[Federal Register: January 11, 2007 (Volume 72, Number 7)]
[Proposed Rules]
[Page 1383-1414]
[DOCID:fr11ja07-25]

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Part II

 Securities and Exchange Commission

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17 CFR Parts 200, 232, 240, 249

 Termination of a Foreign Private Issuer's Registration of a Class of
Securities Under Section 12(g) and Duty To File Reports Under Section
13(a) or 15(d) of the Securities Exchange Act of 1934; Proposed Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 232, 240 and 249

[Release No. 34-55005; International Series Release No. 1300; File No.
S7-12-05]
RIN 3235-AJ38

Termination of a Foreign Private Issuer's Registration of a Class
of Securities Under Section 12(g) and Duty To File Reports Under
Section 13(a) or 15(d) of the Securities Exchange Act of 1934

AGENCY: Securities and Exchange Commission.

ACTION: Reproposed rule.

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SUMMARY: We are reproposing amendments to the rules that govern when a
foreign private issuer may terminate the registration of a class of
equity securities under section 12(g) of the Securities Exchange Act of
1934 (``Exchange Act'') and the corresponding duty to file reports
required under section 13(a) of the Exchange Act, and when it may cease
its reporting obligations regarding a class of equity or debt
securities under section 15(d) of the Exchange Act. Under the current
rules, a foreign private issuer may find it difficult to terminate its
Exchange Act registration and reporting obligations despite the fact
that there is relatively little interest in the issuer's U.S.-
registered securities among United States investors. Moreover,
currently a foreign private issuer can only suspend, and cannot
terminate, a duty to report arising under section 15(d) of the Exchange
Act. Reproposed Exchange Act Rule 12h-6 would permit the termination of
Exchange Act reporting regarding a class of equity securities under
either section 12(g) or section 15(d) of the Exchange Act by a foreign
private issuer that meets a quantitative benchmark designed to measure
relative U.S. market interest for that class of securities, which does
not depend on a head count of the issuer's U.S. security holders. The
reproposed benchmark would require the comparison of the average daily
trading volume of an issuer's securities in the United States with that
in its primary trading market. Because the Commission did not fully
address this approach when it originally proposed Rule 12h-6, and
because of other proposed changes to Rule 12h-6 not fully discussed in
the original rule proposal, we are reproposing Rule 12h-6 and the
accompanying rule amendments. These rule amendments would seek to
provide U.S. investors with ready access through the Internet on an
ongoing basis to material information about a foreign private issuer of
equity securities that is required by its home country after it has
exited the Exchange Act reporting system.

DATES: Comments must be received on or before February 12, 2007. Given
the advanced stage of this rulemaking initiative, the Commission
anticipates taking further action as expeditiously as possible after
the end of the comment period. It therefore strongly encourages the
public to submit their comments within the prescribed comment period.
Comments received after that point cannot be assured of full
consideration by the Commission.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml.
); or     Send an e-mail to<EMAIL_ADDRESS>Please include

File Number S7-12-05 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov
). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.

All submissions should refer to File Number S7-12-05. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site http://www.sec.gov/rules/proposed.shtml. Comments

also are available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Special Counsel, at
(202) 551-3450, in the Office of International Corporate Finance,
Division of Corporation Finance, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are reproposing amendments to Commission
Rule 30-1,\1\ Rule 101 \2\ of Regulation S-T,\3\ and Rules 12g3-2, 12g-
4 and 12h-3 \4\ under the Exchange Act,\5\ and reproposing new Rule
12h-6 \6\ and Form 15F \7\ under the Exchange Act.
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    \1\ 17 CFR 200.30-1.
    \2\ 17 CFR 232.101.
    \3\ 17 CFR 232.10 et seq.
    \4\ 17 CFR 240.12g3-2, 240.12g-4 and 240.12h-3.
    \5\ 15 U.S.C. 78a et seq.
    \6\ 17 CFR 240.12h-6, as reproposed.
    \7\ 17 CFR 249.324, as reproposed.
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Table of Contents

I. Executive Summary and Background
    A. Introduction
    B. Overview of the Current Exchange Act Exit Rules
    C. Concerns Regarding the Current Exchange Act Exit Rules
    D. The Originally Proposed Rule Amendments
    E. Principal Comments Regarding the Proposed Rule Amendments
    F. Summary of the Reproposed Rule Amendments
II. Discussion
    A. Conditions for Equity Securities Issuers
    1. Quantitative Benchmarks
    a. Non-Record Holder Benchmark
    i. One Year Ineligibility Period After Delisting
    ii. One Year Ineligibility Period After Termination of ADR
Facility
    b. Alternative 300 Holder Condition
    2. Prior Exchange Act Reporting Condition
    3. The One Year Dormancy Condition
    4. Foreign Listing Condition
    B. Debt Securities Provision
    C. Revised Counting Method
    D. Expanded Scope of Rule 12h-6
    1. Application of Rule 12h-6 to Successor Issuers
    2. Application of Rule 12h-6 to Prior Form 15 Filers
    E. Public Notice Requirement
    F. Form 15F
    G. Amended Rules 12g-4 and 12h-3
    H. Amendment Regarding the Rule 12g3-2(b) Exemption
    1. Extension of the Rule 12g3-2(b) Exemption Under Reproposed
Rule 12g3-2(e)
    2. Electronic Publishing of Home Country Documents
III. Paperwork Reduction Act Analysis
IV. Cost-Benefit Analysis
V. Consideration of Impact on the Economy, Burden on Competition and
Promotion of Efficiency, Competition and Capital Formation Analysis
VI. Regulatory Flexibility Act Certification
VII. Statutory Basis and Text of Proposed Rule Amendments

I. Executive Summary and Background

A. Introduction

    On December 23, 2005, the Commission issued proposed amendments to
its current rules governing when a foreign private

issuer \8\ may exit the Exchange Act reporting regime.\9\ The
Commission proposed these rule amendments out of concern that, due to
several trends, including the increased internationalization of the
U.S. securities markets in recent decades, it has become difficult for
a foreign private issuer to exit the Exchange Act reporting system even
when there is relatively little U.S. investor interest in its U.S.-
registered securities.\10\
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    \8\ As defined in Rule 3b-4(c) (17 CFR 240.3b-4(c)), a foreign
private issuer is a corporation or other organization incorporated
or organized in a foreign country that either has 50 percent or less
of its outstanding voting securities held of record by United States
residents or, if more than 50 percent of its voting securities are
held by U.S. residents, about which none of the following are true:
    (1) A majority of its executive officers or directors are U.S.
citizens or residents;
    (2) More than 50 percent of its assets are located in the United
States; and
    (3) The issuer's business is administered principally in the
United States.
    \9\ Release No. 34-53020 (December 23, 2005), 70 FR 77688
(December 30, 2005) (Original Proposing Release).
    \10\ See Original Proposing Release, 70 FR at 77689-77690.
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    We recognized that U.S. investors benefit from the investment
opportunities provided by foreign private issuers registering their
securities with the Commission and listing and publicly offering those
securities in the United States. However, because of the burdens and
uncertainties associated with terminating registration and reporting
under the Exchange Act, the current exit process may serve as a
disincentive to foreign private issuers accessing the U.S. public
capital markets. In order to remove this disincentive, we proposed to
amend the current Exchange Act exit rules for foreign private issuers.
    We received over 50 letters commenting on the proposed rule
amendments.\11\ While most of the commenters supported the purpose and
general framework of the proposed rulemaking, many expressed concern
that the rule proposals would unduly restrict a significant portion of
U.S.-registered foreign private issuers from terminating their Exchange
Act registration and reporting obligations. We have carefully
considered commenters' suggestions regarding the rule proposals, and
have incorporated many of them into the rules that we are reproposing
today.
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    \11\ These comments are available on the Commission's Web site
at http://www.sec.gov/rules/proposed/s71205.shtml and in the

Commission's Public Reference Room in its Washington, DC
headquarters.
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    A number of commenters have noted that many non-U.S. securities
markets impose relatively few restrictions on the ability of a foreign
issuer to delist from those markets and to terminate all reporting and
other compliance obligations in those markets.\12\ In the United
States, foreign companies are generally able to delist their securities
from exchanges without significant restrictions.\13\ However, although
a foreign private issuer is able to delist its securities from U.S.
exchanges, it may continue to have reporting obligations under the
Exchange Act.
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    \12\ See, for example, the letter, dated February 9, 2004, from
the Association Francaise Des Entreprises Privees (AFEP) and other
European industry group representatives.
    \13\ See, for example, Exchange Act Rule 12d2-2 (17 CFR
240.12d2-2) and section 806.02 of the New York Stock Exchange (NYSE)
Listed Company Manual.
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    The rules we are reproposing today are intended to provide foreign
private issuers with methods by which they can exit the U.S. public
securities markets without significant burdens when U.S. market
interest in the issuers' securities is relatively low. For foreign
registrants of equity securities, that method would be based on a
comparison of the average daily trading volume of its class of
securities in the United States with that in its primary trading
market.\14\ Although we expressed some reservation about relying solely
on trading volume data as the basis for measuring U.S. regulatory
interest in the Proposing Release, in light of the comments received,
we are reconsidering our position. We believe that a standard based on
trading volume may in fact be superior to the originally proposed
standard, which was based primarily on a comparison of an issuer's U.S.
public float with its worldwide public float, because it is a direct
measure of the issuer's nexus with the U.S. market, and because trading
volume data is easier to obtain than public float or record holder
data. In applying an exit standard based on trading volume data for the
U.S. and an issuer's primary trading market, issuers will face reduced
costs when determining whether they can terminate their registration
and reporting obligations under the Exchange Act, compared to the
earlier proposed measures that would have required an issuer to assess
the U.S. residence of its security holders.
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    \14\ As discussed in greater detail in Part II.A. of this
release, a foreign private issuer would be eligible to deregister a
class of equity securities under reproposed Rule 12h-6 if the
average daily trading volume in the United States was no greater
than 5% of its average daily trading volume in its primary trading
market over a recent 12-month period.
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    We believe the reproposed rules appropriately provide meaningful
protection of U.S. investors by permitting the termination of Exchange
Act registration and reporting only by foreign registrants in whose
U.S. registered securities relative U.S. market interest is low. We
believe the proposed conditions governing eligibility to use the
trading volume-based measure, along with the other proposed conditions
concerning prior Exchange Act reporting, the prohibition against recent
registered U.S. offerings, and required foreign listing should further
serve to protect U.S. investors.
    We believe the reproposed rules will provide foreign private
issuers, regardless of size, with the meaningful option of terminating
their Exchange Act reporting obligations when, after electing to access
the U.S. public capital markets, they find that there is relatively
little U.S. investor interest in their U.S.-registered securities. As a
result, foreign private issuers should be more willing initially to
register their securities with the Commission, to the benefit of U.S.
investors who will have more investment choices.

B. Overview of the Current Exchange Act Exit Rules

    Exchange Act Rule 12g-4 currently governs whether an issuer may
terminate its registration of a class of securities under section 12(g)
of the Exchange Act \15\ and its corresponding section 13(a) reporting
obligations.\16\ Under this rule, a foreign private issuer may seek
termination of its registration of a class of securities under section
12(g) by certifying in Form 15 \17\ that the subject class of
securities is held of record by less than 300 residents in the United
States or by less than 500 U.S. residents when the issuer's total
assets have not exceeded $10 million on the last day of each of the
issuer's most recent three fiscal years.\18\ To determine

the number of U.S. resident shareholders under this rule, a foreign
private issuer must use the method of counting provided under Exchange
Act Rule 12g3-2(a).\19\ This method requires looking through the record
ownership of brokers, dealers, banks, depositaries or other nominees on
a worldwide basis and counting the number of separate accounts of
customers resident in the United States for which the securities are
held.\20\ Under this rule, issuers are required to make inquiries of
all nominees, wherever located and wherever in the chain of ownership,
for the purpose of assessing the number of U.S. resident holders.
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    \15\ This statutory section only applies to equity securities.
See Exchange Act Section 12(g)(1) [15 U.S.C. 78l (g)(1)]. An issuer
may register a class of equity securities under section 12(g) either
voluntarily or because it had 500 or more security holders of record
and more than $10 million in total assets and, if a foreign private
issuer, more than 300 shareholders resident in the United States on
the last day of its most recently completed fiscal year. See
Exchange Act Rules 12g-1 (17 CFR 12g-1) and 12g3-2(a) (17 CFR
240.12g3-2(a)). However, a foreign private issuer may avoid an
Exchange Act registration obligation under section 12(g) by
establishing the exemption under Exchange Act Rule 12g3-2(b) (17 CFR
240.12g3-2(b)).
    \16\ 15 U.S.C. 78m(a).
    \17\ 17 CFR 249.323.
    \18\ Exchange Act Rule 12g-4(a)(2) (17 CFR 240.12g-4(a)(2)).
Alternatively, a foreign private issuer may seek to terminate its
section 12(g) registration under the Rule 12g-4 provision that
applies to any issuer, whether domestic or foreign. Under this
provision, an issuer must certify on Form 15 that its class of
equity securities is held of record on a worldwide basis by less
than 300 persons or by less than 500 persons when the issuer's total
assets have not exceeded $10 million on the last day of each of the
issuer's most recent three fiscal years. Exchange Act Rule 12g-
4(a)(1) (17 CFR 240.12g-4(a)(1)).
    \19\ 17 CFR 240.12g3-2(a).
    \20\ See 17 CFR 240.12g3-2(a)(1).
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    Rule 12h-3 \21\ is the Exchange Act rule governing when an issuer
may suspend its reporting obligations under section 15(d).\22\ While
Rule 12h-3's standards are substantially similar to those under Rule
12g-4,\23\ there are two important differences. First, an issuer may
generally not suspend its section 15(d) reporting obligations until it
has filed one Exchange Act annual report after the offering in
question. Second, an issuer cannot terminate its reporting obligations
under section 15(d) but can only suspend those obligations.\24\
Therefore, for as long as the subject class of securities is
outstanding, a foreign private issuer must also determine at the end of
each fiscal year whether the number of U.S. resident security holders
or total number of record holders has increased enough to trigger anew
its section 15(d) reporting obligations.
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    \21\ 17 CFR 240.12h-3.
    \22\ The effectiveness of a registration statement under the
Securities Act of 1933 (Securities Act) triggers Section 15(d)
reporting obligations. That section provides that an issuer cannot
suspend its reporting obligations unless the subject class of
securities is held of record by less than 300 persons at the
beginning of a fiscal year other than the year in which the
Securities Act registration statement became effective.
    \23\ See, in particular, Rule 12h-3(b)(2) (17 CFR 240.12h-
3(b)(2)). This provision imposes not only the same record holder
standards as under Rule 12g-4 but also the same counting method
required under Rule 12g3-2(a).
    \24\ Exchange Act Rule 12h-3(e) (17 CFR 240.12h-3(e)).
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    An issuer may be subject to Exchange Act reporting obligations
under more than one statutory section or rule. While an issuer is
deemed to have only one active set of reporting obligations, when an
issuer attempts to exit the Exchange Act reporting system, it must
consider whether there are any dormant or suspended reporting
obligations that would preclude the issuer from ceasing its Exchange
Act reporting.
    For example, an issuer may have active section 13(a) reporting
obligations because it has a class of equity or debt securities listed
on a national securities exchange and registered with the Commission
under section 12(b) of the Exchange Act.\25\ When attempting to exit
the Exchange Act reporting system, the registrant not only must take
steps to effect its delisting from the national securities
exchange,\26\ but also must consider whether it has any dormant or
suspended reporting obligations under section 12(g) or 15(d) \27\ that
will become operative once its section 12(b) registration ceases.\28\
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    \25\ 15 U.S.C. 78l(b).
    \26\ To effect the delisting and subsequent termination of an
issuer's registration of a class of securities under section 12(b),
the national securities exchange or issuer must file a Form 25 (17
CFR 249.25) with the Commission pursuant to Exchange Act Rule 12d2-2
(17 CFR 240.12d2-2). We have adopted amendments to our rules and
Form 25 to streamline the procedures for removing from listing, and
withdrawing from registration, securities under section 12(b). See
Release No. 34-52029 (July 14, 2005), 70 FR 42456 (July 22, 2005).
    \27\ A registrant may have section 12(g) reporting obligations
following its termination of registration of a class of equity
securities under section 12(b): (1) If it initially registered the
class of securities under section 12(g) before listing the
securities on a national securities exchange; or (2) under Exchange
Act Rule 12g-2 (17 CFR 240.12g-2). That rule provides that any class
of securities that would have been required to be registered under
section 12(g), except for the fact that it was listed and registered
on a national securities exchange, is deemed to be registered under
section 12(g) upon the termination of registration under section
12(b) as long as the class of securities are not exempt from
registration under section 12 and are held of record by 300 or more
persons. Exchange Act section 15(d) automatically suspends the duty
to file reports under that section regarding securities registered
under an effective Securities Act registration statement once the
issuer has registered the class of securities under section 12 of
the Exchange Act.
    \28\ Because compliance with Rule 12d2-2 does not depend on the
number of an issuer's record holders, termination of registration
under section 12(b) does not raise the same concerns for an issuer
as under section 12(g) or 15(d). As is currently the case, under the
rule amendments reproposed today, a foreign private issuer that has
a class of securities registered under section 12(b) will have to
comply with Rule 12d2-2 before it can effect termination of
registration under section 12(g) or termination of its reporting
obligations under section 13(a) or section 15(d). Moreover, as under
the current Exchange Act exit regime, a foreign private issuer will
have to file a post-effective amendment to terminate the
registration of any unsold securities under an existing Securities
Act registration statement before it can terminate its registration
and reporting under Rule 12h-6.
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C. Concerns Regarding the Current Exchange Act Exit Rules

    It has been almost four decades since the Commission first adopted
the ``300 U.S. resident shareholder'' standard as the benchmark for
determining both when a foreign private issuer must register a class of
equity securities under section 12(g) and when it may terminate that
registration.\29\ Moreover, it has been over two decades since the
Commission adopted Form 15 under Rules 12g-4 and 12h-3.\30\ Since then,
market globalization, advances in information technology, the increased
use of American Depositary Receipt (``ADR'') \31\ facilities by foreign
companies to sell and list their securities in the United States, and
other factors have increased significantly the number of foreign
companies that have engaged in cross-border securities activities and
sought listings in U.S. securities markets, as well as increased the
amount of U.S. investor interest in the securities of foreign
companies.
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    \29\ See Release No. 34-8066 (April 28, 1967).
    \30\ See Release No. 34-20784 (March 22, 1984), 49 FR 12688
(March 30, 1984).
    \31\ An ADR is a negotiable instrument that represents an
ownership interest in a specified number of securities, which the
securities holder has deposited with a designated bank depositary.
Use of an ADR facility makes it easier for a U.S. resident to
collect dividends in U.S. dollars. Moreover, because the clearance
and settlement process for ADRs generally is the same for securities
of domestic companies that are traded in U.S. markets, a U.S. holder
of an ADR is able to hold securities of a foreign company that
trades, clears and settles within automated U.S. systems and within
U.S. time periods.
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    Representatives of foreign companies and foreign industry
associations have voiced their concerns that the ``300 U.S. resident
shareholder'' standard has become outdated and too easily exceeded by a
foreign company that may have engaged in very little recent selling
activity in the United States.\32\ These representatives have further
criticized the exit rules' reliance on the number of U.S. resident
shareholders because, with the advent of book-entry recording,\33\ it
is difficult and costly to arrive at an accurate count of a foreign
company's U.S. resident shareholders. These representatives have also
been critical of Rule 12h-3 because it merely suspends rather than
terminates a company's section 15(d) reporting obligations. As such,
years after filing a Form 15, a foreign company may find

that it has once again exceeded the 300 U.S. resident shareholder
threshold, and thereupon again become subject to section 15(d)
reporting duties, without regard to its U.S. market activity.\34\
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    \32\ See, for example, the letter from AFEP.
    \33\ The last three decades have seen the development of a U.S.
clearance and settlement system that relies on electronic book-entry
to settle securities transactions and transfer ownership rather than
one dependent on the use of paper certificates. For an overview of
this development, see Release No. 33-8398 (March 11, 2004), 69 FR
12922 (March 18, 2004), the text surrounding n. 104. This movement
to electronic book-entry clearance and settlement systems has taken
place on a global basis as well, as both developed and developing
securities markets have sought to improve efficiency.
    \34\ Similarly, as some commenters have noted, after terminating
its registration regarding a class of securities under section
12(g), with little or no effort on its part, a foreign private
issuer may discover at the end of a subsequent fiscal year that it
once again has more than 300 U.S. resident shareholders and,
therefore, must register the class of securities anew under that
section of the Exchange Act.
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    Finally, these representatives have objected to our current rule,
which does not permit a foreign private issuer to obtain the Exchange
Act Rule 12g3-2(b) exemption \35\ if, during the previous 18 months, it
has had a class of securities registered under section 12 or a
reporting obligation, suspended or active, under section 15(d) of the
Exchange Act.\36\
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    \35\ Rule 12g3-2(b) provides an exemption from registration
under section 12(g) with respect to a foreign private issuer that
submits to the Commission, on a current basis, the home country
materials required by the rule.
    \36\ Exchange Act Rule 12g3-2(d)(1) (17 CFR 12g3-2(d)(1)). This
exception to the Rule 12g3-2(b) exemption does not apply to
registered Securities Act offerings filed by Canadian companies on
certain Multijurisdictional Disclosure System (``MJDS'') forms. The
Rule 12g3-2(b) exemption is also not available for a foreign private
issuer's securities issued to acquire by merger or similar
transaction an issuer that had securities registered under section
12 or a reporting obligation, suspended or active, under section
15(d), except for a transaction registered on specified MJDS forms.
See Exchange Act Rule 12g3-2(d)(2) (17 CFR 240.12g3-2(d)(2)).
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D. The Originally Proposed Rule Amendments

    In light of the changes to U.S. capital markets caused primarily by
market globalization and advances in information technology, the
Commission proposed to amend the rules allowing a foreign private
issuer to exit the Exchange Act registration and reporting regime. We
proposed to amend Rules 12g-4 and 12h-3 to eliminate the provisions
that primarily condition a foreign private issuer's eligibility to
cease its Exchange Act reporting obligations on whether the number of
its U.S. resident security holders has fallen below the 300 or 500
person threshold. In their place, we proposed new Exchange Act Rule
12h-6 that would permit a foreign private issuer that meets the
conditions discussed below to terminate:
     Its registration of a class of equity securities under
section 12(g) and its resulting section 13(a) reporting obligations;
and
     Its section 15(d) reporting obligations regarding a class
of equity or debt securities.
    Under proposed Rule 12h-6, a foreign private issuer would have been
eligible to terminate its Exchange Act reporting obligations regarding
a class of equity securities if it met one of a set of alternative
benchmarks, not based on a record holder count, and which depended on
whether the issuer was a well-known seasoned issuer (``WKSI'').\37\ As
proposed, a foreign private issuer could have terminated its Exchange
Act registration and reporting obligations:
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    \37\ For purposes of proposed Rule 12h-6, a ``well-known
seasoned issuer'' would have meant a well-known seasoned issuer as
defined in Securities Act Rule 405 (17 CFR 230.405), which would
have required the worldwide market value of an issuer's outstanding
voting and non-voting common equity held by non-affiliates to be
$700 million or more.
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     If a WKSI, as long as the U.S. average daily trading
volume (``ADTV'') of the subject class of securities had been no
greater than 5 percent of the ADTV of that class of securities in its
primary trading market during a recent 12 month period, and U.S.
residents held no more than 10 percent of the issuer's worldwide public
float as of a specified date; or
     If a WKSI with greater than 5 percent U.S. ADTV, or if a
non-WKSI, regardless of U.S. trading volume, U.S. residents held no
more than 5 percent of the issuer's worldwide public float as of a
specified date.\38\
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    \38\ If a foreign private issuer was unable to meet one of these
proposed benchmarks, but satisfied the other conditions of the rule,
it could still have terminated its Exchange Act registration and
reporting obligations regarding a class of equity securities as long
as that class of securities was held of record by less than 300
persons on a worldwide basis or less than 300 persons resident in
the United States as of a specified date. Proposed Rule 12h-6 also
included a similar ``300 U.S. resident or worldwide holder''
standard for debt securities issuers.
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    Proposed Rule 12h-6 also would have imposed the following
conditions on a foreign private issuer before it could terminate its
registration and reporting obligations regarding a class of equity
securities:
     The issuer must have been an Exchange Act reporting
company for the past two years, have filed or furnished all reports
required for this period, and have filed at least two annual reports
under section 13(a);
     The issuer's securities must not have been sold in the
United States in either a registered or unregistered offering under the
Securities Act during the preceding 12 months except for a few
specified exempt securities or exempt transactions; and
     For the preceding two years, the issuer must have
maintained a listing of the subject class of securities on an exchange
in its home country, as defined in Form 20-F,\39\ which constituted the
primary trading market for the securities.
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    \39\ 17 CFR 249.220f. Form 20-F General Instruction F defines
``home country'' as the jurisdiction in which the issuer is legally
organized, incorporated or established and, if differnt, the
jurisdiction where it has its principal listing.
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    Finally, we also proposed to:
     Streamline the counting method used to determine an
issuer's U.S. public float or the number of its U.S. shareholders by
permitting the look-through to be limited to the United States, the
issuer's jurisdication, and, if different, the jurisdiction of its
primary trading market;
     Permit issuers to rely on the assistance of an independent
information services provider when calculating the number of their U.S.
resident holders; and
     Permit issuers to establish the Rule 12g3-2(b) exemption
for a class of equity securities that was the subject of a Form 15F
immediately upon termination of Exchange Act reporting, so long as the
issuer publishes its home country materials electronically.

E. Principal Comments Regarding the Proposed Rule Amendments

    We received 54 comment letters in response to our proposals. These
letters represented the views of over 80 distinct entities, including
business and legal associations, foreign companies, depositary banks,
stock exchanges and market operators, financial advisory and accounting
firms, law firms, foreign governments, and academia. While most
commenters supported the purpose and overall structure of the rule
proposals, many also believed that the proposed rule amendments would
be, like the existing rules, unnecessarily restrictive.
    We received the most comments concerning the proposed quantitative
benchmarks that would enable a foreign private issuer of equity
securities to exit the Exchange Act reporting regime regardless of the
number of its U.S. resident shareholders. Numerous commenters urged the
Commission to increase significantly the proposed benchmarks based on
the calculation of the percentage of an issuer's worldwide public float
held by U.S. residents. Several commenters also urged the Commission to
adopt the same quantitative standards for smaller companies as for
well-known seasoned issuers. Many commenters also suggested the
adoption of a rule provision that would permit an issuer to exclude
certain holders, such as qualified institutional buyers

(``QIBs''),\40\ from its U.S. public float percentage determination, as
an alternative to adopting significantly raised quantitative
benchmarks. Numerous commenters further favored significantly raising
the alternative record holder threshold for equity securities issuers
and the record holder standard for debt securities issuers.
---------------------------------------------------------------------------

    \40\ A QIB is an entity specified under Securities Act Rule 144A
(17 CFR 230.144A) that in the aggregate owns at least $100 million
in securities of issuers that are not affiliated with the entity.
---------------------------------------------------------------------------

    Other issues raised by commenters included their request:
     To extend termination of Exchange Act reporting under Rule
12h-6 to prior Form 15 filers whose termination of registration or
suspension of reporting became effective before the effective date of
the new rule;
     To require a shorter prior reporting period for some or
all classes of issuers;
     To permit an issuer that has succeeded to the Exchange Act
reporting obligations of an acquired company under Exchange Act Rule
12g-3 \41\ or Rule 15d-5 \42\ to take into account the reporting
history of the acquired company for the purpose of meeting the prior
reporting condition under Rule 12h-6;
---------------------------------------------------------------------------

    \41\ 17 CFR 240.12g-3.
    \42\ 17 CFR 240.15d-5.
---------------------------------------------------------------------------

     To exclude unregistered offerings from the one year
dormancy condition;
     To permit an issuer to meet the listing condition
requirement if at least 55 percent of the trading volume of the subject
class of securities occurs in the aggregate in more than one non-U.S.
market;
     To increase the 300 record holder standard, which is
included in both the alternative record holder provision for equity
securities issuers and the provision for debt securities issuers;
     To extend the Exchange Act Rule 12g3-2(b) exemption to
prior Form 15 filers even if 18 months has not elapsed;
     To extend the Rule 12g3-2(b) exemption to successor
issuers;
     To permit all issuers having the Rule 12g3-2(b) exemption
to publish electronically on their Web sites their home country
documents; and
     To amend Exchange Act Rule 12g3-2(a), which governs when a
foreign private issuer enters the Exchange Act registration and
reporting regime under section 12(g), so as to conform that rule to the
amended exit thresholds under Rule 12h-6.

F. Summary of the Reproposed Rule Amendments

    We have addressed many of the commenters' concerns in the rules
that we are reproposing today. Major revisions to the proposed rules
include:
     Revising the quantitative benchmark provision for an
issuer of equity securities by:
    [cir] Applying the same quantitative benchmark, which does not
require a head count of security holders, to any issuer of equity
securities, regardless of size;
    [cir] Permitting an issuer to terminate its Exchange Act
registration and reporting obligations regarding a class of equity
securities, assuming it meets all the other conditions of Rule 12h-6,
if the U.S. ADTV of the subject class of securities has been no greater
than 5 percent of the ADTV of that class of securities in the issuer's
primary trading market during a recent 12 month period, regardless of
the size of its U.S. public float;
    [cir] Requiring an issuer to wait 12 months before filing its Form
15F \43\ in reliance on the trading volume standard if the issuer has
delisted its class of equity securities from a national securities
exchange or automated inter-dealer quotation system in the United
States,\44\ and, at the time of delisting, the U.S. ADTV of the subject
class of securities exceeded 5 percent of the ADTV of that class of
securities in the issuer's primary trading market for the preceding 12
months; and
---------------------------------------------------------------------------

    \43\ Like current Rules 12g-4 and 12h-3, which require the
filing of Form 15, reproposed Rule 12h-6 would require the filing of
a form--Form 15F--by which an issuer would certify that it meets the
conditions for ceasing its Exchange Act reporting obligations.
    \44\ Neither the OTC Bulletin Board operated by the NASD nor the
market operated by the Pink Sheets LLC are deemed to be automated
inter-dealer quotation systems. See Release 33-6862 (April 23,
1999), n.22.
---------------------------------------------------------------------------

    [cir] Further requiring an issuer to wait 12 months before filing
its Form 15F in reliance on the trading volume standard if the issuer
has terminated an American Depositary Receipts (ADR) facility;
     Shortening the prior reporting period required for an
issuer of equity securities so that, under the reproposed rules, an
issuer must have at least one year of Exchange Act reporting, must be
current in reporting obligations for that period, and have filed at
least one Exchange Act annual report;
     Permitting an issuer of equity securities during the one
year dormancy period to sell unregistered securities exempted under the
Securities Act, including securities sold in section 4(2) private
placements,\45\ pursuant to Securities Act Rule 144A,\46\ under section
3(a)(10) schemes of arrangement,\47\ and pursuant to Securities Act
Rules 801 and 802; \48\
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 77d(2).
    \46\ 17 CFR 230.144A.
    \47\ 15 U.S.C. 77c(a)(10).
    \48\ 17 CFR 230.801 and 230.802.
---------------------------------------------------------------------------

     Expanding the types of registered offerings that are
excluded from the dormancy condition's prohibition against the sale of
registered securities, so that, in addition to permitting registered
securities sold to its employees or by selling shareholders in a non-
underwritten offering, an issuer may issue registered securities upon
the exercise of outstanding rights that have been granted pro rata to
all security holders, pursuant to a dividend or interest reinvestment
plan, or upon the conversion of outstanding convertible securities;
     Revising the proposed home country listing condition for
an issuer of equity securities by:
    [cir] Shortening the minimum period of required non-U.S. listing to
one year;
    [cir] Permitting an issuer to have maintained that listing in a
foreign jurisdiction that, either singly or together with one other
foreign jurisdiction, constitutes the primary trading market for the
issuer's subject class of securities;
    [cir] Revising the definition of ``primary trading market'' to mean
that at least 55 percent of the trading in the foreign private issuer's
subject class of securities took place in, on or through the facilities
of a securities market or markets in no more than two foreign
jurisdictions; and
    [cir] Requiring that, if an issuer aggregates the trading of its
securities in two foreign jurisdictions for the purpose of Rule 12h-6,
the trading market for the issuer's securities in at least one of the
two foreign jurisdictions must be larger than the U.S. trading market
for the issuer's securities;
     Revising the proposed counting method to apply only to an
issuer's determination of its U.S. resident holders under the
reproposed 300 record holder standard for equity and debt securities
issuers, and to provide that an issuer that aggregates the trading
volume of its securities in two foreign jurisdictions for the purpose
of meeting the listing condition under Rule 12h-6 would have to look
through nominee accounts in both foreign jurisdictions, which comprise
its primary trading market, as well as in the United States and in its
jurisdiction of incorporation if different from the two jurisdictions
that comprise its primary trading market;
     Revising the proposed scope of Rule 12h-6 to extend
termination of

Exchange Act reporting to a successor issuer that meets specified
conditions;
     Revising the proposed scope of Rule 12h-6 to extend
termination of Exchange Act reporting to a foreign private issuer that
filed a Form 15 and thereafter suspended or terminated its Exchange Act
reporting obligations before the effective date of Rule 12h-6, as long
as:
    [cir] Since the effective date of its termination or suspension of
reporting under Form 15, the issuer has not engaged in any transaction
or triggered any threshold that, under the current rules, would require
it to resume or assume anew Exchange Act reporting obligations;
    [cir] The issuer files a Form 15F; and
    [cir] If its Form 15 applied to a class of equity securities, the
issuer has satisfied Rule 12h-6's ``primary trading market'' listing
condition for that class of securities;
     Extending the Rule 12g3-2(b) exemption to a foreign
private issuer, including a successor issuer, immediately upon its
termination of reporting under Rule 12h-6;
     Extending the Rule 12g3-2(b) exemption to a foreign
private issuer that previously filed a Form 15, and thereafter
terminated or suspended its Exchange Act reporting obligations
regarding a class of equity securities before the effective date of
Rule 12h-6, immediately upon the effectiveness of its termination of
reporting under Rule 12h-6; and
     Permitting a non-reporting company that has received or
will receive the Rule 12g3-2(b) exemption, upon application to the
Commission and not pursuant to Rule 12h-6, to publish its ``ongoing''
home country documents required under Rule 12g3-2(b)(1)(iii) \49\ on
its Internet Web site rather than submitting them in paper to the
Commission.
---------------------------------------------------------------------------

    \49\ 17 CFR 240.12g3-2(b)(1)(iii).
---------------------------------------------------------------------------

    We are reproposing other proposed provisions with little to no
change. These provisions include:
     The alternative record holder provision for equity issuers
and the provision for debt securities issuers, both of which retain the
current 300 record holder standard, as proposed;
     The provision permitting an issuer of equity or debt
securities to rely on the assistance of an independent information
services provider when calculating the number of its U.S. resident
security holders;
     The requirement that a foreign private issuer publish a
notice, such as a press release, which announces its intention to
terminate its Exchange Act reporting obligations, except that instead
of the proposed requirement that the notice be published at least 15
business days before the filing of the Form 15F, we are reproposing to
require that an issuer publish the notice before or at the time of
filing of the Form 15F;
     The automatic suspension of an issuer's Exchange Act
reporting obligations upon the filing of its Form 15F followed by a 90-
day waiting period at the end of which, assuming the Commission has no
objections, the suspension becomes a termination of reporting;
     The form and content of Form 15F, except that we have
modified proposed Form 15F to conform to the changes to the proposed
rule amendments that we are reproposing today; and
     The electronic furnishing of home country information on
the Internet Web site of an issuer that has obtained the Rule 12g3-2(b)
exemption upon the termination of its Exchange Act reporting
obligations under Rule 12h-6.
    We believe the rules we are reproposing today are consistent with
the protection of U.S. investors. These rules would establish a new
benchmark that reflects the balancing of potential benefits to U.S.
investors, in the form of increased investment opportunities in foreign
private companies listing in the United States, and the potential loss
of the full protections of the Exchange Act for U.S. investors in
foreign private issuers that elect to terminate their Exchange Act
registration and reporting under reproposed Rule 12h-6. Compared to the
current exit rules, the reproposed rule amendments would establish a
more clearly defined process with more appropriate benchmarks by which
a foreign private issuer can terminate its Exchange Act reporting
obligations if, after a period of time, U.S. market interest is not
significant relative to non-U.S. market interest. As a result, we
believe foreign private issuers should be more willing initially to
register their securities with the Commission, to the benefit of
investors.
    At the same time, we believe the conditions that determine a
foreign private issuer's eligibility to terminate its Exchange Act
registration and reporting under reproposed Rule 12h-6 will serve to
protect U.S. investors. For example, the prior reporting condition is
intended to provide investors with at least one complete year's worth
of Exchange Act reports, including an annual report, upon which they
can base their investment decisions about a particular foreign
registrant before it exits the Exchange Act reporting system. The
dormancy condition is designed to deter a foreign private issuer's
promotion of U.S. investor interest through recent registered capital-
raising before exiting our reporting system. The foreign listing
condition and U.S. trading volume benchmark support our view that,
before a foreign private issuer may terminate its Exchange Act
reporting obligations under Rule 12h-6, it must be subject to an
ongoing disclosure and financial reporting regime, and have a
significant market following, in its home market. The condition
restricting the ability of an issuer to rely on the trading volume
standard under specified circumstances should deter an issuer from
excluding U.S. investors, particularly retail investors, from investing
in their securities when U.S. market interest is still significant. The
immediate availability of the exemption under Rule 12g3-2(b) would
foster access by U.S. investors to ongoing home country information
about an issuer after it terminates its Exchange Act registration and
reporting under Rule 12h-6. Finally, the conditions relating to the
filing of Form 15F and the publication of a press release or other
notice would promote transparency in the exit process.

II. Discussion

A. Conditions for Equity Securities Issuers

1. Quantitative Benchmarks
    a. Non-Record Holder Benchmark
    As reproposed, Rule 12h-6 would enable a foreign private issuer,
regardless of size, to qualify for termination of its Exchange Act
reporting by meeting a quantitative benchmark provision that does not
depend on the number of its U.S. record holders or the percentage of
its securities held by those holders. Specifically, an issuer would be
able to terminate its Exchange Act registration and reporting
obligations regarding a class of equity securities, assuming it meets
the other conditions of Rule 12h-6, if the ADTV of the subject class of
equity securities in the United States has been 5 percent or less of
the ADTV of that class of securities in the issuer's primary trading
market during a recent 12-month period.\50\
---------------------------------------------------------------------------

    \50\ Reproposed Rule 12h-6(a)(4)(i). When calculating its U.S.
ADTV, an issuer would have to take into account all U.S. trading of
its subject securities, whether occurring on a registered national
securities exchange or elsewhere, as reported through the U.S.
transaction reporting plan. It would then divide its U.S. ADTV by
the ADTV in the one or two jurisdictions that comprise its primary
trading market. For a discussion of how an issuer would make its
primary trading market determination under reproposed Rule 12h-6,
see Part II.A.4. of this release.

---------------------------------------------------------------------------

    Although numerous commenters supported the adoption of a
quantitative benchmark that is not based on the number of an issuer's
U.S. shareholders, many commenters expressed concern that, based on
their projections, too few existing reporting foreign private issuers
would be eligible to terminate their Exchange Act registration and
reporting obligations under the proposed benchmarks.\51\ The proposed
benchmarks were based either on a combination of U.S. public float and
trading volume criteria or solely on U.S. public float data. According
to these commenters, the proposed rules, if adopted, would continue to
discourage foreign companies from entering U.S. public capital
markets.\52\
---------------------------------------------------------------------------

    \51\ See, for example, the letter of Sullivan & Cromwell.
    \52\ See, for example, the letter, dated February 28, 2006, of
Cleary Gottlieb Steen & Hamilton LLP (``Cleary Gottlieb letter'').
---------------------------------------------------------------------------

    While many commenters supported significantly increasing the
proposed U.S. shareholder standard to a 25 percent threshold,\53\ there
was less agreement on whether a particular class of security holders
should be included when making the U.S. public float determination.
Some commenters suggested the possible exclusion of a number of classes
of investors, such as qualified institutional buyers (``QIBs''), the
top five or ten U.S. shareholders of an issuer's equity securities, and
U.S. shareholders owning more than a specified amount (for example, $10
million) of an issuer's equity securities.\54\ Others supported the
inclusion of all U.S. investors, regardless of type.\55\
---------------------------------------------------------------------------

    \53\ See the letter from the European Commission, the letter,
dated February 28, 2006, from the European Association for Listed
Companies and other designated associations of publicly traded
European companies (``EALIC''), and the letters from the American
Bar Association, Section of Business Law (``ABA (Business)''),
Linklaters, Cleary Gottlieb, and Cravath, Swaine and Moore
(``Cravath'').
    \54\ See, for example, the letters from the European Commission,
EALIC and Cleary Gottlieb.
    \55\ See the letters from the New York Stock Exchange and
Galileo Global Advisors.
---------------------------------------------------------------------------

    Another commenter supported a quantitative benchmark based solely
on trading volume criteria because that would best indicate the impact
of U.S. deregistration on the broader market for the foreign issuer's
securities.\56\ Although we initially did not propose such an approach,
after reconsideration, we now believe that a new quantitative benchmark
based solely on trading volume may more efficiently further the
purposes of this rulemaking.
---------------------------------------------------------------------------

    \56\ See the letter from Fried, Frank, Harris, Shriver &
Jacobson. Earlier letters from EALIC and Cleary Gottlieb, dated
February 9, 2004, suggested a similar approach.
---------------------------------------------------------------------------

    One advantage to a benchmark based solely on trading volume is that
it is a fairly direct measure of U.S. market interest in a foreign
private issuer's securities at a particular time. Another factor in
favor of a trading volume only benchmark is that trading volume data
for the U.S. and an issuer's primary market is easier to obtain and
confirm than is the data required for a U.S. public float or record
holder determination. As commenters have noted, it is difficult for a
reporting foreign private issuer to determine accurately the specific
identities of its U.S. investors.\57\ A public float benchmark would
require such a determination to varying degrees, particularly if
classes of investors are excluded. As a result, the reproposed
benchmark, based solely on trading volume, should result in reduced
costs to issuers in determining whether they can terminate their
Exchange Act reporting obligations.
---------------------------------------------------------------------------

    \57\ See, for example, the letter, dated March 18, 2005, from
Cleary Gottlieb.
---------------------------------------------------------------------------

    Various markets may measure and report trading volume differently.
For example, dealer interpositioning in dealer markets may result in a
higher reported volume in securities transactions. In our other rules
that use ADTV as a measure, however, we have not found it necessary or
appropriate to make distinctions based on the type of market on which a
security is traded for purposes of determining ADTV.\58\ Nonetheless,
as noted below, we seek comment as to whether Rule 12h-6 should take
into account in some fashion the fact that ADTV may not be measured
uniformly across trading markets.
---------------------------------------------------------------------------

    \58\ See Regulation M, 17 CFR 242.100-105, and Release No. 33-
7375 (December 20, 1996).
---------------------------------------------------------------------------

    Reproposed Rule 12h-6 does not mandate or expressly specify
acceptable information sources for determining ADTV. This is consistent
with other rules that use ADTV as a measure.\59\ Issuers should have
flexibility in determining the ADTV of their securities in the
appropriate markets from information that is generally widely available
from a number of reliable sources. Nonetheless, as noted below, we seek
comment as to whether Rule 12h-6 should specify one or more acceptable
sources of ADTV information.
---------------------------------------------------------------------------

    \59\ See, for example, the definition of ADTV in Regulation M at
17 CFR 242.100.
---------------------------------------------------------------------------

    As originally proposed, Rule 12h-6 would have established different
deregistration thresholds for well-known seasoned issuers (``WKSIs'').
Many commenters opposed having different standards for WKSIs and
smaller companies. Those commenters maintained that smaller companies
should benefit from the full range of options available to WKSIs under
the new rule since the costs of Exchange Act reporting generally are
disproportionately greater for smaller companies than for larger
companies.\60\ These comments have persuaded us to propose the same
trading volume standard for smaller issuers as for larger issuers.
Having the same benchmark for any foreign private issuer of equity
securities, regardless of size, should add increased flexibility and
simplification to the Exchange Act deregistration regime.\61\ Moreover,
setting the percentage of U.S. trading volume at a low level, at 5% of
trading volume in the primary market, would serve to protect U.S.
investors.
---------------------------------------------------------------------------

    \60\ See the letters from the European Commission,
PricewaterhouseCoopers and Cleary Gottlieb.
    \61\ In the Proposing Release, in support of separate standards
for WKSIs and non-WKSIs, we noted that there typically is a greater
flow of information about a WKSI, both from the issuer and its
analysts, than about a smaller company, and that this flow of
information is more likely to continue after the WKSI's termination
of reporting. After considering the numerous comments opposing a
rule based on WKSI status, we are of the view that the proposed
rules, if adopted, could well discourage smaller foreign companies
from entering U.S. public capital markets, to the detriment of U.S.
investors. In addition, we note that both smaller and larger
companies will have to publish their material home country documents
on their Internet Web sites as a condition to maintaining the Rule
12g3-2(b) exemption received upon termination of reporting under
Rule 12h-6.
---------------------------------------------------------------------------

    i. One Year Ineligibility Period After Delisting
    Because the principal quantitative measure under proposed Rule 12h-
6 would be based on a comparison of the trading volume in the United
States and in one or two foreign markets of a foreign private issuer's
equity securities, the rule should be structured so as not to create an
incentive for a foreign private issuer to delist its securities from a
U.S. exchange for the purpose of decreasing its U.S. trading volume.
Indeed, as one commenter suggested, if we were to adopt a measure based
solely on trading volume, a foreign private issuer that delisted its
securities from a U.S. exchange before its trading volume fell below
the applicable percentage should not be eligible to terminate its
registration under such a standard.\62\
---------------------------------------------------------------------------

    \62\ See the letter, dated February 9, 2004, from Cleary
Gottlieb.
---------------------------------------------------------------------------

    Companies should not be unnecessarily restricted in choosing the
markets in which they wish their securities to trade. As a result, we
do not believe that delisting from a U.S. exchange should result in a
bar against

a foreign private issuer from using the reproposed rule. Nonetheless,
we share the concern about a possible negative impact stemming from a
measure based solely on trading volume. In addition, by requiring
companies to remain registered and reporting under the Exchange Act for
a period of time after delisting when, before delisting, the company
had a relatively active U.S. market for its securities, U.S. investors
will have access to information prepared in accordance with the
Commission's financial reporting and disclosure requirements for a
period of time during which, most likely, the U.S. market will be
diminishing.
    To address these concerns, we are proposing, as a condition to the
use of the trading volume standard of Rule 12h-6 and corresponding
eligibility to file Form 15F, that if a foreign private issuer has had
its equity securities delisted from a registered national securities
exchange or automated inter-dealer quotation system within one year
before filing the Form 15F, it must have satisfied the trading volume
percentage as of the date of delisting, and as measured over the 12
months preceding the date of delisting. Under this proposed condition:
     A listed foreign private issuer that satisfied the trading
volume condition would be able to delist from its stock exchange and
terminate its Exchange Act registration and reporting obligations
concurrently; and
     A listed foreign private issuer that did not satisfy the
trading volume condition would be able to delist but would not be
eligible to file a Form 15F and terminate its Exchange Act registration
and reporting obligations until one year after the date of delisting,
assuming that, at the date of filing its Form 15F, its U.S. ADTV for
the recent 12 month period subsequent to its delisting did not exceed
5% of the ADTV in the issuer's primary trading market.\63\
---------------------------------------------------------------------------

    \63\ Proposed Note 1 to paragraph (a)(4) of reproposed Rule 12h-
6. An issuer that failed to meet the trading volume standard at the
date of delisting would have to meet the trading volume standard one
year later when filing its Form 15F. If, notwithstanding its
delisting, an active U.S. over-the-counter market in the company's
securities continued, the company would not be eligible to use
proposed Rule 12h-6 and file a Form 15F in reliance on the trading
volume benchmark.
---------------------------------------------------------------------------

    ii. One Year Ineligibility Period After Termination of ADR Facility
    Many foreign issuers have their securities trade in the United
States in the form of American Depositary Receipts (``ADRs''). It
appears that the current rules relating to termination of Exchange Act
reporting by foreign private issuers may, as an unintended consequence,
encourage foreign private issuers to terminate their ADR facilities as
they seek to have fewer than 300 U.S. resident holders of their
securities.\64\ When an issuer terminates its ADR facility, the holders
of ADRs generally have the option to make arrangements to hold the
underlying securities directly. However, if holders are unable or
unwilling to make these arrangements, or to pay the costs associated
with these arrangements, the holders will have their investment cashed
out, that is, the underlying securities will generally be sold into the
home market and the net proceeds (after deducting fees and expenses of
the selling broker and the depositary bank) remitted to the former ADR
holders.
---------------------------------------------------------------------------

    \64\ One ADR depositary bank commented that it has recently been
involved in at least a dozen ADR facility terminations for this
purpose, which have eliminated thousands of U.S. retail holders. See
the letter from the Bank of New York.
---------------------------------------------------------------------------

    We believe foreign issuers should be encouraged to maintain their
ADR facilities, even when they delist from a U.S. market and terminate
their Exchange Act reporting obligations. After a foreign issuer
delists and deregisters, its ADRs should continue to be able to be
traded in the over-the-counter market in the United States. The
termination of ADR facilities has a detrimental impact on holders,
imposing fees and other charges on investors and, when investors are
cashed out, subjecting investors to unplanned tax consequences. In
addition, the termination of ADR facilities will effectively limit the
ability of many U.S. investors to purchase the securities of the
subject foreign company.
    To address these concerns, we are proposing, as a condition to the
use of Rule 12h-6 and eligibility to file Form 15F in reliance on the
trading volume provision, that a foreign private issuer shall not have
terminated any sponsored ADR facility within the 12-month period before
filing the Form 15F.
Comment Solicited
    We solicit comment on the proposed trading volume benchmark and on
the proposed conditions restricting its use:
     Is the proposed trading volume benchmark an appropriate
measure of the relative U.S. market interest in a foreign private
issuer's securities?
     We assume that U.S. trading volume numbers reflect U.S.
investor interest and U.S. resident trading activity in a security. We
request data on the accuracy of these assumptions.
     Would the proposed trading volume benchmark provide
adequate U.S. investor protection, particularly of retail investors?
     Would the proposed trading volume benchmark affect the OTC
trading in the securities of foreign issuers? If so, how so? Would
investors in those OTC securities be adequately protected by the
proposed trading volume benchmark?
     Is the proposed trading volume benchmark preferable to the
originally proposed benchmarks that were based either, if a WKSI, on a
combination of trading volume and public float criteria, or solely on
public float criteria?
     If the proposed trading volume threshold is preferable, is
the threshold set at the appropriate level (5%)? Should it be set,
instead, at a lower level, for example, 3% or 1%, or a higher level,
for example, 7% or 10%? \65\
---------------------------------------------------------------------------

    \65\ We encourage commenters to provide appropriate economic
support for any suggested change in the reproposed trading volume
benchmark.
---------------------------------------------------------------------------

     Should the proposed trading volume benchmark require the
measurement of the issuer's ADTV over a recent 12 month period, as
proposed? Should it be measured over a shorter period, say, 6 months, 3
months, or two months, or over a longer period, for example, 18 months
or 24 months? Would a longer or shorter period be more or less
susceptible to manipulation or other distorting effects regarding
certain transactions?
     Should the proposed trading volume benchmark require an
issuer to measure U.S. trading volume as a percentage of its worldwide
trading volume, rather than as a percentage of the trading volume in
its primary market, as proposed? If so, should an issuer only have to
obtain trading volume data from foreign jurisdictions in which it has
listed its securities in addition to the United States? If the proposed
benchmark should measure U.S. trading volume as a percentage of
worldwide trading volume, should we reduce the threshold, for example,
to 3% or 1%, to take account that some issuers may be listed or traded
in several markets?
     Are there difficulties associated with determining trading
volume in the United States or foreign markets for purposes of
reproposed Rule 12h-6? How should the rule deal with any such
difficulties?
     Should the U.S. ADTV component of the proposed trading
volume benchmark include all U.S. trading in the subject class of
securities, whether listed or over-the-counter, as proposed?
     Should the proposed trading volume benchmark require an
issuer to

obtain trading volume data from particular sources? Should the
reproposed rule instead provide safe harbor procedures regarding
sources that an issuer may use, but would not be required to use, to
obtain trading volume data? If so, what are those procedures or
sources?
     Should the proposed trading volume benchmark require an
issuer to account for differences in calculating trading volume between
different types of markets? If so, how should such differences be taken
into account?
     Should one trading volume standard apply to all issuers,
regardless of size, as proposed? Should we instead adopt different
trading volume standards depending, for example, on the size of the
issuer's U.S. public float?
     Would it be more appropriate to adopt an absolute trading
volume measure that would require an issuer's U.S. trading volume not
to have exceeded a specified amount for a 12-month period? If so, what
should be the specified amount? What factors should determine that
amount?
     Would the proposed trading volume benchmark create any
unanticipated incentives in foreign private issuers that are
undesirable? For example, is there a potential for manipulation in the
calculation of average trading volume under reproposed Rule 12h-6? If
so, how should we address it?
     What are the approximate costs that an issuer is expected
to incur when determining whether it meets the proposed trading volume
threshold? Are these costs lower or higher than the costs that an
issuer would incur under the originally proposed benchmarks?
     Should we adopt the originally proposed benchmarks
instead?
     Should we instead adopt a benchmark or benchmarks that use
public float criteria, with or without a trading volume component, but
that are set at a higher level than the originally proposed public
float benchmarks? For example, should we adopt a standard that permits
deregistration if an issuer's U.S. public float is no greater than 15%,
20%, or 25% of its worldwide public float? Should the issuer's status
as a WKSI be a factor?
     Is it appropriate to require an issuer to wait one year
before being eligible to rely on Rule 12h-6's trading volume standard
after delisting its securities from a U.S. stock market when, at the
time of the delisting, the issuer did not satisfy the trading volume
condition, as proposed?
     If so, should we adopt a one-year ineligibility period, as
proposed? Should the period be more than one year, for example, 15, 18
or 24 months? Should it be shorter than one year, for example, six or
nine months?
     Should we apply the proposed one-year ineligibility period
relating to delisting to issuers that delisted before the effective
date of Rule 12h-6? If not, what type of relief should be provided to
those issuers?
     Is it appropriate to require an issuer to wait one year
before being eligible to use proposed Rule 12h-6 after terminating its
ADR facility?
     If so, should we adopt a one year ineligibility period, as
proposed? Should the period be more than one year, for example, 15, 18
or 24 months? Should it be shorter than one year, for example, six or
nine months?
     Should the one year ineligibility condition apply only
when, at the date of termination of its ADR facility, the ADTV of the
issuer's U.S. market exceeded 5% of the ADTV in its primary trading
market for the preceding 12 months?
     Should we adopt a condition requiring an issuer to
maintain a sponsored ADR facility for a certain period of time
following its deregistration under Rule 12h-6? If so, should the period
be six months, more than six months, for example, three months, or
longer than six months, for example, a year following deregistration?
     Should we apply the proposed condition relating to the
termination of an ADR facility to issuers that terminated their ADR
facilities before the effective date of Rule 12h-6? If not, what type
of relief should be provided to those issuers?
    b. Alternative 300 Holder Condition
    As an alternative to the proposed trading volume benchmark
provision, reproposed Rule 12h-6 would permit a foreign private issuer
to terminate its Exchange Act reporting obligations regarding a class
of equity securities if it has less than 300 record holders on a
worldwide basis or who are U.S. residents as long as the issuer meets
the rule's other conditions.\66\ The purpose of this alternative 300
holder condition is to enable an issuer to terminate its Exchange Act
reporting obligations if it cannot satisfy the new trading volume
benchmark but does meet the current 300 holder standard. Otherwise, an
issuer could find itself worse off under Rule 12h-6 than under the
current exit rules.\67\
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    \66\ Proposed Rule 12h-6(a)(4)(ii).
    \67\ The reproposed alternative record holder condition is
substantially the same as the proposed condition. We did not
originally propose, and we are not now proposing, a similar 500
record holder condition, although one exists in the current rules
for a small issuer with total assets that have not exceeded $10
million for its most recent three fiscal years. Based on current
experience, we believe foreign private issuers seldom use the
current standard.
---------------------------------------------------------------------------

    While numerous commenters supported having an alternative record
holder condition, most requested that the Commission significantly
raise the 300 holder threshold.\68\ Many supported an increase to 3,000
while others requested an increase to 500 or 1,000. Some commenters
also requested that the Commission raise the record holder ``entrance''
threshold in Rule 12g3-2(a) to conform to any record holder increase in
the new exit rule.
---------------------------------------------------------------------------

    \68\ See, for example, the letters from Cleary Gottlieb and
Linklaters.
---------------------------------------------------------------------------

    We are not proposing to increase the 300 holder threshold for
foreign private issuers either in the exit or entrance rules at this
time. We understand that, due to the increased internationalization of
the U.S. securities markets in recent decades, the 300 holder standard
may not reflect current market conditions and, therefore, may require
updating. However, the principal purpose for retaining the 300 holder
provision is to preclude disadvantaging those companies that could
terminate their Exchange Act reporting obligations under the current
exit rules but not under the proposed trading volume condition. In
addition, since domestic registrants are subject to a substantially
similar record holder standard, we believe any change would be more
appropriately considered as part of a comprehensive evaluation of the
record holder provisions in both the Exchange Act entrance and exit
rules for both domestic and foreign registrants.\69\
Comment Solicited
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    \69\ In this regard, we note that the Advisory Committee on
Smaller Public Companies has made recommendations relating to
Exchange Act registration and termination of registration. See the
Final Report of the Advisory Committee on Smaller Public Companies,
dated April 23, 2006, which is available at http://www.sec.gov/

info/ smallbus/acspc/acspc-finalreport.pdf.
---------------------------------------------------------------------------

    We solicit comment on the reproposed alternative 300 holder
condition:
     Would it be appropriate to adopt a 300 holder standard as
an alternative to the proposed trading volume standard, as reproposed?
     Should we require an issuer to wait one year after
terminating its ADR facility or after delisting before being eligible
to rely on the 300 holder condition, as we have proposed for the
trading volume standard?
     Does the adoption of the proposed trading volume benchmark
obviate the need to increase the 300 holder standard under reproposed
Rule 12h-6?

2. Prior Exchange Act Reporting Condition
    We are reproposing a prior Exchange Act reporting condition that a
foreign private issuer must meet before it can terminate its section
12(g) registration or its section 15(d) reporting obligations regarding
a class of equity securities under Rule 12h-6.\70\ This condition would
require an issuer of equity securities to have had reporting
obligations under section 13(a) or section 15(d) of the Exchange Act
for at least the 12 months preceding the filing of Form 15F, to have
filed or furnished all reports required for this period, and to have
filed at least one annual report pursuant to section 13(a) of the
Exchange Act. The purpose of this prior Exchange Act reporting
condition is to provide investors in U.S. securities markets with a
minimum period of time to make investment decisions regarding a foreign
private issuer's securities based on the information provided in an
Exchange Act annual report and the interim home country materials
furnished in English under cover of Form 6-K.\71\
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    \70\ Reproposed Rule 12h-6(a)(1).
    \71\ Under cover of a Form 6-K (17 CFR 249.306), a foreign
private issuer is required to furnish in English a copy of any
document that it publishes or is required to publish under the laws
of its home country or the requirements of its local exchange or
that it has distributed to shareholders, and which is material to an
investment decision.
---------------------------------------------------------------------------

    Originally proposed Rule 12h-6 would have required a foreign
private issuer to have had Exchange Act reporting obligations for the
two years preceding the filing of its Form 15F and to have filed at
least two Exchange Act annual reports before it could terminate its
Exchange Act reporting obligations regarding a class of equity
securities. Several commenters objected to this two year reporting
condition on the grounds that it would impose a stricter reporting
requirement than is the case under the current exit rules.\72\ Some
noted that section 15(d) and Rule 12h-3 only require at a minimum the
filing of one Exchange Act annual report. Others stated that there is
no mandatory minimum reporting requirement under section 12(g) and Rule
12g-4.\73\
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    \72\ See the letters from Simpson Thacher & Bartlett and the New
York State Bar Association.
    \73\ See the letter from Skadden, Arps, Slate, Meagher & Flom.
---------------------------------------------------------------------------

    Still other commenters opposed a prior reporting condition that
required an issuer to have furnished all Form 6-K reports required
during the applicable period. Those commenters stated that this
requirement would make the rule unavailable if a foreign private issuer
did not submit a single required Form 6-K report during the period
because it was unsure of the underlying home country document's
materiality.\74\
---------------------------------------------------------------------------

    \74\ See the letter from Cleary Gottlieb.
---------------------------------------------------------------------------

    In order to prevent the rule from imposing a significantly greater
burden on a foreign private issuer than the current exit regime, we
propose to reduce the required prior reporting period to at least 12
months and require only one Exchange Act annual report. However, the
reproposed rule would also require a foreign private issuer to have
submitted all Form 6-Ks required during the 12 months preceding the
filing of its Form 15F in order to be eligible to terminate its
reporting obligations regarding a class of equity securities. This
requirement would help ensure that a U.S. investor is able to access
through EDGAR \75\ and in English all material interim information
about a foreign private issuer as required by its home country. We
believe this investor protection concern outweighs any difficulty that
a foreign private issuer may experience when determining whether a
particular home country document is material, particularly since a
foreign private issuer must routinely make materiality judgments under
existing Exchange Act reporting requirements.
---------------------------------------------------------------------------

    \75\ EDGAR is the Commission's Electronic Data Gathering,
Analysis and Retrieval System.
---------------------------------------------------------------------------

    From a practical point of view, the proposed 12-month prior
reporting requirement should not be problematic since, based on current
experience, most foreign companies that register securities with the
Commission, including solely under Exchange Act section 12(g), stay in
the U.S. market for at least a year and file at least one Exchange Act
annual report.\76\ Moreover, the prior reporting condition would
require that a foreign private issuer must be current in its reporting
obligations, not that it must have timely filed all reports required
during the 12 month period. In the event that an issuer determines that
it should have filed a Form 6-K during this period, it can do so before
it files its Form 15F.\77\
---------------------------------------------------------------------------

    \76\ See the letter from PricewaterhouseCoopers, which, when
maintaining that a two-year reporting period was unnecessary, stated
its belief that ``companies would not generally incur the cost to
become an SEC registrant if they intended to deregister within a
two-year period.'' See also Commission staff's annual review of
foreign private issuers that are Exchange Act reporting companies at
the end of each calendar year (``International Registered and
Reporting Companies'' Reports), which are available at the
Commission's Internet Web site at http://www.sec.gov/ divisions/

corpfin/internatl/companies.shtml.
    \77\ See Part II.D.1. of this release for a discussion of the
application of reproposed Rule 12h-6, including its prior reporting
condition, to successor issuers.
---------------------------------------------------------------------------

Comment Solicited
    We solicit comment on the reproposed prior Exchange Act reporting
condition:
     Is it appropriate to require, as a condition of
deregistration under Rule 12h-6, that an issuer have been an Exchange
Act reporting company for at least the 12 months prior to the filing of
its Form 15F, and to have filed or submitted all Exchange Act reports,
including one annual report, for that period, as reproposed?
     Should this time period be longer in order to provide U.S.
investors with a history of Exchange Act reports, including financial
reports?
     If a foreign private issuer seeking to deregister has not
timely filed its reports, should any adopted rule require a period of
time to elapse within which the issuer would have to be both current
and timely before it could file its Form 15F to cease its Exchange Act
reporting obligations? If so, should the required period be one month
or a period longer or shorter than one month?
3. The One Year Dormancy Condition
    As reproposed, a foreign private issuer would also have to comply
with a one year dormancy condition before it could terminate its
Exchange Act registration and reporting obligations regarding a class
of equity securities under Rule 12h-6.\78\ As reproposed, Rule 12h-6
would prohibit sales of a foreign private issuer's securities in the
United States in a registered offering under the Securities Act during
the 12 months preceding the filing of its Form 15F other than
securities issued:
---------------------------------------------------------------------------

    \78\ Reproposed Rule 12h-6(a)(2).
---------------------------------------------------------------------------

     To the issuer's employees;
     By selling security holders in non-underwritten offerings;
     Upon the exercise of outstanding rights granted by the
issuer if the rights are granted pro rata to all existing security
holders of the class of the issuer's securities to which the rights
attach;
     Pursuant to a dividend or interest reinvestment plan; or
     Upon the conversion of outstanding convertible securities
or upon the exercise of outstanding transferable warrants issued by the
issuer.

The primary purpose of the dormancy condition's prohibition of
registered offerings is to preclude a foreign private issuer from
exiting the Exchange Act reporting system shortly after it has engaged
in U.S. capital raising.
    As originally proposed, Rule 12h-6 would have excepted from the
dormancy condition's prohibition of

sales of an issuer's registered securities in the United States only
securities sold to an issuer's employees and those sold by selling
security holders in non-underwritten offerings. The reproposed rule
retains these exceptions because, as we noted in the Original Proposing
Release, these sales are not undertaken primarily for capital-raising
purposes or for the benefit of the issuer. The reproposed rule
continues to prohibit sales of an issuer's securities by its selling
security holders in an underwritten registered offering, despite some
commenters who opposed this prohibition,\79\ because there is a greater
likelihood of issuer involvement in a U.S. underwritten offering than
in a non-underwritten offering of selling security holders.
---------------------------------------------------------------------------

    \79\ See the letter from Cravath.
---------------------------------------------------------------------------

    At the suggestion of some commenters, we propose to add three
additional exceptions to the dormancy condition's prohibition of sales
of an issuer's registered securities: \80\ The issuance of registered
securities pursuant to pro rata rights offerings, dividend or interest
reinvestment plans, and the conversion of outstanding convertible
securities. These transactions may occur for reasons unrelated to
capital raising or for the benefit of the issuer, for example, to
benefit current security holders or for the convenience of investors.
However, the reproposed rule also provides that these exceptions do not
apply to securities issued pursuant to a standby underwritten offering
or other similar arrangement in the United States. This limitation is
consistent with the Commission's previous treatment of these three
types of registered offerings.\81\
---------------------------------------------------------------------------

    \80\ See the letter from ABA (Business).
    \81\ Instruction 2 to Item 8 of Form 20-F imposes a similar
limitation.
---------------------------------------------------------------------------

    As originally proposed, Rule 12h-6 would also have precluded a
foreign private issuer from engaging in unregistered offerings in the
United States during the dormancy period, other than those involving
securities sold to its employees, securities exempt from registration
under section 3 of the Securities Act \82\ (except section 3(a)(10))
and obligations having a maturity at the time of issuance of less than
nine months and exempted under section 4(2) of the Securities Act. We
proposed to prohibit unregistered offerings, such as private
placements, under the dormancy condition in order to prevent a foreign
company that has actively engaged in U.S. capital raising efforts and
sold securities to U.S. investors relatively recently from exiting the
Exchange Act reporting regime under Rule 12h-6 on the grounds that the
U.S. securities markets no longer represent as viable an option for
capital raising. In addition, we believed that proscribing only
registered offerings could act as a disincentive to a foreign private
issuer to conduct a registered offering in the United States.
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 77c.
---------------------------------------------------------------------------

    Numerous commenters urged the Commission to exclude unregistered
offerings from the one year dormancy condition on the grounds that an
issuer that has engaged in exempted offerings, such as Rule 144A or
section 4(2) private placements, has not taken advantage of its status
as a reporting company since both reporting and non-reporting companies
may engage in those exempted offerings, and since, without a
contractual undertaking, purchasers in those offerings are not entitled
to the full protections of the U.S. federal securities laws.\83\ Many
commenters also warned that, unless the Commission excluded from the
dormancy requirement exempted unregistered offerings, such as rights
offerings exempt under Securities Act Rule 801 or exchange offers
exempt under Securities Act Rule 802, foreign private issuers would
systematically exclude U.S. investors from these offerings,\84\ thereby
running counter to the Commission's stated goal of encouraging foreign
companies to include U.S. holders in these offerings on an equal basis
with foreign security holders when it adopted the cross-border
transaction safe harbors of Securities Act Rules 801 and 802 and the
Tier 1 tender offer rules.\85\
---------------------------------------------------------------------------

    \83\ See, for example, the letters from Cravath, the New York
State Bar, and Skadden Arps.
    \84\ See, for example, the letter from Linklaters.
    \85\ See Release No. 33-7759 (October 26, 1999), 64 FR 61382
(November 10, 1999).
---------------------------------------------------------------------------

    Several commenters specifically opposed including schemes of
arrangement exempted under Securities Act section 3(a)(10) within the
scope of the dormancy condition. Those commenters noted that many
schemes of arrangement are undertaken for non-capital raising purposes,
for example, to effect a redomicile or reorganization for tax
purposes.\86\ Others believed that prohibiting only registered
offerings under the dormancy condition would only marginally encourage
issuers to engage in unregistered offerings instead of registered ones,
if at all.\87\
---------------------------------------------------------------------------

    \86\ See, for example, the letter from Cleary Gottlieb.
    \87\ See the letter from Linklaters.
---------------------------------------------------------------------------

    These comments have persuaded us that adoption of the originally
proposed dormancy condition could well drive many private placement
financings and other unregistered offerings by foreign companies
offshore, to the detriment of U.S. investors and U.S. broker-dealers,
since many companies might prefer to finance outside the United States
under Regulation S than inside the United States, for example, under
section 4(2) and Rule 144A, in order to avoid triggering the dormancy
condition. Therefore, we are reproposing a dormancy condition that is
significantly less restrictive in scope than the proposed condition.
The reproposed rule would permit the unregistered sale of securities
that are exempted under the Securities Act. The permitted category of
securities would include sales pursuant to section 4(2), Regulation D,
Rule 144A, Rules 801 and 802, and exempt securities under section 3,
including section 3(a)(10) of the Securities Act.
    At the request of several commenters, the reproposed rule would
include the definition of ``employee'' under Form S-8 \88\ for the
purpose of applying the dormancy condition under Rule 12h-6.\89\ That
definition includes any employee, director, general partner, certain
trustees, certain insurance agents, and former employees as well as
executors, administrators or beneficiaries of the estates of deceased
employees, and a family member of an employee who has received shares
through a gift or domestic relations order.\90\ Otherwise, a narrow
interpretation of the term ``employee'' could result in an issuer being
disqualified from terminating its Exchange Act registration and
reporting obligations under Rule 12h-6 because it engaged in a sale of
securities during the dormancy period to an employee's family member or
other relationship permitted under Form S-8 but not explicitly allowed
under the new rule.
---------------------------------------------------------------------------

    \88\ 17 CFR 239.16b. Form S-8 is the form used by an Exchange
Act reporting company to register securities for issuance to its
employees or those of its subsidiaries or parent under an employee
benefit plan.
    \89\ See, for example, the letter from ABA (Business).
    \90\ See General Instruction A.1 to Form S-8.
---------------------------------------------------------------------------

Comment Solicited
    We solicit comment on the reproposed dormancy condition:
     Would it be appropriate to adopt the dormancy condition,
as reproposed?
     Is the reproposed amount of time required for the dormancy
condition too long or too short?
     Are the reproposed exceptions to the dormancy condition
appropriate?
     Are certain transactions we initially proposed to exempt
from the dormancy

condition, when a public float standard was proposed, no longer
appropriate for exemption? For example, is there a risk that foreign
private issuers would issue securities to U.S. investors or employees
who would then sell them in registered secondary offerings before
deregistration?
4. Foreign Listing Condition
    As reproposed, Rule 12h-6 would require that, with respect to
equity securities, for at least the 12 months preceding the filing of
its Form 15F, a foreign private issuer must have maintained a listing
of the subject class of securities on an exchange in a foreign
jurisdiction, which, either singly or together with one other foreign
jurisdiction, constitutes the primary trading market for the issuer's
subject class of securities.\91\ The reproposed rule defines ``primary
trading market'' to mean that at least 55 percent of the trading in the
foreign private issuer's subject class of securities took place in, on
or through the facilities of a securities market or markets in no more
than two foreign jurisdictions during a recent 12-month period.\92\
That definition further provides that if an issuer aggregates the
trading of its securities in two foreign jurisdictions for the purpose
of Rule 12h-6, the trading market for the issuer's securities in at
least one of the two foreign jurisdictions must be larger than the U.S.
trading market for the issuer's securities.\93\
---------------------------------------------------------------------------

    \91\ Reproposed Rule 12h-6(a)(3) (17 CFR 240.12h-6(a)(3)).
    \92\ Reproposed Rule 12h-6 defines ``recent 12-month period'' to
mean a 12-calendar month period that ended no more than 60 days
before the filing date of the Form 15F. Rule 12h-6(e)(7).
    \93\ Rule 12h-6(e)(6). As proposed and as adopted, measurement
under this condition is by reference to average daily trading volume
(ADTV) as reported by the relevant market. Although the proposing
release noted that there are differences concerning how various
markets measure and report trading volume (for example, dealer
markets versus auction markets), no commenter addressed this point.
---------------------------------------------------------------------------

    The purpose of this foreign listing condition is to help assure
that there is a non-U.S. jurisdiction that principally regulates and
oversees the issuance and trading of the issuer's securities and the
issuer's disclosure obligations to investors. This listing condition
makes more likely the availability of a set of non-U.S. securities
disclosure documents to which a U.S. investor may turn for material
information when making investment decisions about the issuer's
securities following the termination of its disclosure obligations
under Rule 12h-6. If the United States was the sole or principal market
for the foreign private issuer's securities, then the Commission would
have a greater regulatory interest in continuing to subject the foreign
company to the Exchange Act reporting regime.
    As originally proposed, Rule 12h-6 would have required a foreign
private issuer of equity securities to have maintained a listing of the
subject class of securities for the preceding two years on an exchange
in its home country. As originally proposed, ``home country'' would
have had the same meaning as under Form 20-F, which defines ``home
country'' as the jurisdiction in which the issuer is legally organized,
incorporated or established and, if different, the jurisdiction where
it has its principal listing. Originally proposed Rule 12h-6 would
further have required that a foreign private issuer's home country
constitute its primary trading market. We proposed to define the term
``primary trading market'' to mean that at least 55 percent of the
trading in the foreign private issuer's securities took place in, on or
through the facilities of a securities market in a single foreign
country during a recent 12 month period.
    We received a variety of comments on this home country listing
condition. Although most commenters agreed in principle with a prior
non-U.S. listing condition, several commenters expressed concern that
many foreign private issuers would not be able to meet the ``55 percent
trading in a single non-U.S. market'' threshold of the primary trading
market definition.\94\ Those commenters urged the Commission to adopt a
prior listing condition that would permit an issuer to meet the 55
percent or greater trading threshold by aggregating its trading in more
than one non-U.S. market.
---------------------------------------------------------------------------

    \94\ See, for example, the letter from Cravath. However,
commenters did not provide data or other specific information in
this area.
---------------------------------------------------------------------------

    Some commenters expressed concern that the proposed prior non-U.S.
listing period was too long.\95\ Other commenters noted that some
foreign private issuers have their principal trading market in a
jurisdiction that is different than its place of incorporation or
principal listing.\96\ For example, some companies are incorporated in
Switzerland and listed on the Swiss Exchange (SWX), but are primarily
traded on virt-x, a cross-border electronic trading platform based in
London that is regulated by the United Kingdom's Financial Services
Authority. Those companies would not meet the proposed home country
listing condition because their primary trading market is in the United
Kingdom, and not in their jurisdiction of incorporation or principal
listing.
---------------------------------------------------------------------------

    \95\ See the letter from Ziegler, Ziegler & Associates.
    \96\ See the letter from the Swiss Exchange.
---------------------------------------------------------------------------

    In response to commenters' concerns, we are shortening the
reproposed foreign listing period to one year from the originally
proposed two years. This change is consistent with our similar revision
of the proposed prior reporting condition. We also propose to permit an
issuer to aggregate its trading over two non-U.S. markets for the
purpose of meeting the foreign listing condition in order to address
the concerns of issuers that have substantial trading markets in more
than one country. Finally, we are proposing a ``foreign listing''
condition rather than a ``home country'' listing condition in order to
accommodate issuers that have their primary trading market in
jurisdictions other than their place of incorporation or principal
listing. These proposed revisions should increase the flexibility of
the new rule for many foreign private issuers.
    At the same time, the reproposed foreign listing condition should
serve to protect the interests of U.S. investors by requiring that at
least 55 percent of the ADTV of the company's subject class of
securities must have occurred through the facilities of no more than
two foreign jurisdictions, and that, if an issuer does aggregate the
ADTV of its subject class of securities over two non-U.S.
jurisdictions, at least one of the two foreign markets must be larger
than the U.S. market for the subject class of securities.\97\ These
proposed requirements should increase the likelihood that the principal
pricing determinants for a foreign private issuer's securities are
located outside the United States and that the issuer is subject to an
overseas regulator with principal authority for regulating the issuance
and trading of the issuer' securities and the issuer's disclosure to
investors.\98\ Consequently, for an issuer meeting these requirements,
there should be less interruption in the flow of material information
about the issuer

once it exits the Exchange Act reporting system, to the benefit of U.S.
investors.
---------------------------------------------------------------------------

    \97\ For the purpose of the reproposed primary trading market
determination, an issuer would first measure the ADTV of its listed
securities aggregated over one or two foreign jurisdictions. It
would then divide this amount by its worldwide ADTV. This
denominator would include the ADTV only for those foreign
jurisdictions in which the issuer has listed the subject class of
securities as well as its U.S. ADTV. Its U.S. ADTV would include all
securities of the subject class, whether listed or unlisted.
    \98\ This ``primary trading market'' requirement would also help
ensure that an issuer's foreign listing represents a significant
trading market for its equity securities rather than a listing on a
non-trading market such as the Luxembourg Stock Exchange.
---------------------------------------------------------------------------

    As reproposed, Rule 12h-6 would require issuers to determine that
the primary trading market for their equity securities is outside the
United States and, if it is, that the trading volume of their
securities in the United States does not exceed the threshold under the
rule. In addition, as noted above, the condition relating to primary
trading market would help assure that a foreign private issuer would be
subject to the disclosure and other requirements of a foreign
regulatory authority. The evolution of market structures could raise a
number of issues in this area. Non-U.S., private non-exchange trading
markets may develop in the future whose listed or traded issuers may
not be subject to the same regulatory treatment by foreign securities
regulators as listed companies today. Also, securities markets, which
historically have been organized and regulated along national lines,
and their listed companies, which also have been largely regulated by
national securities regulatory authorities, may in the future become
more transnational. The schemes of regulation for these markets and
companies may change in response to these continued developments.
Comment Solicited
    We solicit comment on the reproposed foreign listing condition:
     Would it be appropriate to adopt the foreign listing
condition, as reproposed?
     Should the foreign listing condition be longer or shorter
than the reproposed condition?
     Is the reproposed definition of primary trading market
appropriate? Should we instead require an issuer's primary trading
market to consist of one single foreign country, as initially proposed,
rather than two foreign countries, as reproposed? Should we instead
permit an issuer to aggregate the trading in its securities over three
or more foreign jurisdictions as long as the trading volume in one of
those jurisdictions is greater than its U.S. trading volume?
     Should the reproposed definition require that more than or
less than 55% of an issuer's trading occur in the primary trading
market?
     For purposes of the reproposed primary trading market
determination, will issuers have difficulty making the necessary
calculations? If so, what are these difficulties and how might they be
addressed in the rule?
     Should the worldwide foreign trading component in the
denominator of the primary trading market calculation include all
foreign markets in which an issuer's securities are traded, including
unlisted or over-the-counter trading, rather than only for foreign
listed markets, as reproposed?
     Should the denominator of the primary trading market
calculation include only the foreign jurisdictions in the numerator
plus U.S. ADTV?
     Should the U.S. ADTV component in the denominator of the
primary trading market calculation include only listed securities
rather than all U.S. traded securities, whether listed or unlisted, as
reproposed?
     Will issuers have difficulty obtaining ADTV information
for trading in the United States, in their primary trading market, or
elsewhere?
     In the United States, issuers should be able to obtain
information through the U.S. transaction reporting plan. Do other
markets or jurisdictions have similar trade reporting arrangements? Is
additional guidance from the Commission necessary in this area, or will
issuers be able to make reasonable judgments?
     Should the proposed rule provide additional flexibility
for the development of trans-national trading markets? If so, what
types of provisions would be appropriate to address these types of
markets?

B. Debt Securities Provision

    As reproposed, Rule 12h-6 would enable a foreign private issuer to
terminate its Exchange Act reporting obligations regarding a class of
debt securities as long as the issuer has filed or furnished all
reports required under Exchange Act section 13(a) or section 15(d),
including at least one Exchange Act annual report, and has its class of
debt securities held of record by less than 300 holders either on a
worldwide basis or who are U.S. residents.\99\ This provision reflects
the minimum reporting requirement and current 300 holder standard under
section 15(d) and Rule 12h-3.
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    \99\ Reproposed Rule 12h-6(b).
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    The reproposed debt securities provision is substantially similar
to the originally proposed provision.\100\ We did not originally
propose, and we are not here proposing, a provision comparable to Rule
12h-3's 500 record holder threshold for debt securities issuers because
we believe most foreign private issuers that are debt securities
registrants would likely exceed the $10 million asset threshold that
accompanies the 500 record holder standard.\101\
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    \100\ We have made one technical revision to the originally
proposed debt securities provision. An issuer that has listed a
class of debt securities on an exchange and registered the class
under section 12(b), without also registering those securities under
the Securities Act, would have reporting obligations under section
13(a), not section 15(d) of the Exchange Act. Yet the originally
proposed debt securities provision only referred to section 15(d)
obligations. In order to permit the termination of registration and
reporting under Rule 12h-6 by listed debt issuers, we have revised
the reporting condition to state that an issuer must have filed or
furnished all reports required under Exchange Act section 13(a) or
section 15(d). A listed debt issuer must have terminated its listing
and section 12(b) registration pursuant to Rule 12d-2 before it
could effect its termination of reporting under Rule 12h-6.
    \101\ None of the commenters requested that we incorporate the
500 record holder and $10 million asset standard into proposed Rule
12h-6's debt securities provision or into the alternative record
holder condition for equity securities.
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    A few commenters requested that the Commission increase the debt
securities record holder threshold to as much as 1,000. We have decided
against proposing to increase the debt securities threshold at this
time for the same reasons that we also are not proposing to increase
the record holder threshold for equity securities issuers as part of
this rulemaking.
Comment Solicited
    We solicit comment on the reproposed debt securities record holder
condition:
     Would it be appropriate to adopt the debt securities
record holder condition, as reproposed?

C. Revised Counting Method

    As originally proposed, Rule 12h-6 would have permitted an issuer
to use a modified version of the ``look through'' counting method under
Rule 12g3-2(a) when determining the percentage of a foreign private
issuer's outstanding equity shares held by its non-affiliates on a
worldwide basis that are held by U.S. residents or the number of U.S.
residents holding a foreign private issuer's equity or debt securities.
Instead of having to look through the accounts of brokers, banks and
other nominees on a worldwide basis to determine the number of its U.S.
resident holders, as is required under the current rules, an issuer
could limit its inquiry to brokers, banks and other nominees located in
the United States, the issuer's jurisdiction of incorporation, legal
organization or establishment and, if different, the jurisidiction of
its primary trading market.\102\ This revised counting method is
substantially similar to the counting method that the Commission
adopted under the exemptive rules for cross-border rights offerings,
exchange offers and business combinations, as

well as under the definition of foreign private issuer.
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    \102\ Reproposed Rule 12h-6(d).
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    The reproposed counting method is substantially the same as
originally proposed, except for two revisions. Since reproposed Rule
12h-6 would eliminate the public float benchmark, the reproposed
counting method would apply only to an issuer of equity securities
proceeding under the alternative 300 holder provision, or to a debt
securities issuer that must meet the 300 holder standard. In addition,
as reproposed, Rule 12h-6 would provide that an issuer that aggregates
the trading volume of its securities in two foreign jurisdictions for
the purpose of meeting the rule's listing condition will have to look
through nominee accounts in both foreign jurisdictions, which comprise
its primary trading market, and in the United States as well as in its
jurisdiction of incorporation, if different from the two jurisdictions
that comprise its primary trading market.
    As part of the counting method provision, we are reproposing a
presumption that we previously adopted under the cross-border rules and
definition of foreign private issuer.\103\ This presumption is that,
if, after reasonable inquiry, an issuer is unable without unreasonable
effort to obtain information about the amount of securities held by
nominees for the accounts of customers resident in the United States,
it may assume that the customers are the residents of the jurisdiction
in which the nominee has its principal place of business.
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    \103\ See Securities Act Rule 800(h)(4) (17 CFR 230.800(h)(4))
and Instruction B to Exchange Act Rule 3b-4(c)(1) (17 CFR 240.3b-
4(c)(1)).
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    Some commenters stated that, while this presumption is useful when
determining the percentage of an issuer's worldwide public float that
is held by U.S. residents, it is not much help when an issuer must
calculate the actual number of its U.S. resident holders for the
purpose of either the alternative record holder condition for equity
issuers or the debt securities provision. Those commenters urged the
Commission to adopt a presumption that would enable an issuer to count
each nominee as one shareholder located in the nominee's principal
place of business when the issuer is unable without unreasonable effort
to obtain information about the nominee's customer accounts.
    We did not adopt the suggested presumption when we adopted the
counting method for the rule defining the term ``foreign private
issuer,'' \104\ and we decline to propose it as part of this
rulemaking. Based on our experience with that definitional rule, we are
not persuaded that issuers are unable without undue burden to apply the
current standard using the adopted presumption.
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    \104\ See Release No. 34-41936 (September 28, 1999), 64 FR 53900
(October 5, 1999).
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    Some foreign jurisdictions have laws that provide an established
and enforceable means for a public company to obtain information about
its shareholders. We solicited comment regarding whether we should
permit an issuer to rely on information obtained through these foreign
statutory or code provisions when calculating the percentage of its
worldwide public float held by U.S. residents or the number of its U.S.
resident equity or debt holders. We received only two comment letters
regarding this issue.\105\
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    \105\ Both commenters stated that they had successfully relied
on section 212 of the United Kingdom Companies Act to obtain
information about an issuer's shareholders. One of the commenters
also cited Article L. 228-2 of the French Commercial Code as an
established and reliable means for a company to obtain shareholder
information.
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    Reproposed Rule 12h-6 does not provide that a foreign private
issuer may rely solely on specified foreign statutory or code
provisions. However, as part of its inquiry regarding whether it meets
any of the quantitative benchmarks under Rule 12h-6, an issuer may
refer to shareholder information obtained pursuant to those foreign
statutory or code provisions to the extent that this shareholder
information is reasonably reliable and accurate and furthers the
purpose of the inquiry.
Comment Solicited
    We solicit comment on the reproposed counting method provison:
     Would it be appropriate to adopt the counting method
provision, as reproposed?
     How should issuers' experiences with applying the counting
method under the cross-border rules and definition of foreign private
issuer inform our decision whether to adopt the reproposed counting
method?
     The reproposed counting method would limit the current
required worldwide search for nominees of U.S. holders to the U.S., the
jurisdiction of incorporation or organization, and possibly the primary
trading market. Are these limits appropriate? If not, should the search
be further limited or expanded?

D. Expanded Scope of Rule 12h-6

    In response to comments on the appropriate scope of Rule 12h-6, we
propose to expand the rule in two respects. First, we propose to
provide that an issuer that has succeeded to the Exchange Act reporting
obligations of an acquired company may terminate those reporting
obligations under Rule 12h-6 as long as it satisfies specified
conditions. Second, we propose to extend the application of Rule 12h-6
to a foreign private issuer that previously filed a Form 15 and
effected its termination of registration or suspension of reporting
under the current exit rules before the effective date of Rule 12h-6,
subject to conditions.
1. Application of Rule 12h-6 to Successor Issuers
    In the Original Proposing Release, we requested comment on the
prior Exchange Act reporting condition. Several commenters expressed
their concern that, as proposed, an issuer that has succeeded to the
Exchange Act reporting obligations of an acquired company pursuant to
Rule 12g-3 or 15d-5 \106\ may not be able to terminate its reporting
obligations under Rule 12h-6 because of the proposed rule's reporting
condition, although the successor issuer satisfies the rule's other
requirements. In order to address this concern, reproposed Rule 12h-6
specifically provides that, following a merger, consolidation, exchange
of securities, acquisition of assets or otherwise, a foreign private
issuer that has succeeded to the reporting obligations under Exchange
Act section 13(a) of another issuer pursuant to Rule 12g-3, or to the
reporting obligations of another issuer under Exchange Act section
15(d) pursuant to Rule 15d-5, may file a Form 15F to terminate those
reporting obligations if, regarding a class of equity securities, the
successor issuer meets Rule 12h-6's prior reporting, foreign listing,
and quantitative benchmark conditions.\107\ Regarding a class of debt
securities, the successor issuer must meet the conditions under Rule
12h-6(b), including the revised reporting condition. Reproposed Rule
12h-6 then provides that, when determining whether it meets the prior
reporting condition under either the equity or debt securities
provision of the final rule, a successor issuer may take into account
the reporting history of the issuer whose reporting obligations it has
assumed pursuant to Rule 12g-3 or 15d-5.\108\
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    \106\ 17 CFR 240.12g-3 and 240.15d-5.
    \107\ Reproposed Rule 12h-6(c)(1).
    \108\ Reproposed Rule 12h-6(c)(2).
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    This successor issuer provision would enable a non-Exchange Act
reporting foreign private issuer that acquires a reporting foreign
private issuer in a

transaction exempt under the Securities Act, for example, under Rule
802 or section 3(a)(10), to qualify immediately for termination of its
Exchange Act reporting obligations under Rule 12h-6, without having to
file an Exchange Act annual report, as long as the successor issuer
meets the rule's listing and quantitative benchmark conditions, and the
acquired company's reporting history fulfills Rule 12h-6's prior
reporting condition. Since the successor issuer would have assumed the
acquired company's Exchange Act reporting obligations, we believe that
it is appropriate that the issuer succeed to the acquired company's
reporting history for the purpose of Rule 12h-6.
    However, if a previously non-Exchange Act reporting foreign private
issuer acquires an Exchange Act reporting company by consummating an
exchange offer, merger or other business combination registered under
the Securities Act, most likely on a Form F-4 registration statement,
the acquiror would have to fulfill Rule 12h-6's prior reporting
condition without reference to the acquired company's reporting
history. Since the acquiror would have triggered its own section 15(d)
reporting obligations upon the effectiveness of its Securities Act
registration statement, it would have to meet Rule 12h-6's full
reporting condition like any other section 15(d) reporting company
before it could terminate its reporting obligations under the new rule.
Comment Solicited
    We solicit comment on the proposed expanded scope of Rule 12h-6
with respect to successor issuers:
     Should an issuer be permitted to terminate its Exchange
Act reporting obligations under Rule 12h-6 if, following a merger,
acquisition or other similar transaction in which it has succeeded to
Exchange Act reporting obligations pursuant to Rule 12g-3, it meets
Rule 12h-6's foreign listing and quantitative benchmark requirements,
and the acquired company's reporting history fulfills Rule 12h-6's
prior reporting condition, as proposed?
     Should we require that the Exchange Act reporting target
company have satisfied the trading volume or 300 record holder
benchmark just prior to completing one of the above transactions before
a successor issuer may proceed under Rule 12h-6?
     Should there be limitations placed on a successor issuer's
eligibility to use Rule 12h-6? If so, what are those limitations?
2. Application of Rule 12h-6 to Prior Form 15 Filers
    As originally proposed, Rule 12h-6 would have applied only to
reporting foreign private issuers that have not yet filed a Form 15 to
cease their Exchange Act reporting obligations. In response to our
request for comments concerning the scope of proposed Rule 12h-6 and on
the current exemptive scheme for foreign private issuers,\109\ numerous
commenters urged the Commission to expand the scope of Rule 12h-6 by
extending it to foreign private issuers that have previously filed a
Form 15 and thereby already terminated or suspended their Exchange Act
reporting obligations under the current exit rules.\110\
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    \109\ See Release No. 34-53020 at pp. 20 and 69-70.
    \110\ See the letters from the European Commission, Cleary
Gottlieb and Makinson Cowell.
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    We agree with those commenters who stated that foreign private
issuers should not be denied the benefits of the new exit regime simply
because they met the requirements for ceasing their Exchange Act
reporting obligations under the current rules and followed the only
exit procedure available to them.\111\ We see no meaningful distinction
between an issuer that would qualify for termination of Exchange Act
reporting under the alternative record holder provision of Rule 12h-6
and a Form 15 filer that has already met the record holder requirements
under Rule 12g-4 or Rule 12h-3 but, under the proposed rule amendments,
would continue to have to count its U.S. shareholders annually in order
to determine whether it has renewed or assumed anew Exchange Act
reporting obligations.
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    \111\ These benefits include termination of Exchange Act
reporting regarding a subject class of securities and the immediate
availability of the Rule 12g3-2(b) exemption upon the termination of
reporting.
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    Accordingly, as reproposed, Rule 12h-6 would extend termination of
Exchange Act reporting to a foreign private issuer that, before the
effective date of Rule 12h-6, has already effected the suspension or
termination of its Exchange Act reporting obligations after filing a
Form 15. Since these filers have already met a quantitative standard
under the current exit rules, they would not have to meet any other
quantitative benchmark under Rule 12h-6. They also would not have to
satisfy the prior reporting or dormancy provisions since they would
already be non-reporting entities.
    However, a prior Form 15 filer would have to meet the following
conditions in order to obtain the benefits of Rule 12h-6:
     The issuer must currently not be required to register a
class of securities under section 12(g) or be required to file reports
under section 15(d);
     the issuer must file a Form 15F; and
     if its Form 15 applied to a class of equity securities,
for at least the 12 months before the filing of its Form 15F, the
issuer must have maintained a listing of the subject class of equity
securities on an exchange in a foreign jurisdiction, which, either
singly or together with another foreign jurisdiction, constitutes the
primary trading market for the issuer's class of subject securities.
    As with any other foreign private issuer of equity securities that
elects to terminate its reporting obligations under Rule 12h-6, the
purpose of the proposed listing condition is to help ensure that the
prior Form 15 filer is subject to a foreign regulator and a non-U.S.
body of regulation governing the trading of the issuer's securities and
its disclosure obligations to its shareholders. This listing condition
makes more likely the availability of a set of home country securities
documents to which a U.S. investor may turn for material information
when making investment decisions about the issuer's securities
following the termination of its disclosure obligations under Rule 12h-
6.
    The purpose of the proposed Form 15F filing requirement is to
notify investors and alert the Commission that the prior Form 15 filer
is claiming the benefits of Rule 12h-6, to have the issuer certify that
it meets the conditions of the new rule, and to provide the issuer's
Internet Web site address.\112\
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    \112\ A prior Form 15 filer would have to furnish its home
country documents, required under Rule 12g3-2(b), on the Internet
the same as any other Form 15F filer. See Part II.H., below.
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Comment Solicited
    We solicit comment on the proposed expanded scope of Rule 12h-6
with respect to prior Form 15 filers:
     Is it appropriate to permit an issuer that, before the
effective date of Rule 12h-6, has terminated or suspended its Exchange
Act reporting obligations by filing a Form 15, to obtain the benefits
of termination under Rule 12h-6, as proposed?
     Are the proposed requirements that a prior Form 15 filer
must meet in order to be eligible to proceed under Rule 12h-6
appropriate? Are there any other eligibility requirements that we
should add?