[Federal Register: April 5, 2007 (Volume 72, Number 65)]
[Rules and Regulations]
[Page 16933-16960]
[DOCID:fr05ap07-21]

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Part III

Securities and Exchange Commission

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17 CFR Parts 200, 232, 240 and 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; Final Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 232, 240 and 249

[Release No. 34-55540; International Series Release No. 1301; 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: Final rule.

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SUMMARY: We are adopting 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. New Exchange Act Rule 12h-6 will permit a foreign private issuer
of equity securities to terminate its reporting obligations under
either section 13(a) or section 15(d) of the Exchange Act by meeting a
quantitative benchmark designed to measure relative U.S. market
interest for its equity securities that does not depend on a head count
of the issuer's U.S. security holders. The new rule will permit a
foreign private issuer to compare the average daily trading volume of
its securities in the United States with its worldwide average daily
trading volume, using a 5 percent benchmark. The accompanying rule
amendments will also help 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. The
new rule will also permit a foreign private issuer of debt securities
to terminate, rather than merely suspend, its section 15(d) reporting
obligations.

DATES: Effective Date: June 4, 2007.

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 adopting 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 adding 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.
    \7\ 17 CFR 249.324.
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Table of Contents

I. Executive Summary and Background
    A. Introduction
    B. Principal Comments Regarding the Reproposed Rule Amendments
    C. Summary of the Adopted Rule Amendments
II. Discussion
    A. Conditions for Equity Securities Issuers
    1. Quantitative Benchmarks
    a. Trading Volume Benchmark
    i. Calculation of the U.S. Trading Volume Benchmark as a
Percentage of Worldwide Trading Volume Instead of Primary Trading
Market Trading Volume
    ii. Inclusion of Off-Market Transactions in the Trading Volume
Calculation
    iii. The 5 Percent Trading Volume Measure
    iv. Definition of Equity Securities
    v. One Year Ineligibility Period After Delisting
    vi. One Year Ineligibility Period After Termination of Sponsored
ADR Facility
    vii. Transition Period
    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 Rule 12g3-
2(e)
    2. Electronic Publishing of Home Country Documents
    I. Concerns Regarding Securities Act Rule 701
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 Rule Amendments

I. Executive Summary and Background

A. Introduction

    In December 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\ Under the current rules, the primary
determinant regarding whether a foreign private issuer may terminate
its registration of a class of securities under section 12(g) \10\ or
suspend its reporting obligations under section 15(d) \11\ is if its
subject securities are held of record by less than 300 residents in the
United States.\12\ The Commission proposed to amend these rules out of
concern that, due to the increased globalization of securities markets
in recent decades as well as other trends, 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.\13\
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    \8\ See the definition of foreign private issuer at Exchange Act
Rule 3b-4(c) (17 CFR 240.3b-4(c)).
    \9\ Release No. 34-53020 (December 23, 2005), 70 FR 77688
(December 30, 2005) (Original Proposing Release).
    \10\ This statutory section applies to equity securities only.
See Exchange Act Section 12(g)(1) [15 U.S.C. 78l (g)(1)].
    \11\ 15 U.S.C. 78o(d). 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.
Section 15(d) does not permit an issuer to terminate, but only to
suspend, its reporting obligations under that section.
    \12\ Exchange Act Rules 12g-4(a)(2)(i) (17 CFR 240.12g-
4(a)(2)(i)) and 12h-3(b)(2)(i) (17 CFR 240.12h-3(b)(2)(i)).
    \13\ See Original Proposing Release, 70 FR at 77689-77690.
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    We recognize 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.\14\ In order to remove this disincentive,
we proposed to amend the current Exchange Act exit rules for foreign
private issuers.
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    \14\ See Part I.C of the Original Proposing Release for a
discussion of the concerns raised by foreign private issuers
regarding the current Exchange Act exit regime.
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    As originally proposed, new Exchange Act Rule 12h-6 would have
permitted a foreign private issuer of equity securities to terminate
its Exchange Act registration and reporting obligations if, among other
conditions, it met one of a set of alternative quantitative benchmarks
that, depending on whether the issuer was a well-known seasoned issuer
(``WKSI''),\15\ was based either on a combination of U.S. trading
volume and U.S. public float criteria or just U.S. public float
data.\16\ However, numerous commenters stated that the originally
proposed rules would still unduly restrict a significant portion of
U.S.-registered foreign private issuers from exiting the Exchange Act
reporting regime, thus making it unlikely that the proposed rules would
achieve their purpose of attracting more foreign companies to U.S.
public capital markets.
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    \15\ For purposes of proposed Rule 12h-6, a ``well-known
seasoned issuer'' 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.
    \16\ Under the original rule proposal, a WKSI would have been
eligible to terminate its Exchange Act reporting obligations
regarding a class of equity securities if 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. A WKSI with
greater than 5 percent U.S. ADTV or a non-WKSI would have been
eligible for termination of reporting regarding a class of equity
securities if, 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. See Part II.B.2.d of Release No. 34-53020.
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    In light of these criticisms, we reconsidered our approach and, in
December 2006, we reproposed the amendments to the Exchange Act exit
rules for foreign private issuers.\17\ As an alternative to the record
holder standard for equity securities issuers, we proposed a
quantitative benchmark based solely on a comparison of the average
daily trading volume of a foreign private issuer's equity securities in
the United States with that in its primary trading market. We reasoned
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 more 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.\18\ We concluded that, in applying an exit
standard based on trading volume data for the U.S. and an issuer's
primary trading market, issuers would face reduced costs when
determining whether they can terminate their registration and reporting
obligations under the Exchange Act, compared to the originally proposed
standards that would have required an issuer to assess the U.S.
residence of its security holders.\19\
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    \17\ Release No. 34-55005 (December 22, 2006), 72 FR 1384
(January 11, 2007) (Reproposing Release).
    \18\ We reproposed the rule amendments primarily because the
Commission did not fully address this trading volume approach in the
Original Proposing Release.
    \19\ See Parts II.A.1.a and IV of the Reproposing Release.
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B. Principal Comments Regarding the Reproposed Rule Amendments

    We received 30 comment letters in response to the reproposed rule
amendments.\20\ These letters represented the views of over 40 distinct
entities, including business, financial and legal associations, foreign
companies, financial advisory and accounting firms, law firms, and one
foreign government. While the commenters generally strongly supported
the trading volume-based approach and other aspects of the reproposed
rules, many offered suggestions designed primarily to fine-tune those
rules.
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    \20\ These comment letters, along with the letters received at
the proposing stage, are available on the Commission's Internet Web
site, located 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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    We received the most comments concerning the reproposed trading
volume benchmark for equity securities issuers. Numerous commenters
urged us to adopt a quantitative benchmark that would require an issuer
to measure its U.S. ADTV as a percentage of its ADTV for the same class
of securities on a worldwide basis, rather than against its ADTV in its
primary trading market, as reproposed. Many commenters also requested
that we permit an issuer to include off-market transactions when
calculating its worldwide ADTV for a class of equity securities, rather
than only when calculating its U.S. ADTV, as reproposed. Some
commenters further urged us to permit an issuer to include trades
conducted through alternative trading systems when determining whether
it meets the proposed trading volume benchmark. Still others requested
that we increase the percentage in the trading volume-based measure to
a percentage greater than 5 percent, as reproposed, particularly if we
did not move to a worldwide ADTV standard.
    Commenters expressed concern or requested guidance regarding a
number of other issues, including:
     the appropriateness of the proposed provision that would
prohibit reliance on the trading volume standard if an issuer has
delisted its securities from a U.S. exchange during the preceding 12
months when its U.S. ADTV exceeded the 5 percent threshold;
     the appropriateness of the proposed provision that would
prohibit reliance on the trading volume standard if an issuer has
terminated a sponsored American Depositary Receipts (ADR) facility \21\
during the preceding 12 months, regardless of whether the issuer met
the trading volume benchmark at the time of termination;
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    \21\ 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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     whether to include convertible debt and other equity-
linked securities in the definition of equity security for purposes of
the new exit rule;
     whether a special financial report filed pursuant to
Exchange Act Rule 15d-2 \22\ would constitute an Exchange Act annual
report for the purpose of the reproposed prior reporting condition;
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    \22\ 17 CFR 240.15d-2.
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     the appropriateness of the reproposed dormancy condition
for equity securities registrants,\23\ including whether it would
prohibit an issuer from conducting a registered offering in which an
underwriter has agreed to a standby purchase commitment but only
resells the purchased securities outside the United States;
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    \23\ As reproposed, Rule 12h-6 would prohibit an equity
securities registrant from selling its securities in the United
States in a registered offering under the Securities Act, except for
specified registered offerings, during the 12 months preceding the
filing of its Form 15F.
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     the appropriateness of the reproposed foreign listing
condition for equity securities registrants,\24\ including whether it
should apply to an issuer relying on the alternative 300 holder
provision of Rule 12h-6, and to an

issuer that delists from its non-U.S. exchange in connection with being
acquired;
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    \24\ As reproposed, Rule 12h-6 would require an equity
securities issuer to have maintained a listing on an exchange in its
primary trading market.
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     the role of a predecessor in determining a successor
issuer's eligibility to terminate its Exchange Act reporting
obligations under reproposed Rule 12h-6, including whether, under
Exchange Act Rule 12g-3(g),\25\ a successor issuer would have to file
an Exchange Act annual report for the predecessor's most recently
completed fiscal year before it could terminate its reporting
obligations under Rule 12h-6;
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    \25\ 17 CFR 240.12g-3(g).
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     whether to permit a foreign company that filed a Form 15
previously to terminate or suspend its Exchange Act reporting
obligations regarding a class of equity securities before the
effectiveness of new Rule 12h-6 to terminate its reporting obligations
under the new exit rule without having to recount its holders, as long
as it meets that rule's trading volume benchmark;
     whether to increase the threshold number of record holders
in the debt securities provision; and
     whether an issuer that has filed a Form 15F \26\ solely to
terminate its reporting obligations regarding debt securities must wait
until the effectiveness of that termination before it can submit an
application for the Rule 12g3-2(b) exemption regarding a class of
equity securities.
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    \26\ 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.
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C. Summary of the Adopted Rule Amendments

    We have carefully considered commenters' concerns regarding the
reproposed rules, and have addressed many of them in the rule
amendments that we are adopting today. As adopted, new Exchange Act
Rule 12h-6 and the accompanying rule amendments will:
     permit a foreign private issuer, regardless of size, 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, for a recent 12-month period, the U.S.
ADTV of the subject class of securities has been no greater than 5
percent of its worldwide ADTV--rather than 5 percent of the ADTV in its
primary trading market, as reproposed;
     permit an issuer to include off-market transactions,
including transactions through alternative trading systems, when
calculating its worldwide ADTV for a class of equity securities--as
discussed in connection with calculating its U.S. ADTV, as reproposed--
as long as the trading volume information regarding the off-market
transactions is reasonably reliable and does not duplicate other
trading volume information regarding the subject class of securities;
     require an issuer to wait 12 months before filing its Form
15F 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,\27\ or terminated a sponsored ADR facility and, at the time of
delisting or termination, the U.S. ADTV of the subject class of
securities exceeded 5 percent of its worldwide ADTV for the preceding
12 months;
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    \27\ Neither the OTC Bulletin Board operated by Nasdaq 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.
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     retain the 300-holder standard as an alternative to the
trading volume standard for an equity securities issuer and as the
quantitative standard for a debt securities issuer, as reproposed;
     exclude convertible debt and other equity-linked
securities from the definition of equity security for the purpose of
new Rule 12h-6's trading volume provision;
     require an equity securities registrant to have at least
one year of Exchange Act reporting, be current in reporting obligations
for that period, and have filed at least one Exchange Act annual
report, as reproposed;
     permit an issuer to count a special financial report filed
pursuant to Exchange Act Rule 15d-2 as an Exchange Act annual report
for the purpose of the new rule's prior reporting condition;
     prohibit an issuer of equity securities from selling
securities in the United States in a registered offering under the
Securities Act, except as specified, during the 12 months preceding the
filing of its Form 15F (the ``dormancy condition''), substantially as
reproposed;
     require an issuer of equity securities to have maintained
a listing of the subject class of securities for at least the 12 months
preceding the filing of its Form 15F on one or more exchanges in a
foreign jurisdiction that, either singly or together with the trading
of the same class of the issuer's securities in another foreign
jurisdiction, constitutes the primary trading market for those
securities, substantially as reproposed;
     define primary trading market to mean that at least 55
percent of the trading in a foreign private issuer's class of
securities that is the subject of Form 15F took place in, on or through
the facilities of a securities market or markets in a single foreign
jurisdiction or in no more than two foreign jurisdictions during a
recent 12-month period, as long as the trading in at least one of the
two foreign jurisdictions is larger than the trading in the United
States for the same class of the issuer's securities;
     permit an equity securities issuer relying on the
alternative 300-holder standard, or a debt securities issuer, to use a
revised counting method that limits the inquiry regarding the amount of
securities represented by accounts of customers resident in the United
States to brokers, dealers, banks and other nominees located in the
United States, the foreign private issuer's jurisdiction of
incorporation, legal organization or establishment, and the one or two
jurisdictions comprising the issuer's primary trading market if
different from the issuer's jurisdiction of incorporation, legal
organization or establishment, as reproposed;
     permit an issuer of equity or debt securities to rely on
the assistance of an independent information services provider when
determining whether the issuer falls below the 300-holder standard, as
reproposed;
     permit a successor issuer meeting specified conditions to
terminate its Exchange Act reporting obligations under new Rule 12h-6,
as reproposed; \28\
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    \28\ See Part II.D.1 of this release for clarification regarding
the limited role of the predecessor in determining a successor
issuer's eligibility to terminate its Exchange Act reporting
obligations under Rule 12h-6.
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     permit a foreign private issuer that filed a Form 15 and
suspended or terminated its Exchange Act reporting obligations under
the current exit rules before the effective date of Rule 12h-6 to
terminate its Exchange Act reporting obligations under new Exchange Act
Rule 12h-6, as long as, if regarding a class of equity securities, the
issuer meets Rule 12h-6's listing condition and either the trading
volume or alternative-300 holder condition or, if regarding a class of
debt securities, the issuer meets the rule's 300-holder condition for
debt issuers;
     extend the Rule 12g3-2(b) exemption to a foreign private
issuer of equity securities, including a successor issuer and prior
Form 15 filer, immediately upon its termination of reporting under Rule
12h-6, and require the issuer to maintain that exemption by publishing
in English specified material home country documents required by

Rule 12g3-2(b) \29\ on its Internet Web site or through an electronic
information delivery system generally available to the public in its
primary trading market, as reproposed;
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    \29\ See Exchange Act Rule 12g3-2(b)(1)(iii) (17 CFR 240.12g3-
2(b)(1)(iii)).
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     permit 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) on its Internet
Web site or through an electronic information delivery system rather
than submit them in paper to the Commission; and
     permit an issuer that has filed a Form 15F to terminate
its Exchange Act reporting obligations regarding a class of debt
securities to establish the Rule 12g3-2(b) exemption for a class of
equity securities upon the effectiveness of its termination of
reporting under Rule 12h-6, by submitting an application for the Rule
12g3-2(b) exemption after filing its Form 15F.
    We are also adopting, as reproposed, procedural conditions that
will:
     require a foreign private issuer to file a Form 15F
providing information with respect to whether the issuer meets the
requirements for terminating its reporting obligations under Rule 12h-
6;
     automatically suspend an issuer's Exchange Act reporting
obligations upon the filing of its Form 15F and trigger a 90-day
waiting period at the end of which, assuming the Commission has no
objections, the suspension will become a termination of reporting; and
     require a foreign private issuer to publish a notice, such
as a press release, announcing its intention to terminate its Exchange
Act reporting obligations under Rule 12h-6, before or at the time of
filing its Form 15F.
    We believe the rules that we are adopting today provide meaningful
protection of U.S. investors by permitting the termination of Exchange
Act registration and reporting only by those foreign registrants with
relatively low U.S. market interest in their U.S.-registered
securities. Compared to the current exit rules, Rule 12h-6 will
establish a more clearly defined process with a more appropriate
benchmark by which a foreign private issuer can terminate its Exchange
Act reporting obligations. As a result, we believe foreign private
issuers should be more willing initially to register their securities
with the Commission, which will provide more investment choices for
U.S. 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 regarding a class of equity securities under
new Rule 12h-6 will serve to protect U.S. investors. For example, the
prior reporting condition \30\ 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 that registrant 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 shortly before exiting our
reporting system. The one year reporting and dormancy conditions are
consistent with the statutory requirements under section 15(d).
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    \30\ See p. 12 and Part II.A.2 of this release.
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    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 have
been subject to an ongoing disclosure and financial reporting regime,
and have a significant market following, in its primary trading market.
We have set the U.S. trading volume benchmark at such a level that,
although there may be some U.S. investor interest in the subject
securities of an issuer meeting the benchmark, that interest would
appear to be sufficiently diminished so that a foreign private issuer
should not be required to continue its Exchange Act reporting if it
determines that it is no longer desirable to continue as a U.S.
registrant.
    The condition restricting the ability of an issuer to rely on the
trading volume standard under specified circumstances (U.S. delisting
and termination of a sponsored ADR facility) 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) will 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 will promote transparency in the exit process.

II. Discussion

A. Conditions for Equity Securities Issuers

1. Quantitative Benchmarks
a. Trading Volume Benchmark
    As adopted, new Exchange Act Rule 12h-6 will enable a foreign
private issuer of equity securities, 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. Under new Rule 12h-6, an issuer will 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 on a worldwide basis during a recent 12-month period.\31\
This trading volume benchmark is substantially similar to the
reproposed standard, except that the adopted benchmark requires an
issuer to measure its U.S. ADTV as a percentage of its worldwide ADTV
rather than the ADTV in its primary trading market.
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    \31\ New Exchange Act Rule 12h-6(a)(4)(i) (17 CFR 240.12h-
6(a)(4)(i)).
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    A threshold matter in this regulatory initiative has been what is
the most appropriate benchmark for equity securities that would best
serve the interests of investors and issuers, and most commenters
addressed this issue. Most of the commenters agreed that a benchmark
based solely on trading volume is superior to one based on a
combination of U.S. public float and trading volume criteria or just
U.S. public float data, as under the originally proposed Rule 12h-6, or
one based on the number of record holders in the United States or on a
worldwide basis, as under the current exit rules. Most commenters
stressed that trading volume data is easier to obtain and confirm than
is the data required for a U.S. public float or record holder
determination.\32\ As commenters have noted, it is difficult for a
reporting foreign private issuer to determine accurately the specific
country of residence of its investors.\33\ Because a public float
benchmark would require such a determination to varying degrees, most
commenters agreed with our conclusion that the reproposed trading

volume-based benchmark should result in reduced costs to issuers in
determining whether they can terminate their Exchange Act reporting
obligations.\34\
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    \32\ See, for example, the letter, dated February 12, 2007, from
Cleary Gottlieb, Steen & Hamilton LLP (Cleary Gottlieb).
    \33\ See the comment letters discussed in Part II.A.1.a of the
Reproposing Release.
    \34\ See, for example, the letter, dated February 12, 2007, from
the European Association for Listed Companies and other signatories
(EALIC).
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    Some commenters supported the reproposed trading volume measure
because it would provide a simple and clear measure of the degree of
U.S. market interest in an issuer's equity securities.\35\ Some
commenters expressed the view that basing the new exit rule on a
trading volume measure would help ensure that an issuer's termination
of Exchange Act registration and reporting would not have a significant
impact on the primary price-setting determinants of an issuer's equity
securities, which would allow for U.S. investors to trade in that
issuer's securities following its U.S. deregistration.\36\
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    \35\ See, for example, the letter, dated February 12, 2007, from
Sullivan & Cromwell LLP (Sullivan & Cromwell) and the letter, dated
January 2, 2007, from Galileo Global Advisors (Galileo).
    \36\ See, for example, the letter from Cleary Gottlieb.
---------------------------------------------------------------------------

    Commenters expressed their belief that adoption of the reproposed
trading volume standard would enable significantly more foreign private
issuers to exit the Exchange Act reporting regime if they so
desire.\37\ Consequently, as one commenter indicated, by removing
restrictions regarding the ability to exit U.S. securities markets,
adoption of new Rule 12h-6 and the accompanying amendments will have a
major impact on the perception that foreign companies have of those
markets, making the U.S. capital markets ``much more attractive and
competitive on an international scale.''\38\
---------------------------------------------------------------------------

    \37\ See, for example, the letter, dated February 12, 2007, from
the European Commission.
    \38\ See the letter from Cleary Gottlieb.
---------------------------------------------------------------------------

    For the above reasons, we are adopting a quantitative exit standard
for equity securities registrants based solely on trading volume
instead of one based on a combination of trading volume and public
float criteria or just public float data. We also are adopting, as
reproposed, one trading volume standard that will apply to all issuers
of equity securities. Commenters generally supported having one
benchmark applicable to any foreign private issuer, regardless of
size.\39\ Although we originally proposed a set of quantitative
benchmarks that depended primarily on whether an issuer was a WKSI, we
are adopting the same trading volume standard for a smaller issuer as
for a larger issuer in order to provide increased flexibility and
simplification to the Exchange Act deregistration regime, and for the
other reasons discussed in the Reproposing Release.\40\
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    \39\ See, most recently, the letter, dated February 23, 2007,
from the American Bar Association, Section of Business Law (ABA).
    \40\ For example, a trading volume standard that favored WKSIs
could discourage smaller foreign companies from entering U.S. public
capital markets, to the detriment of U.S. investors. Moreover,
commenters at the proposing stage noted that the costs of continued
Exchange Act reporting fall disproprotionately on smaller issuers.
See Part II.A.1.a of the Reproposing Release.
---------------------------------------------------------------------------

i. Calculation of the U.S. Trading Volume Benchmark as a Percentage of
Worldwide Trading Volume Instead of Primary Trading Market Trading
Volume
    Numerous commenters requested that the Commission calculate U.S.
trading volume as a percentage of worldwide trading volume rather than
as a percentage of ADTV in the issuer's primary trading market,\41\ as
reproposed.\42\ The primary rationale for this request is that, with
the increased globalization of securities markets, many issuers now
trade on multiple non-U.S. markets. According to these commenters,
since the goal of the reproposed trading volume benchmark is to
determine the relative importance of the U.S. trading market for an
issuer's securities, an issuer should be able to take into account all
non-U.S. trading in its securities, and not just the trading that has
occurred in the one or two jurisdictions comprising its primary trading
market.\43\
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    \41\ As discussed in Part II.A.4 of this release, we define
primary trading market to mean that at least 55 percent of the
trading in a foreign private issuer's subject class of securities
took place in, on or through the facilities of a securities market
or markets in a single foreign jurisdiction or in no more than two
foreign jurisdictions during a recent 12-month period. If an issuer
aggregates the trading in two foreign jurisdictions, the trading
market for the issuer's securities in at least one of the two
foreign jurisdictions must be larger than the United States trading
market for the same class of the issuer's securities. We proposed a
substantially similar definition at the reproposing stage.
    \42\ See, for example, the letter, dated February 8, 2007, from
BusinessEurope, the letters, dated February 12, 2007, from Davis
Polk & Wardwell (Davis Polk), Linklaters, and Makinson Cowell, and
the letters from Cleary Gottlieb, EALIC, and the EU. In contrast,
only one commenter opposed using worldwide trading volume. See the
letter from Galileo.
    \43\ See the letters from Cleary Gottlieb and EALIC.
---------------------------------------------------------------------------

    Some commenters maintained that, while it is reasonable to base
Rule 12h-6's foreign listing condition on the reproposed primary
trading market definition, it is not so for the trading volume
benchmark.\44\ As discussed below, the purpose of the 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.\45\ Limiting the definition of primary trading market in
this context to no more than two jurisdictions helps to further the
purpose of the foreign listing condition. In contrast, the purpose of
the trading volume benchmark is to measure the relative U.S. market
interest in a foreign private issuer's equity securities. Accounting
for as much of the issuer's trading as is reasonably possible would
further the purpose of this rule.
---------------------------------------------------------------------------

    \44\ See the letter from Linklaters.
    \45\ See Part II.A.4 of this release.
---------------------------------------------------------------------------

    We agree that, in light of the number of foreign registrants that
have listings in more than two jurisdictions, and given the purpose of
the trading volume benchmark, measuring an issuer's U.S. ADTV as a
percentage of its worldwide ADTV would increase the likelihood of
obtaining a more accurate measure of relative U.S. market interest for
that issuer's equity securities. Therefore, we are adopting a trading
volume benchmark for new Rule 12h-6 that will require an issuer to use
as the denominator of its trading volume calculation its worldwide ADTV
for the subject class of securities.\46\
---------------------------------------------------------------------------

    \46\ Worldwide ADTV includes U.S. ADTV. Some commenters favored
a trading measure based on the dollar value of shares traded rather
than on the number of shares traded. See the letter, dated February
12, 2007, from Ziegler, Ziegler and Associates (Ziegler) and the
letter from Galileo. We decline to adopt a trading value measure
because we believe that it would add an unnecessary level of
complexity and cost to the non-record holder determination.
---------------------------------------------------------------------------

ii. Inclusion of Off-Market Transactions in the Trading Volume
Calculation
    We reproposed to require an issuer to include both transactions
occurring on a stock exchange and over-the-counter trades for the
purpose of calculating U.S. ADTV for the numerator of the trading
volume benchmark, but to include only on-exchange transactions for the
purpose of calculating its ADTV for the denominator (its primary
trading market, as reproposed). We did so based on our belief that
trading volume information about over-the-counter trades was more
readily available in the United States than in many foreign
jurisdictions.
    Numerous commenters \47\ urged the Commission to permit an issuer
to include ``off-market'' transactions when determining whether it
meets the 5

percent trading volume standard, rather than just transactions
occurring on a stock exchange, as reproposed. These commenters
maintained that it was inappropriate to require an issuer to include
both on-exchange and off-exchange transactions when calculating its
U.S. ADTV but not when calculating its worldwide trading volume. As
noted by some of these commenters, members of Euronext markets are
currently required to report off-market transactions.\48\ Moreover,
some commenters noted that an EU Directive,\49\ scheduled for
effectiveness in November 2007, will generally require the reporting of
off-market transactions, which will make information regarding off-
market transactions generally available in Europe the same way that
such information is available through a transaction reporting plan in
the United States.\50\
---------------------------------------------------------------------------

    \47\ See the letters from BusinessEurope, Cleary Gottlieb, Davis
Polk, EALIC, the EU, Makinson Cowell, and Sullivan & Cromwell, and
the letters, dated February 12, 2007, from the International Bar
Association and Skadden Arps Slate Meagher & Flom (Skadden Arps).
    \48\ See, for example, the letter from Cleary Gottlieb.
    \49\ Directive 2004/39/EC, also known as the Market in Financial
Instruments Directive (MiFID).
    \50\ See the letters from Cleary Gottlieb, the EU, and
BusinessEurope.
---------------------------------------------------------------------------

    Some of these commenters urged the Commission to permit an issuer
to include not only off-market transactions that currently occur
through traditional over-the-counter means, but those that may occur
through alternative trading systems.\51\ According to these commenters,
MiFID will encourage the development of such trading systems.\52\ These
commenters stated that, as long as trading information is credible and
the sources reliable, an issuer should be able to include information
about securities transactions regardless of the platform on which they
occur.\53\
---------------------------------------------------------------------------

    \51\ See the letters from the EU and Davis Polk.
    \52\ See, for example, the EU letter.
    \53\ See, for example, the letter from Davis Polk.
---------------------------------------------------------------------------

    Some commenters requested that, if the Commission does not permit
an issuer to include off-market transactions when determining its
worldwide trading volume for the denominator of its trading volume
calculation, it should also prohibit the inclusion of off-market
transactions when determining its U.S. ADTV for the numerator of that
calculation.\54\ In contrast, one commenter, which favored a worldwide
trading volume measure, expressly requested that the Commission
prohibit the inclusion of off-market transactions for both the
numerator and denominator because of the difficulty of obtaining over-
the-counter trading information.\55\
---------------------------------------------------------------------------

    \54\ See the letters from BusinessEurope and the EU.
    \55\ See the letter from Skadden Arps.
---------------------------------------------------------------------------

    These comments have persuaded us that, for at least some foreign
private issuers, information regarding off-exchange transactions in
non-U.S. jurisdictions will be readily obtainable. Therefore, under
adopted Rule 12h-6, when making its trading volume determination, an
issuer must include in its calculation of U.S. ADTV both on-exchange
and off-exchange transactions, as reproposed. For both on-exchange and
off-exchange transactions in the United States, we expect an issuer to
be able to obtain relevant trading volume information as reported
pursuant to an effective transaction reporting plan,\56\ pursuant to
NASD rules,\57\ or reported by a national securities exchange otherwise
than pursuant to an effective transaction reporting plan. In addition,
an issuer may include in its calculation of worldwide ADTV off-market
transactions, including transactions conducted through alternative
trading systems, in addition to transactions occurring on an exchange,
as long as an issuer has obtained the information concerning the off-
market transactions from publicly available sources or third-party
information service providers, upon which the issuer has reasonably
relied in good faith, and as long as the off-market transaction
information does not duplicate any other trading volume information
obtained.
---------------------------------------------------------------------------

    \56\ Rule 601 of Regulation NMS (17 CFR 242.601) requires every
national securities exchange to file a transaction reporting plan
regarding transactions in listed equity and Nasdaq securities.
    \57\ See, for example, NASD Manual Rule 6600 et seq. for rules
regarding recording and reporting transactions in OTC Equity
Securities. A member broker-dealer must report information
concerning OTC trades not involving a listed security, including a
Nasdaq security, under the NASD rules rather than pursuant to a
transaction reporting plan since the latter only covers unlisted
transactions involving listed (and Nasdaq) securities.
---------------------------------------------------------------------------

    In response to our request for comments on whether issuers should
be required to obtain trading volume data from particular sources, a
number of commenters advocated that the final rules provide issuers
with sufficient flexibility to use such data sources as they deem
reliable and appropriate.\58 \The adopted rules do not specify any
particular data sources that issuers must use to determine either its
U.S. or worldwide trading volume. In this respect, when obtaining
information concerning either on-exchange or off-exchange transactions,
issuers will have the latitude to use market data vendors or other
commercial service providers and publicly available sources of market
information that they reasonably believe to be reliable and that do not
duplicate trading volume information obtained from other sources, such
as various exchanges or markets.\59\ Issuers will be required to
disclose their trading volume data sources on Form 15F, which will
inform investors of the data sources used.\60\
---------------------------------------------------------------------------

    \58\ See, for example, the letters from Cleary Gottlieb and
EALIC.
    \59\ See Instruction 3.c to Item 4 of Form 15F.
    \60\ See Item 4.F of Form 15F.
---------------------------------------------------------------------------

iii. The 5 Percent Trading Volume Measure
    Commenters expressed a variety of views on whether 5 percent U.S.
ADTV was the appropriate threshold for the trading volume benchmark.
Although some commenters requested that the Commission increase the
percentage to 10 percent ADTV,\61\ many others supported the 5 percent
threshold.\62\ Moreover, some of the commenters that requested an
increase to 10 percent did so only if the Commission decided not to
adopt a world-wide trading based benchmark.\63\
---------------------------------------------------------------------------

    \61\ See the letter, dated February 9, 2007, from SGL Carbon,
the letter, dated February 12, 2007, from Fried Frank Harris Shriver
& Jacobson (Fried Frank), and the letter from Skadden Arps. Another
commenter requested an increase to 15 percent. See the letter from
i-CABLE Communications Ltd. (i-CABLE).
    \62\ See the letters from Cleary Gottlieb, EALIC, Galileo,
Sullivan & Cromwell, and the New York State Society of Certified
Public Accountants (NYSSCPA).
    \63\ See the letters from the ABA, BusinessEurope, and
Linklaters.
---------------------------------------------------------------------------

    We believe that adoption of the ``5 percent of worldwide trading
volume'' standard will permit foreign companies with relatively little
U.S. market interest to deregister.\64\ Moreover, by permitting an
issuer to include both on-exchange and off-exchange transactions when
calculating its worldwide ADTV, we have addressed the concerns of
commenters who suggested the 5 percent threshold could be too low to
achieve the rule's purpose of reducing the disincentive to U.S.
registration that may be caused by the current exit regime.
iv. Definition of Equity Securities
---------------------------------------------------------------------------

    \64\ See Part III, n. 191 of this release.
---------------------------------------------------------------------------

    We reproposed that, for purposes of new Rule 12h-6, an issuer would
use the definition of equity security provided in Exchange Act Rule
3a11-1.\65\ That provision includes equity-linked securities, such as
convertible debt securities and warrants, within the definition of
equity security. Several commenters \66\ requested that the Commission
exclude equity-linked securities from the definition of equity

security on the grounds that trading volume information for equity-
linked securities is difficult to obtain. One commenter suggested using
instead the definition of equity security provided in the Securities
Act cross-border rules, which explicitly excludes convertible debt and
other equity-linked securities.\67\
---------------------------------------------------------------------------

    \65\ 17 CFR 240.3a11-1.
    \66\ See the letters from BusinessEurope, the EU, EALIC and
Cleary Gottlieb.
    \67\ See the letter from Cleary Gottlieb, which cites Securities
Act Rule 800(b) (17 CFR 230.800(b)).
---------------------------------------------------------------------------

    We agree with those commenters that, because trading volume
information concerning convertible debt and other equity-linked
securities is more difficult to obtain than trading volume information
for the underlying equity securities, an issuer should not have to
include equity-linked securities when determining whether it meets the
trading volume benchmark. The same reasoning applies to an issuer's
determination concerning the foreign listing condition, which requires
an issuer to meet the definition of primary trading market, which is a
trading volume-based definition.\68\ Therefore, we are adopting a
definition of equity security that is based on Rule 3a11-1, except
that, for purposes of the trading volume and foreign listing provisions
of Rule 12h-6, the definition explicitly excludes:
---------------------------------------------------------------------------

    \68\ See Part II.A.4 of this release.
---------------------------------------------------------------------------

     any debt security that is convertible into an equity
security, with or without consideration;
     any debt security that includes a warrant or right to
subscribe to or purchase an equity security;
     any such warrant or right; or
     any put, call, straddle, or other option or privilege that
gives the holder the option of buying or selling a security but does
not require the holder to do so.\69\
---------------------------------------------------------------------------

    \69\ New Exchange Act Rule 12h-6(f)(3) (17 CFR 240.12h-6(f)(3)).
These are the same categories of securities excluded from the
definition of equity security under Securities Act Rule 800(b).
---------------------------------------------------------------------------

v. One Year Ineligibility Period After Delisting
    We are adopting, substantially as proposed, a condition to the use
of Rule 12h-6's trading volume standard and corresponding eligibility
to file Form 15F. This condition provides 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, as measured over
the 12 months preceding the date of delisting.\70\ Under this
condition:
---------------------------------------------------------------------------

    \70\ New Exchange Act Rule 12h-6(b)(1) (17 CFR 240.12h-6(b)(1)).
We previously proposed to codify this delisting requirement, along
with a similar requirement concerning termination of a sponsored ADR
facility, as Notes to paragraph (a)(4) of reproposed Rule 12h-6. We
have restructured final Rule 12h-6 to provide for these requirements
in a separate paragraph and have changed the paragraph numbering of
the adopted rule accordingly. As adopted, Rule 12h-6(b) does not
apply to issuers terminating their reporting obligations under
either Rule 12h-6(d) (the successor issuer provision) or Rule 12h-
6(i) (the prior Form 15 filer provision).
---------------------------------------------------------------------------

     a listed foreign private issuer that satisfied the trading
volume condition will 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 will be able to delist but will 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 that time, it meets the conditions of the rule.\71\
---------------------------------------------------------------------------

    \71\ For example, 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 Rule 12h-6 and file a Form 15F in reliance on the
trading volume benchmark.
---------------------------------------------------------------------------

    We are adopting this condition in order to prevent the new trading
volume-based rule from creating 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. As one commenter suggested early
on, if we were to adopt a standard 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.\72\
---------------------------------------------------------------------------

    \72\ See the letter, dated February 9, 2004, from Cleary
Gottlieb.
---------------------------------------------------------------------------

    A few commenters requested that the Commission remove this
delisting condition on the grounds that it imposed a restraint on the
use of the new exit rule that was not necessary for the protection of
U.S. investors.\73\ We agree that companies should not be unnecessarily
restricted in choosing the markets on which their securities are
listed. Thus, we do not believe that delisting from a U.S. exchange
should result in an automatic bar against a foreign private issuer from
using the new exit rule. Nonetheless, we share the concern about
possible negative impacts on U.S. investors stemming from a measure
based solely on trading volume. Moreover, 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.
Accordingly, we are adopting the delisting condition substantially as
proposed.\74\
---------------------------------------------------------------------------

    \73\ See the letters from Galileo, Makinson Cowell and SGL
Carbon.
    \74\ Some commenters requested that we exempt from the delisting
condition an issuer that has been involuntarily delisted. See, for
example, the letter, dated February 22, 2007, from Cravath, Swaine &
Moore (Cravath). We decline to do so since such an exemption could
encourage an issuer not to comply with exchange standards in order
to get delisted.
---------------------------------------------------------------------------

vi. One Year Ineligibility Period After Termination of Sponsored ADR
Facility
    As part of the rule reproposal, we proposed an additional condition
to an issuer's use of Rule 12h-6 and eligibility to file Form 15F in
reliance on the trading volume provision. That condition provided that
a foreign private issuer must not have terminated any sponsored ADR
facility within the 12 month period before filing its Form 15F. We
proposed that condition in order to encourage foreign private issuers
to maintain their ADR facilities, even after they delist from a U.S.
market and terminate their Exchange Act reporting obligations.
    After a foreign private issuer delists and deregisters, investors
will benefit if its ADRs continue 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 and limiting their investment choices.\75\
In addition, the termination of ADR facilities will limit the ability
of many U.S. investors to effect transactions in

the securities of the subject foreign company.
---------------------------------------------------------------------------

    \75\ 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.
---------------------------------------------------------------------------

    Some commenters opposed the ADR facility termination condition on
grounds similar to those raised against the delisting condition.
However, these commenters also objected to the fact that, unlike the
delisting condition, the proposed ADR facility condition applied
regardless of whether, at the time of termination of its ADR facility,
an issuer met the trading volume threshold measured for the previous 12
months.\76\ One commenter stated that adoption of the reproposed
condition could dissuade issuers from sponsoring ADR programs, to the
detriment of U.S. investors.\77\
---------------------------------------------------------------------------

    \76\ See, for example, the letter, dated February 12, 2007, from
the New York State Bar Association (N.Y. State Bar), and the letters
from the ABA and Linklaters.
    \77\ See the letter from the N.Y. State Bar.
---------------------------------------------------------------------------

    We continue to believe that, due to the importance of ADR
facilities for U.S. investors, a sponsored ADR facility termination
condition is appropriate. However, we agree with commenters that the
importance of this concern significantly diminishes if, at the time of
its termination of a sponsored ADR facility, an issuer's U.S. ADTV has
already fallen below the trading volume threshold.
    Therefore, we are adopting a condition providing that, if an issuer
has terminated a sponsored ADR facility, and at the time of termination
the average daily trading volume in the United States of the ADRs
exceeded 5 percent of the average daily trading volume of the
underlying class of securities on a worldwide basis for the preceding
12 months, the issuer must wait 12 months before it may file a Form 15F
to terminate its Exchange Act reporting obligations in reliance on Rule
12h-6's trading volume provision.\78\ We are also clarifying that, for
purposes of Rule 12h-6's trading volume provision, an issuer must
calculate the trading volume of its ADRs in terms of the number of
securities represented by those ADRs.\79\
---------------------------------------------------------------------------

    \78\ New Exchange Act Rule 12h-6(b)(2) (17 CFR 240.12h-6(b)(2)).
    \79\ Note to paragraph (a)(4) of Rule 12h-6. Typically the ratio
defining the number of common or ordinary shares underlying each ADR
is included as part of the deposit agreement or in an exhibit to
that agreement.
---------------------------------------------------------------------------

vii. Transition Period
    In connection with our reproposal of Rule 12h-6, we solicited
comment on whether the proposed delisting and ADR termination
conditions should apply to a foreign private issuer that delisted its
equity securities from a U.S. exchange or terminated a sponsored ADR
facility before the effective date of the new exit rule. One commenter
\80\ requested that neither provision apply to an issuer that delisted
or terminated a sponsored ADR facility before December 13, 2006, which
is the date of the open meeting at which the Commission voted to
repropose Rule 12h-6 and the accompanying rule amendments.
---------------------------------------------------------------------------

    \80\ See the letter from the ABA.
---------------------------------------------------------------------------

    We agree that, in the interests of fairness, an issuer should not
be precluded from relying on Rule 12h-6's trading volume provision
because it delisted or terminated a sponsored ADR facility before the
Commission had even proposed to make those acts meaningful to the
application of Rule 12h-6. However, we believe that March 21, 2007
should be the dispositive date since, on that date, the Commission
voted to adopt the delisting and ADR termination conditions, thus
making definite its intent that those conditions apply to Rule 12h-6's
trading volume provision.
    Therefore, a foreign private issuer that, before March 21, 2007,
delisted a class of equity securities from a national securities
exchange or inter-dealer quotation system in the United States or
terminated a sponsored ADR facility, may file a Form 15F in reliance on
Rule 12h-6's trading volume provision even if, at the time of delisting
or termination, its U.S. ADTV exceeded 5 percent of the ADTV of that
class of securities on a worldwide basis for the preceding 12 months.
b. Alternative 300-Holder Condition
    We are adopting, substantially as reproposed, an alternative to the
trading volume benchmark provision, which will 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.\81\ 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.\82\
---------------------------------------------------------------------------

    \81\ New Exchange Act Rule 12h-6(a)(4)(ii) (17 CFR 240.12h-
6(a)(4)(ii)).
    \82\ We did not originally propose or repropose 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, most foreign private issuers have not relied on that
provision due to the difficulty in meeting the asset test.
---------------------------------------------------------------------------

    The adopted alternative record holder condition is substantially
the same as the proposed and reproposed condition. Although at the
proposing stage, some commenters requested that the Commission
significantly raise the 300-holder threshold in both the Exchange Act
exit and entrance rules, and a few made a similar request at the
reproposing stage,\83\ we decline to adopt an increase to the 300-
holder threshold for foreign private issuers either in the exit or
entrance rules at this time. As we previously stated, the limited
purpose for retaining the 300-holder provision in the new exit rule is
to preclude disadvantaging those companies that could terminate their
Exchange Act reporting obligations under the current exit rules but not
under the new trading volume condition.\84\ Moreover, 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.\85\ In addition, issuers relying on the
alternative holder provision will be able to use the revised counting
method that we are adopting today, which should make the U.S. holder
determination easier for those issuers.\86\
---------------------------------------------------------------------------

    \83\ See the letters from the ABA and the Organization for
International Investment.
    \84\ See Part II.A.1.b of the Reproposing Release.
    \85\ 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
.

    \86\ See Part II.C of this release.
---------------------------------------------------------------------------

2. Prior Exchange Act Reporting Condition
    We are adopting, substantially as reproposed, 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.\87\ This condition will 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.\88\
---------------------------------------------------------------------------

    \87\ New Exchange Act Rule 12h-6(a)(1) (17 CFR 240.12h-6(a)(1)).
    \88\ 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. As previously noted, several commenters objected to this
two year reporting condition primarily on the grounds that it would
impose a stricter reporting requirement than is the case under the
current exit rules.\89\ In response to those commenters, when
reproposing Rule 12h-6, we reduced the required prior reporting period
to at least 12 months and proposed to require only one Exchange Act
annual report.
---------------------------------------------------------------------------

    \89\ See Part II.A.2 of the Reproposing Release.
---------------------------------------------------------------------------

    We received only a few comments on the reproposed prior reporting
condition for equity security issuers. One commenter supported the
revisions made to the proposed prior reporting condition but urged the
Commission to permit an issuer to terminate its Exchange Act reporting
obligations regarding a class of equity securities even if it has not
submitted all required Form 6-Ks.\90\ That commenter pointed to the
difficulties that a foreign private issuer may experience when
determining whether a Form 6-K submission is required under foreign
reporting and U.S. materiality requirements.
---------------------------------------------------------------------------

    \90\ See the letter from the ABA.
---------------------------------------------------------------------------

    As adopted, Rule 12h-6 will 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 will help ensure that a U.S. investor is able to access
through EDGAR \91\ and in English all material interim information
about a foreign private issuer as required by its home country. We
continue to believe that our rules should provide appropriate
incentives for companies to stay current with their Exchange Act
reporting obligations.
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    \91\ EDGAR is the Commission's Electronic Data Gathering,
Analysis and Retrieval System.
---------------------------------------------------------------------------

    From a practical point of view, the 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.\92\ Moreover, the prior reporting condition will 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.
---------------------------------------------------------------------------

    \92\ See, for example, the letter from Galileo.1`
---------------------------------------------------------------------------

    Another commenter \93\ requested that we permit an issuer to
satisfy the prior Exchange Act annual report requirement by filing a
special financial report required under Exchange Act Rule 15d-2.\94\ We
agree that it would be appropriate to have the special financial report
satisfy the annual report filing requirement under new Rule 12h-
6(a)(1). In this situation, an issuer will have recently sold
securities under an effective Securities Act registration statement
with non-financial information as current as the date of the
prospectus, and the information in the special financial report will
provide financial statements and other information as of and for the
most recent fiscal year end, thus serving the same purpose as an
Exchange Act annual report.
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    \93\ See the letter from Sullivan & Cromwell.
    \94\ 17 CFR 240.15d-2. This rule requires an issuer that filed a
Securities Act registration statement, which did not contain audited
financial statements for the last full fiscal year preceding the
year in which the registration statement became effective, to file a
special financial report with the Commission that includes audited
financials for that last full fiscal year.
---------------------------------------------------------------------------

    In addition, this approach is consistent with our recent
implementation rules for the internal control over financial reporting
requirements mandated by Section 404 of the Sarbanes-Oxley Act of
2002.\95\ Accordingly, we are clarifying that a special financial
report, filed with the Commission pursuant to Rule 15d-2, constitutes
an Exchange Act annual report for the purpose of complying with Rule
12h-6's prior reporting condition.
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    \95\ 15 U.S.C. 7262. See Release No. 33-8760 (December 15,
2006), 71 FR 76580 (December 21, 2006).
---------------------------------------------------------------------------

3. One Year Dormancy Condition
    We are adopting, as reproposed, a one year dormancy condition with
which a foreign private issuer must comply before it can terminate its
Exchange Act registration and reporting obligations regarding a class
of equity securities under Rule 12h-6.\96\ New Rule 12h-6 will 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:
---------------------------------------------------------------------------

    \96\ New Exchange Act Rule 12h-6(a)(2) (17 CFR 240.12h-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. public capital raising.
    We received relatively few comments on the reproposed dormancy
condition.\97\ Most welcomed the revisions made to the originally
proposed dormancy condition.\98\ For example, the originally proposed
rule would have prohibited sales of unregistered securities, with
limited exceptions. We removed this prohibition when reproposing Rule
12h-6 after commenters convinced 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 in order to avoid triggering the dormancy condition.
Consequently, as reproposed, the adopted rule will permit the
unregistered sale of securities that are exempted under the Securities

Act during the dormancy period. The permitted category of securities
will include sales pursuant to section 4(2),\99\ Regulation D,\100\
Rule 144A,\101\ Rules 801 and 802,\102\ and exempt securities under
section 3, including section 3(a)(10) of the Securities Act.\103\
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    \97\ See the letters from the ABA, Linklaters, the N.Y. State
Bar, Sullivan & Cromwell, and Skadden Arps.
    \98\ See the letters from the ABA, Skadden Arps, and Sullivan &
Cromwell.
    \99\ 15 U.S.C. 77d(2).
    \100\ 17 CFR 230.501 et seq.
    \101\ 17 CFR 230.144A.
    \102\ 17 CFR 230.801 and 230.802.
    \103\ 15 U.S.C. 77c and 77c(a)(10).
---------------------------------------------------------------------------

    Some of the comments pertained to additional proposed exceptions to
the dormancy condition. 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. When reproposing Rule 12h-6, we
proposed three additional exceptions to the dormancy condition's
prohibition of sales of an issuer's registered securities: the issuance
of registered securities pursuant to pro rata rights offerings,
dividend or interest reinvestment plans, and the conversion of
outstanding convertible securities.\104\ Like the earlier proposed
exceptions, these transactions often 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.
---------------------------------------------------------------------------

    \104\ See Part II.A.3 of the Reproposing Release.
---------------------------------------------------------------------------

    We also reproposed that these additional exceptions would not apply
to securities issued pursuant to a standby underwritten offering or
other similar arrangement in the United States. As we explained, this
limitation is consistent with the Commission's previous treatment of
these types of registered offerings.\105\
---------------------------------------------------------------------------

    \105\ Instruction 2 to Item 8 of Form 20-F imposes a similar
limitation.
---------------------------------------------------------------------------

    Two commenters requested that we clarify that an issuer would not
trigger the dormancy condition if it conducted a registered offering
involving, for example, a rights offering, in the United States, with a
standby underwriting arrangement according to which the underwriter
only resold the securities purchased in the offering outside the United
States pursuant to Regulation S.\106\ We agree that this type of
standby underwritten arrangement would not trigger the dormancy
condition since it would not increase an issuer's involvement in public
capital raising in the United States.
---------------------------------------------------------------------------

    \106\ See the letters from Linklaters and the N.Y. State Bar.
---------------------------------------------------------------------------

    Also as reproposed, the adopted rule includes under the dormancy
condition sales of an issuer's securities by its selling security
holders in an underwritten registered offering 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.
    New Exchange Act Rule 12h-6 will use the definition of ``employee''
under Form S-8 \107\ for the purpose of applying the dormancy condition
under Rule 12h-6, as reproposed.\108\ 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.\109\ 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.
---------------------------------------------------------------------------

    \107\ 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.
    \108\ New Exchange Act Rule 12h-6(f)(2) (17 CFR 240.12h-
6(f)(2)).
    \109\ See General Instruction A.1 to Form S-8.
---------------------------------------------------------------------------

4. Foreign Listing Condition
    We are adopting a foreign listing condition under Rule 12h-6, which
will 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 one or more exchanges in a foreign jurisdiction that,
either singly or together with the trading of the same class of the
issuer' s securities in another foreign jurisdiction, constitutes the
primary trading market for the issuer's subject class of
securities.\110\ The new 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.\111\ 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's foreign listing condition, the trading for the issuer's
securities in at least one of the two foreign jurisdictions must be
larger than the trading in the United States for the same class of the
issuer's securities.\112\
---------------------------------------------------------------------------

    \110\ New Exchange Act Rule 12h-6(a)(3) (17 CFR 240.12h-
6(a)(3)).
    \111\ New Exchange Act Rule 12h-6(f)(5)(i) (17 CFR 240.12h-
6(f)(5)(i)). 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. New Exchange Act Rule 12h-6(f)(6) (17
CFR 240.12h-6(f)(6)).
    \112\ New Exchange Act Rule 12h-6(f)(5)(ii) (17 CFR 240.12h-
6(f)(5)(ii)). 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 and
reproposing releases noted that there are differences concerning how
various markets measure and report trading volume (for example,
dealer markets versus auction markets), no commenter supported a
trading volume standard that would take such differences into
account.
---------------------------------------------------------------------------

    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 foreign listing
condition increases the likelihood that the principal pricing
determinants for a foreign private issuer's securities are located
outside the United States, and 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.
    The adopted foreign listing condition is substantially the same as
the reproposed condition, except that, at the request of commenters, we
have modified the rule to reflect that an issuer may be listed on
multiple exchanges within a single jurisdiction.\113\ Thus, the new
rule provides that an issuer may aggregate trading in the same class of
its equity securities on all of its exchanges within a single foreign
jurisdiction or in no more than two foreign jurisdictions for the
purpose of the foreign listing condition, as long as the trading in one
of the foreign jurisdictions is greater than the trading in the United
States.\114\
---------------------------------------------------------------------------

    \113\ See, for example, the letter from Cravath.
    \114\ For the purpose of the primary trading market
determination, an issuer would measure the ADTV of on-exchange
transactions in its securities aggregated over one or two foreign
jurisdictions against its worldwide trading volume. The issuer could
include in this measure off-exchange transactions in those
jurisdictions comprising the numerator only if it includes those
off-exchange transactions when calculating worldwide trading volume
in the denominator. This denominator would be the same as the
denominator used for the trading volume benchmark. Thus, this
denominator would consist of U.S. ADTV, which must include both on-
exchange and off-exchange transactions, and non-U.S. ADTV, which
must include on-exchange transactions, but could also include off-
exchange transactions. See Part II.A.1.a.ii of this release.

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

    We received relatively few comments on the reproposed foreign
listing condition.\115\ Three commenters generally approved of the
changes made to the originally proposed foreign listing condition.\116\
These changes included shortening the proposed foreign listing
requirement from two years to one year and permitting an issuer to
aggregate its trading on an exchange in one foreign jurisdiction with
that in a second foreign jurisdiction.\117\ These commenters agreed
that the reproposed foreign listing condition would increase the
flexibility of the new rule for foreign private issuers while serving
to protect investors.
---------------------------------------------------------------------------

    \115\ See the letters from the ABA, BusinessEurope, Cravath,
Davis Polk, Linklaters, and Skadden Arps.
    \116\ See the letters from the ABA, Linklaters, and Skadden
Arps.
    \117\ See Part II.A.4 of the Reproposing Release.
---------------------------------------------------------------------------

    New Rule 12h-6's foreign listing condition will apply to any issuer
of equity securities, whether that issuer is relying on the trading
volume benchmark or the alternative holder provision, as reproposed.
Some commenters requested that the Commission not apply the foreign
listing condition to an issuer that has delisted in its primary trading
market as a result of being acquired. According to these commenters,
that issuer would not be able to terminate its Exchange Act reporting
obligations under the 300-holder provision because it could not meet
the foreign listing requirement.\118\
---------------------------------------------------------------------------

    \118\ See the letters from BusinessEurope and Davis Polk.
---------------------------------------------------------------------------

    The foreign listing condition is an important component of the new
exit regime because it increases the likelihood that U.S. investors
will have a set of material disclosure documents about an issuer to
which they may turn following that issuer's exit from the Exchange Act
reporting system. Therefore, we decline to create an exception from
this condition for any issuer at this time.\119\ We note that, under
most circumstances, a foreign private issuer that has been acquired may
exit the Exchange Act reporting regime under the provisions of the
current exit rules that permit any issuer, whether domestic or foreign,
or listed or unlisted, to file a Form 15 if its securities are held by
less than 300 holders of record.\120\
---------------------------------------------------------------------------

    \119\ For this reason, we decline to adopt a general exception
from the foreign listing condition for equity securities issuers
proceeding under the alternative 300-holder provision.
    \120\ Exchange Act Rules 12g-4(a)(1)(i) and 12h-3(b)(1)(i) (17
CFR 240.12g-4(a)(1)(i) and 240.12h-3(b)(1)(i)).
---------------------------------------------------------------------------

B. Debt Securities Provision

    As adopted, Rule 12h-6 will 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.\121\ This provision reflects
the minimum reporting requirement and current 300 holder standard under
section 15(d) and Rule 12h-3. Moreover, it is the same as the
reproposed debt securities provision.\122\
---------------------------------------------------------------------------

    \121\ New Exchange Act Rule 12h-6(c) (17 CFR 240.12h-6(c)).
    \122\ As originally proposed and reproposed, the adopted exit
rule for debt securities does not include a provision comparable to
Rule 12h-3's 500 record holder provision because most foreign
private issuers that are debt securities registrants would likely
exceed the $10 million asset threshold that accompanies the 500
record holder standard. No commenter has ever requested that we
incorporate the 500 record holder and $10 million asset standard
into Rule 12h-6's debt securities provision, either at the proposing
or reproposing stage.
---------------------------------------------------------------------------

    Some commenters requested that we revise the 300-holder standard
for termination of a foreign private issuer's Exchange Act reporting
obligations under Exchange Act Section 15(d) regarding a class of debt
securities that had been offered and sold pursuant to an effective
registration statement under the Securities Act.\123\ In the view of
most of these commenters, an increase to at least 1,000 holders would
be appropriate in light of the changes in the global securities markets
since the 300-holder standard was adopted by Congress in the
1960s.\124\
---------------------------------------------------------------------------

    \123\ See the letters from Cleary Gottlieb, EALIC, Davis Polk,
and the EU.
    \124\ Davis Polk favored an increase to at least 3,000.
---------------------------------------------------------------------------

    We are not revising the 300-holder standard as it applies to debt
securities. While we agree that there have been substantial changes in
the global capital markets, no commenter has presented us with data or
other information that supports raising the threshold from that adopted
by Congress. In addition, the problems associated with determining the
ownership of equity securities do not appear to apply to debt
securities, as to which there is generally a single U.S.-based transfer
agent. Further, the same 300-holder threshold applies to U.S.
companies, and unlike the situation for equity securities, no commenter
has addressed why it would be appropriate to treat U.S. and foreign
registrants differently with respect to the termination or suspension
of reporting obligations under section 15(d) as applied to debt
securities.\125\
---------------------------------------------------------------------------

    \125\ We note that foreign private issuers that avail themselves
of Rule 12h-6 will be able to terminate their reporting obligations
under section 15(d) while U.S. companies will only continue to be
able to suspend their reporting obligations pursuant to Rule 12h-3
and section 15(d).
---------------------------------------------------------------------------

C. Revised Counting Method

    We are adopting, as reproposed, Rule 12h-6's revised counting
method, which will enable an issuer of equity securities proceeding
under the alternative 300-holder provision, or a debt securities
issuer, to use a modified version of the ``look through'' counting
method under Rule 12g3-2(a) when determining the number of its U.S.
resident security holders.\126\ 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, a foreign private 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.\127\ 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,\128\ as well as under the definition of foreign
private issuer.\129\
---------------------------------------------------------------------------

    \126\ New Exchange Act Rule 12h-6(e) (17 CFR 240.12h-6(e)).
    \127\ New Exchange Act Rule 12h-6(e)(1) (17 CFR 240.12h-
6(e)(1)).
    \128\ Securities Act Rules 800 et seq. (17 CFR 230.800 et seq.).
    \129\ 17 CFR 230.405 and 240.3b-4(c).
---------------------------------------------------------------------------

    Like the reproposed rule, the adopted counting method provision
requires an issuer that aggregates the trading volume of its securities
in two foreign jurisdictions for the purpose of meeting Rule 12h-6's
foreign listing condition 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 or
organization, if different from the two jurisdictions that comprise its
primary

trading market.\130\ Also as reproposed, the adopted counting method
provision permits an issuer to rely on the assistance of an independent
information services provider when calculating the number of its U.S.
security holders.\131\
---------------------------------------------------------------------------

    \130\ New Exchange Act Rule 12h-6(e)(1)(ii) (17 CFR 240.12h-
6(e)(1)(ii)).
    \131\ New Exchange Act Rule 12h-6(e)(4) (17 CFR 240.12h-
6(e)(4)).
---------------------------------------------------------------------------

    We are also adopting a presumption, included in both the originally
proposed and reproposed counting method provisions, that we previously
adopted under the cross-border rules and definition of foreign private
issuer.\132\ 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.\133\
---------------------------------------------------------------------------

    \132\ 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)).
    \133\ New Exchange Act Rule 12h-6(e)(2) (17 CFR 240.12h-
6(e)(2)).
---------------------------------------------------------------------------

    The reproposed rule provided that an issuer must count securities
as owned by U.S. holders when publicly filed reports of beneficial
ownership or information that is otherwise provided to it indicates
that the securities are held by U.S. residents. One commenter requested
that we clarify that an issuer is not required to take account of U.S.
ownership information provided to it if the issuer determines that it
is unreliable.\134\ We have so clarified by revising the above
provision to state that an issuer must count securities as owned by
U.S. holders when publicly filed reports of beneficial ownership or
other reliable information that is provided to it indicates that the
securities are held by U.S. residents.\135\
---------------------------------------------------------------------------

    \134\ See the letter from Cravath.
    \135\ New Rule 12h-6(e)(3) (17 CFR 240.12h-6(e)(3)).
---------------------------------------------------------------------------

    Some foreign jurisdictions have laws that provide an established
and enforceable means for a public company to obtain information about
its shareholders.\136\ Like the reproposed rule, Rule 12h-6 does not
provide that a foreign private issuer may rely solely on specified
foreign statutory or code provisions when calculating the number of its
U.S. resident equity or debt holders. We received only two comments in
support of such a provision at the proposing stage, and none at the
reproposing stage. However, as we noted in the reproposing release, 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.
---------------------------------------------------------------------------

    \136\ See, for example, section 212 of the United Kingdom
Companies Act.
---------------------------------------------------------------------------

D. Expanded Scope of Rule 12h-6

    We are adopting, substantially as reproposed, an expansion of the
scope of the originally proposed Rule 12h-6 in two respects. First, we
are adopting a rule providing 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 are extending 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
    As adopted, Exchange Act Rule 12h-6(d) \137\ provides that,
following a merger, consolidation, exchange of securities, acquisition
of assets or otherwise, a foreign private issuer that has succeeded to
the registration of a class of securities under Exchange Act section
12(g) pursuant to Rule 12g-3,\138\ or to the reporting obligations of
another issuer under Exchange Act section 15(d) pursuant to Rule 15d-
5,\139\ may file a Form 15F to terminate those reporting obligations
if, regarding a class of equity securities, the successor issuer meets
the conditions under Rule 12h-6(a), which applies to equity securities
issuers.\140\ Regarding a class of debt securities, the successor
issuer must meet the conditions under Rule 12h-6(c), including the
reporting condition.\141\ New Rule 12h-6(d) 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.\142\
---------------------------------------------------------------------------

    \137\ 17 CFR 240.12h-6(d).
    \138\ 17 CFR 240.12g-3.
    \139\ 17 CFR 240.15d-5.
    \140\ New Exchange Act Rule 12h-6(d)(1)(i) (17 CFR 240.12h-
6(d)(1)(i)).
    \141\ New Exchange Act Rule 12h-6(d)(1)(ii) (17 CFR 240.12h-
6(d)(1)(ii)).
    \142\ New Exchange Act Rule 12h-6(d)(2) (17 CFR 240.12h-
6(d)(2)).
---------------------------------------------------------------------------

    This successor issuer provision will 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 foreign listing, dormancy and
quantitative benchmark conditions, and the acquired company's reporting
history fulfills Rule 12h-6's prior reporting condition. Since the
successor issuer will have assumed the acquired company's Exchange Act
reporting obligations, we believe it is appropriate that the issuer
succeed to the acquired company's reporting history for the purpose of
Rule 12h-6.
    The adopted successor issuer provision is substantially similar to
the reproposed provision, except that the adopted rule clarifies that,
in order to qualify for deregistration under the successor issuer
provision, an issuer must meet all of the conditions pertaining to
equity securities registrants, including the dormancy condition. We
have made this clarification in order to underscore our position,
stated at the reproposing stage, that 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 will have to fulfill Rule 12h-
6's prior reporting condition without reference to the acquired
company's reporting history. Since the acquiror will have triggered its
own section 15(d) reporting obligations upon the effectiveness of its
Securities Act registration statement, it will have to meet Rule 12h-
6's full reporting condition like any other section 15(d) reporting
company before it can terminate its reporting obligations under the new
rule. In order to clarify that such a Securities Act registrant may not
proceed under the successor issuer provision and immediately terminate
its section 15(d) reporting obligations upon completion of the Form F-4
transaction, the adopted rule provides that an issuer must meet Rule
12h-6's equity

securities conditions, which includes the dormancy condition.\143\
---------------------------------------------------------------------------

    \143\ Because some commenters stated that the dormancy condition
should not apply to a foreign private issuer that filed a Securities
Act registration statement solely to effect an acquisition or
business combination (see, for example, the letter from Sullivan &
Cromwell), we believe it is necessary to state explicitly in Rule
12h-6 that the dormancy condition applies to a successor issuer.
---------------------------------------------------------------------------

    Most of the parties that commented on the reproposed successor
issuer provision supported it.\144\ However, one commenter sought
clarification regarding the intended role that the predecessor company
would play in satisfying Rule 12h-6's requirements.\145\ More
particularly, this commenter was concerned that Rule 12h-6 could be
construed to require an issuer to take into account the listing and
trading history of an acquired company. Such an interpretation could
preclude an acquiror from terminating its Exchange Act reporting
obligations immediately after succession if the acquired company was
unlisted or had an active U.S. trading market.
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    \144\ See, for example, the letters from Cleary Gottlieb and
PricewaterhouseCoopers.
    \145\ See the letter from Latham & Watkins.
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    Therefore, we are clarifying that Rule 12h-6(d) permits a successor
issuer to consider an acquired company's history only when determining
whether the successor meets Rule 12h-6's prior reporting condition.
Following an acquisition, a successor issuer must look only to its own
foreign listing history, and consider its own U.S. and worldwide
trading volume, when determining whether it satisfies Rule 12h-6's
foreign listing and trading volume conditions.
    This commenter also sought clarification regarding whether, as a
condition to deregistration under Rule 12h-6, a successor issuer would
have an obligation under Exchange Act Rule 12g-3(g)\146\ to file an
Exchange Act annual report for the predecessor's last full fiscal year
prior to succession. As with the filing of a Form 15 under the current
exit rules, under Rule 12h-6(g),\147\ the suspension of a foreign
private issuer's duty to file reports under section 13(a) or 15(d)
occurs immediately upon filing a Form 15F. This suspension extends to
an annual report that would be required under Rule 12g-3(g). A
successor issuer would only have to file an annual report on behalf of
its predecessor under Rule 12g-3(g) if, at the time of filing its Form
15F, that annual report was past due. This is consistent with the
current practice involving Form 15.
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    \146\ 17 CFR 240.12g-3(g). This provision requires a successor
issuer to file an Exchange Act annual report for the last full
fiscal year of the predecessor before the issuer's succession if the
predecessor has not done so.
    \147\ 17 CFR 240.12h-6(g).
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2. Application of Rule 12h-6 to Prior Form 15 Filers
    As adopted, Rule 12h-6(i) will extend termination of Exchange Act
reporting under the new exit rule to a foreign private issuer that,
before the effective date of Rule 12h-6, already effected the
suspension or termination of its Exchange Act reporting obligations
after filing a Form 15.\148\ A prior Form 15 filer will have to meet
the following conditions in order to obtain the benefits of Rule 12h-6
with respect to a class of equity securities:
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    \148\ New Exchange Act Rule 12h-6(i)(1) (17 CFR 240.12h-
6(i)(1)). A former section 15(d) reporting company would benefit
from proceeding under Rule 12h-6 by obtaining termination, rather
than mere suspension, of its reporting obligations with respect to a
class of equity or debt securities. As discussed below, a former
section 12(g) company also would benefit from proceeding under Rule
12h-6 by being able to claim the Rule 12g3-2(b) exemption
immediately upon the effectiveness of its Rule 12h-6 termination.
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     the issuer must satisfy Rule 12h-6's foreign listing
condition regarding the class of equity securities that was the subject
of its Form 15;
     the issuer must satisfy either Rule 12h-6's trading volume
or alternative holder provision; and
     the issuer must file a Form 15F.\149 \
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    \149\ Rule 12h-6(i)(2)(i) (17 CFR 240.12h-6(i)(2)(i)).
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    An equity securities issuer will not have to satisfy Rule 12h-6's
prior reporting or dormancy provisions since it will already be a non-
reporting entity.
    A prior Form 15 filer will have to meet the following conditions in
order to obtain the benefits of Rule 12h-6 with respect to a class of
debt securities:
     the issuer must meet Rule 12h-6's record holder provision
for debt securities; and
     the issuer must file a Form 15F.\150\
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    \150\ Rule 12h-6(i)(2)(ii) (17 CFR 240.12h-6(i)(2)(ii)).
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    As reproposed, the prior Form 15 filer provision was substantially
similar to the adopted rule, except that we proposed to establish, as a
condition of eligibility, that an issuer not be required to register a
class of securities under section 12(g) or be required to file reports
under section 15(d).\151\ While the parties that commented on the
reproposed provision supported extending the benefits of Rule 12h-6 to
a prior Form 15 filer, most also opposed requiring that filer to
determine that it had not assumed or resumed Exchange Act reporting
obligations.\152\ Those commenters noted that, since under the
reproposed rule, a former equity securities registrant could not have
relied on the trading volume condition, that registrant would have had
once more to undertake the costly task of counting its U.S. resident
holders.
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    \151\ See Part II.D.2 of the Reproposing Release.
    \152\ See the letters from the ABA, BusinessEurope, Cleary
Gottlieb, EALIC, the EU, the N.Y. State Bar, and Sullivan &
Cromwell.
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    We agree that, as suggested by some of those commenters, a more
equitable approach would be to place former equity securities
registrants in as good a position as current registrants by permitting
them to meet the trading volume benchmark as an alternative to the
record holder standard.\153\ The adopted rule takes this approach.
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    \153\ See, for example, the letters from EALIC and Sullivan &
Cromwell.
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E. Public Notice Requirement

    We are adopting, as reproposed, a public notice requirement as a
condition to termination of reporting under Rule 12h-6, except for
prior Form 15 filers.\154\ Pursuant to this requirement, an issuer of
equity or debt securities, including a successor issuer, will have to
publish, either before or on the date that it files its Form 15F, a
notice in the United States that discloses its intent to terminate its
section 13(a) or 15(d) reporting obligations. The issuer must publish
the notice, such as a press release, through a means reasonably
designed to provide broad dissemination of the information to the
public in the United States. The issuer also must submit a copy of the
notice, either under cover of a Form 6-K before or at the time of
filing of the Form 15F, or as an exhibit to the Form 15F. The primary
purpose of this notice provision is to alert U.S. investors who have
purchased the issuer's securities about the issuer's intended exit from
the Exchange Act registration and reporting system.
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    \154\ New Exchange Act Rule 12h-6(h) (17 CFR 240.12h-6(h)).
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    The notice requirement will not apply to a prior Form 15 filer that
files a Form 15F to terminate its registration and reporting
obligations under Rule 12h-6(i). Since a prior Form 15 filer will
already have ceased its Exchange Act reporting obligations, investors
would gain little from the publishing of such a notice.
    One commenter requested that we clarify that an issuer may satisfy
this notice provision by having the press release disseminated in the
United States by one of the international wire services, such as those
operated by U.S. and international financial publications.\155\ We have
so clarified by revising Form 15F to request that the issuer identify
the means, such as publication in a particular newspaper or
transmission by a particular wire

service, used to disseminate the notice in the United States.\156\
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    \155\ See the letter from Skadden Arps.
    \156\ See Item 7.B of Form 15F.
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F. Form 15F

    Like our current exit rules, adopted Rule 12h-6 will require a
foreign private issuer to file electronically on EDGAR a form
certifying that it meets the requirements for ceasing its Exchange Act
reporting obligations.\157\ By signing and filing new Form 15F,\158\ a
foreign private issuer will be certifying that:
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    \157\ New Exchange Act Rule 12h-6(a).
    \158\ 17 CFR 249.324.
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     it meets all of the conditions for termination of Exchange
Act reporting specified in Rule 12h-6; and
     there are no classes of securities other than those that
are the subject of the Form 15F regarding which the issuer has Exchange
Act reporting obligations.\159\
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    \159\ Form 15F General Instruction B.
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    Unlike current Form 15, new Form 15F will require a foreign private
issuer to provide disclosure regarding several items in order to
provide investors with information regarding an issuer's decision to
terminate its Exchange Act reporting obligations. The information will
also assist Commission staff in assessing the use of Rule 12h-6. The
Form 15F filing requirement and the specified items of information are
substantially the same as those under reproposed Rule 12h-6, except
that we have modified some items to conform to the changes we have made
to the reproposed rule.
    As with Form 15, and as originally proposed and reproposed, filing
of new Form 15F will immediately suspend an issuer's Exchange Act
reporting obligations regarding the subject class of securities and
commence a 90-day waiting period. If, at the end of this 90-day period,
the Commission has not objected to the filing, the suspension will
automatically become a termination of registration and reporting. If
the Commission denies the Form 15F or the issuer withdraws it, within
60 days of the date of the denial or withdrawal, the issuer will be
required to file or submit all reports that would have been required
had it not filed the Form 15F.\160\
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    \160\ New Exchange Act Rule 12h-6(g) (17 CFR 240.12h-6(g)).
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    After filing Form 15F, an issuer will have no continuing obligation
to make inquiries or perform other work concerning the information
contained in the Form 15F, including its assessment of trading volume
or ownership of its securities. However, Form 15F will require an
issuer to undertake to withdraw its Form 15F before the date of
effectiveness if it has actual knowledge of information that causes it
reasonably to believe that, at the date of filing the Form 15F:
     the average daily trading volume of its subject class of
securities in the United States exceeded 5 percent of the average daily
trading volume of that class of securities on a worldwide basis for the
same recent 12-month period that the issuer used for purposes of Rule
12h-6(a)(4)(i);
     its subject class of securities was held of record by 300
or more United States residents or 300 or more persons worldwide, if
proceeding under Rule 12h-6(a)(4)(ii) or Rule 12h-6(c); or
     it otherwise did not qualify for termination of its
Exchange Act reporting obligations under Rule 12h-6.\161\
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    \161\ Form 15F Item 11.
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    This undertaking is substantially the same as that required under
the reproposed rule and form, except that, in the first prong of the
reproposed rule's undertaking, we referred to trading volume ``during a
recent 12-month period.'' At the request of a commenter,\162\ we have
clarified that the undertaking applies to an issuer relying on the
trading volume provision only when it learns that its trading volume
exceeded the 5 percent threshold for the same recent 12-month period
that the issuer used for purposes of Rule 12h-6's trading volume
provision.
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    \162\ See the letter from Cleary Gottlieb.
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G. Amended Rules 12g-4 and 12h-3

    Although similar to the current 300 record holder standard, Rule
12h-6's alternative record holder condition for equity securities and
its debt securities provision will offer advantages compared to the
current exit rules. As adopted, Rule 12h-6's revised counting method
will limit the jurisdictions in which a foreign private issuer must
search for records of its U.S. resident holders. Moreover, Rule 12h-6
will enable a foreign private issuer to terminate, rather than merely
suspend, its section 15(d) reporting obligations regarding a class of
equity or debt securities. In addition, under Rule 12h-6, a foreign
private issuer will be able to claim the benefits of the Rule 12g3-2(b)
exemption immediately upon the effectiveness of its termination of
reporting regarding a class of equity securities under section 12(g) or
15(d). In each instance, once its termination of reporting becomes
effective under Rule 12h-6, an issuer will no longer have to concern
itself with whether the number of its U.S. resident or worldwide
holders of the class of subject securities has risen above the
statutory or regulatory threshold.
    Given these advantages, we continue to believe that, following the
adoption of Rule 12h-6, few, if any, foreign private issuers will elect
to proceed under the provisions of Rule 12g-4 or Rule 12h-3 that allow
a foreign private issuer to terminate its registration of a class of
securities under section 12(g) or suspend the duty to file reports
under section 15(d) if the class of securities is held by less than 300
U.S. residents or by 500 U.S. residents and the issuer has had total
assets not exceeding $10 million on the last day of each of its most
recent three fiscal years.\163\ Accordingly, we are adopting the
amendments to eliminate these provisions in Rules 12g-4 and 12h-3, as
reproposed.
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    \163\ See Exchange Act Rules 12g-4(a)(2) and 12h-3(b)(2) (17 CFR
240.12g-4(a)(2) and 12h-3(b)(2)).
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H. Amendment Regarding the Rule 12g3-2(b) Exemption

    We are adopting, substantially as reproposed, an amendment to
Exchange Act Rule 12g3-2 \164\ that will apply the exemption under
Exchange Act Rule 12g3-2(b) immediately to an issuer of equity
securities upon the effectiveness of its termination of reporting under
Rule 12h-6.\165\ As a condition to the immediate application of the
Rule 12g3-2(b) exemption upon its termination of reporting under Rule
12h-6, an issuer must publish subsequently in English material home
country documents required under Rule 12g3-2(b)(1)(iii) on its Web site
or through an electronic information delivery system generally
available to the public in its primary trading market.\166\
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    \164\ New Exchange Act Rule 12g3-2(e)(1) (17 CFR 240.12g3-
2(e)(1)).
    \165\ Currently, foreign private issuers that registered a class
of securities under section 12 must wait at least 18 months
following their termination of reporting before they would be
eligible to apply for the Rule 12g3-2(b) exemption. In addition,
foreign private issuers with an active or suspended reporting
obligation under section 15(d) have thus far not been eligible to
claim the Rule 12g3-2(b) exemption. See Rule 12g3-2(d)(1) (17 CFR
240.12g3-2(d)(1)), which currently excepts from the 18 month
requirement only issuers that have filed Securities Act registration
statements using the Multijurisdictional Disclosure Act (MJDS)
forms.
    \166\ New Exchange Act Rule 12g3-2(e)(2) (17 CFR 240.12g3 -
2(e)(2)).
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    The purpose of this condition is to provide U.S. investors with
access to material information about an issuer of equity securities
following its termination of reporting pursuant to Rule 12h-6.\167\ In
addition, an issuer

will be able to maintain a sponsored ADR facility with respect to its
securities.\168\ This condition also will facilitate resales of that
issuer's securities to qualified institutional buyers under Rule
144A.\169\ Moreover, having a foreign private issuer's key home country
documents posted in English on its web site will assist U.S. investors
who are interested in trading the issuer's securities in its primary
securities market.\170\
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    \167\ Any post-termination trading of a foreign private issuer's
securities in the United States would have to occur through over-
the-counter markets such as that maintained by the Pink Sheets, LLC
since, as of April, 1998, the NASD and the Commission have required
a foreign private issuer to register a class of securities under
Exchange Act section 12 before its securities could be traded
through the electronic over-the-counter bulletin board administered
by Nasdaq. See, for example, NASD Notice to Members (January 1998).
    \168\ In order to establish an ADR facility, an issuer must
register the ADRs on Form F-6 (17 CFR 239.36) under the Securities
Act. The eligibility criteria for the use of Form F-6 include the
requirement that the issuer have a reporting obligation under
Exchange Act section 13(a) or have established the exemption under
Rule 12g3-2(b). See General Instruction I.A.3 of Form F-6.
    \169\ See Securities Act Rule 144A(d)(4) (17 CFR
230.144A(d)(4)).
    \170\ Brokers currently are exempt from complying with certain
information obligations under Exchange Act Rule 15c2-11 (17 CFR
240.15c2-11) when a foreign company has established and maintains
the Rule 12g3-2(b) exemption. See Release No. 34-41110 (February
25,1999), 64 FR 11124 (March 8, 1999).
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    The adopted extension of Rule 12g3-2(b) will apply both to a class
of equity securities formerly registered under section 12(g) and one