by compliance disparity between domestic and foreign entities. Part of the challenge is that accounting and other regulations tend to vary across international jurisdictions. Compelling a Foreign Private Issuer to comply with US rules will add a cost to the process.
Atkins noted that the most common jurisdiction for these issuers is the Caymans, and the most common headquarters of these firms is China.
Recently, the US has been reviewing its economic relationship with China, amid growing concerns about over-reliance on the market and China’s increasingly aggressive military posture toward the US and allies in the Pacific.
Commissioner Hester Peirce echoed the sentiments of Atkins, noting that in 2003, Canada was the most prominent home of foreign issuers. Peirce said, “Despite my reservations, I believe we are asking the right questions.”
Commissioner Caroline Crenshaw also supported the concept release, as these foreign issuers may not be subject to a rigorous disclosure regime, and it appears that “regulatory forum shopping” is taking place.
“We should not unwittingly allow our markets to be part of an international regulatory loophole, at the expense of US investors and US businesses,” said Crenshaw.
Foreign issuers benefit from the deep and liquid capital markets in the US, which are the envy of the world. It appears that the SEC is on a path to level the playing field for these issuers, while being mindful not to deter participation in US markets.