DJ 2nd UPDATE: SEC OKs Easier Way For Non-US Cos To Exit US Mkts



By Judith Burns

WASHINGTON (Dow Jones)--U.S. securities regulators voted unanimously Wednesday to approve new rules making it easier and faster for foreign companies to exit U.S. markets, which has taken on increased urgency for non-U.S. firms facing stricter U.S. accounting laws.

Under the new rules, non-U.S. companies may leave U.S. markets and escape Securities and Exchange Commission oversight if U.S. trading in their securities is 5% or less than worldwide trading in the same securities over the previous 12 months. The new rules will take effect by midyear, just in time for non-U.S. firms seeking to avoid stricter internal-controls reviews ordered by Congress in 2002 for all public companies.

SEC Chairman Christopher Cox said the new approach will be an easier, less costly way for non-U.S. firms to leave, which should make U.S. markets more inviting to foreign firms over the long run.

"What we're trying to do is update and modernize our standards," Cox told reporters after the SEC's public meeting on the measure. He said the old exit plan, which allowed foreign firms to exit only if they had fewer than 300 U.S. shareholders, was "seriously outdated" and "off-putting" to non-U.S. companies looking for U.S. investors.

About 29% of the approximately 1,200 non-U.S. firms registered with the SEC would qualify to leave the U.S. immediately once the new rules take effect. However, SEC Commissioner Roel Campos said he doesn't expect "a rush to the exits," noting that U.S. markets remain an attractive destination for non-U.S. firms and that U.S. regulators are addressing concerns about U.S. regulatory costs.

Other changes being contemplated - such as allowing non-U.S. firms to file financial reports using international, rather than U.S., accounting rules - also may help keep non-U.S. firms planted in U.S. markets, said SEC Commissioner Annette Nazareth.

The SEC's new trading-volume approach is likely to please critics, who have long complained that the former standard made U.S. markets like the "Hotel California" of the Eagles song, which "you can never leave."

"Roach motel" and "Venus flytrap" analogies also have been used to describe U.S. markets for non-U.S. firms that list on them, a reputation the U.S. should be happy to shed, commented SEC Commissioner Paul Atkins. Todd Malan, president and chief executive of the Organization for International Investment, based in Washington, applauded the SEC's action and said it should enhance U.S. market competitiveness by removing disincentives to enter U.S. markets.

"We can't encourage new people to come to U.S. markets if they can't ever get out," said Malan, whose organization represents foreign firms with U.S. subsidiaries, including Bayer Corp., L'Oreal USA and Toyota Motor North America.

The SEC first tackled the foreign-deregistration question in 2005, proposing a new standard based partly on U.S. trading volume and partly on U.S. share ownership. The European Commission balked, saying the U.S. plan was so restrictive that only a handful of European companies would benefit from it.

A revised plan floated by the SEC in December relied solely on trading volume in the U.S. compared to home-country trading, but the final rules will compare U.S. trading to global trading, including in the U.S., as suggested in 2004 by the European Association of Listed Companies.

In another change, non-U.S. firms that discontinue their American depositary receipt programs or that delist from U.S. markets to reduce U.S. trading below the 5% threshold will be disqualified from deregistering for a one-year period, starting Wednesday, SEC officials said.

Companies looking to leave must alert investors by issuing a press release in the U.S. and filing a one-page form with the SEC, providing evidence that average daily U.S. trading in their securities over the past year was less than 5% of worldwide trading, including the U.S. Deregistration for qualifying firms will be effective immediately, ending the current 18-month waiting period.

Deregistering means foreign firms no longer need to file quarterly and annual results to the SEC, although the SEC rule requires them to provide English-language disclosure on their corporate Web sites for U.S. investors. While the SEC will no longer review or post corporate filings by non-U.S. firms that exit U.S. markets, such companies must be subject to regulatory scrutiny in their home country, a second condition of the exit plan.

The SEC rule is subject to a 60-day congressional review before taking effect. John White, director of the SEC's corporation-finance division, said the agency plans to seek publication of the new rule in the Federal Register shortly, in time for non-U.S. firms to deregister in mid-June, before they become subject to internal-controls requirements. The requirements, adopted by Congress in the wake of corporate accounting scandals, call for public companies to assess internal financial-reporting controls annually, subject to further review by the firm's outside auditor. U.S. companies already subject to the requirement complain it has been very costly and isn't yielding much benefit for investors.

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