February 10, 2004
European Organizations Request Changes to SEC
Rules That Currently Make Deregistration by Foreign
Companies Virtually Impossible
FOR IMMEDIATE RELEASE
Brussels, February 10, 2004. Eleven organizations that represent the largest publicly held companies
in Europe, including over 100 that are listed in the United States, today requested that the SEC ease
rules that currently make it almost impossible for non-U.S. companies to deregister and terminate
their SEC reporting obligations.
In a letter addressed to SEC Chairman William H. Donaldson, the organizations asked the SEC to
allow companies with little U.S. trading volume to deregister two years after a U.S. listing or public
securities offering, so long as they send the SEC copies of home country annual reports that meet the
strict disclosure and accounting standards currently being put into place in the European Union.
In their letter, the organizations made clear that most of their members with U.S. listings are quite
satisfied, and have no intention of leaving the U.S. market. But they believe companies should have
the option to withdraw if they adequately protect their U.S. shareholders. Otherwise, a company
could face substantial costs of complying with U.S. reporting rules forever, even if it never realizes
the benefits it sought from its U.S. listing.
The organizations also pointed out that this issue is an important one for companies that are thinking
about listing in the United States in the future. The current rules make a listing decision essentially
irreversible, which is a big disincentive for companies that might otherwise be tempted to enter the
U.S. market.
In contrast, the rules of most European countries permit a U.S. company to withdraw a listing simply
by providing notice and complying with some fairly straight forward and easy to comply with
technical requirements.
“We think this is an area that the SEC should examine closely,” said Rüdiger von Rosen of Deutsches
Aktieninstitut: “These rules were adopted long ago when U.S. investors didn’t trade in Europe. With
Europe in the process of adopting new rigorous disclosure and accounting requirements based on
IOSCO principles to which the SEC subscribes, it is time for the SEC to bring its rules on
deregistration more in line with the rules in place in Europe.”
Summary of Technical Problem
A non-U.S. company can terminate a U.S. listing fairly easily, but it still has to comply with SEC
reporting obligations, such as preparing a U.S. annual report and accounts reconciled to U.S.
accounting principles. To terminate those obligations, the company has to deregister under the
Securities Exchange Act of 1934.
Under the SEC’s rules, a non-U.S. company has to show that it has fewer than 300 U.S. shareholders
in order to deregister. This is difficult because most European shares are held through intermediaries,
and it is hard to tell who is the ultimate shareholder. Also, the 300-holder limit, adopted in the 1960s,
is very low in a world where numerous U.S. investors trade European shares electronically and there
are no impediments to cross-border trading.
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Even if a company shows that it is under the 300-holder limit and deregisters, its obligations are
reinstated if it goes back above 300 holders at the end of a subsequent year. There is an exemption –
known as Rule 12g3-2(b) – but a company is permanently ineligible for the exemption if it has ever
sold its shares to the public in the United States.
Summary of European Proposal
The letter from the European organizations to the SEC proposes substituting a test based on trading
volume for the test based on shareholder numbers. A company would be eligible to deregister if:
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Two years have passed since its U.S. listing or its last U.S. public offering.
Less than 5% of its global trading volume takes place on a U.S. market, such as the New York
Stock Exchange or NASDAQ.
At least 55% of its global trading volume takes place on a single non-U.S. market (to make
sure there is a liquid market somewhere in the world).
The company publishes reports meeting the recommendations of IOSCO, the International
Organization of Securities Commissioners, and prepares audited accounts under International
Financial Reporting Standards (known as IFRS or IAS). All European companies will be
required to meet this standard beginning with their 2005 annual reports.
The company sends the SEC copies of the information it publishes in its home market.
* * * * *
Attached to this press release is a copy of the letter from the European organizations to SEC Chairman
Donaldson, as well as a technical analysis in support of the request prepared by Edward F. Greene, a
partner in the London office of the international law firm Cleary, Gottlieb, Steen & Hamilton, and a
former SEC General Counsel and Director of the Division of Corporation Finance.
For further information, please contact:
Dr. Ralf Fischer zu Cramburg
Head of Liaison Office to the EU
Deutsches Aktieninstitut e.V.
31, rue du Commerce, 1000 Bruxelles
Phone
Fax
Email
Web
0032-2-290 89 90
0032-2-290 89 91
fischer@dai.de
www.dai.de
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