Daily Deal
By Ron Orol
December 8 , 2005
The proposal fails to impress, and foreign companies say verifying U.S. investors is too difficult.
A new Securities and Exchange Commission proposal aimed at making it easier for foreign companies to delist from U.S. stock exchanges doesn't go far enough, complain international organizations representing overseas firms operating in this country.
The SEC is expected to propose on Dec. 14 new criteria for allowing foreign companies to delist and, consequently, end their corporate filing obligations with the SEC. For the biggest companies, delisting would be allowed if 10% or less of a company's total shares are held by U.S. investors and its trading volume in the U.S. is an insignificant share of worldwide trading volume.
Smaller foreign companies can end their listing and reporting obligations with the SEC if a specific small percentage of their total shares are held by U.S. investors.
The broad outline of the SEC's plan were obtain by sources following the initiative, but the specific thresholds contemplated by the agency have not leaked out.
Under the current rule, which dates to the 1960s, foreign companies wishing to remove their securities from U.S. stock exchanges must have fewer than 300 U.S. shareholders. Overseas-based companies have bristled under the rule, arguing that it is too difficult to verify the residency of such a specific number of shareholders.
The complaints are getting louder, however, because of new costs associated with Sarbanes-Oxley regulations, said Todd Malan, president of Washington-based Organization for International Investment. The fear of Sarbanes-Oxley burdens, and perceived problems with delisting are discouraging foreign companies from making new listings on the U.S. capital markets.
"International companies are thinking twice about listing on U.S. stock exchanges because they realize that it is so difficult to get out once you become a registrant," Malan said. "I am concerned that the proposal will not provide a transparent and direct path for exiting U.S. markets."
Malan said he would prefer the agency to produce a sliding-scale test that would allow a company to delist and end its reporting obligations after six months if its trading volume in the U.S. is less than 5% of its worldwide trading volume over the past year and less than 10% of its stock is held by U.S. residents.
He also is floating delisting thresholds he believes are less stringent than ones the SEC will unveil. Companies with less than 10% of its global trading volume in the U.S. and less than 20% of its shares held by U.S. investors could end their reporting obligations within a year.
The OII has proposed another higher threshold that would allow companies to delist within two years.
Rhian Chilcott, director of the Confederation of British Industry's Washington office, also wants change, but she said Malan's approach would still be too complicated. Foreign companies have an extremely difficult time identifying their U.S. investors, particularly in the global environment where American shareholders are living abroad and investing in other exchanges. She added that a test based on trading volume alone would be easier to administer.
But Michael Finck, managing director of the ADR division at Bank of New York, said the complaints are exaggerated. "The ability to obtain information is not a problem," Finck said. "Getting to below that threshold, that's the problem." Finck added that he was cautiously optimistic about the SEC's delisting plan, adding that it would likely encourage foreign companies to list in the U.S.
|
