Currently, a non-US company must register its securities under the Exchange Act if it makes a public offering, lists those securities on a US exchange or has 300 or more US shareholders (unless there is an available exemption). A foreign private (i.e. non-governmental) issuer registered under the Exchange Act must file reports with the SEC and comply with other specified US laws, such as portions of the Sarbanes-Oxley Act of 2002 ("SOX"). It may only deregister if it delists and has fewer than 300 US shareholders. If the foreign private issuer has issued securities in the US under a registration statement pursuant to the Securities Act of 1933, it can suspend its duties to file reports if it has fewer than 300 holders, but its reporting obligations will return if US holders again exceed 300, so long as the relevant class of securities is outstanding.

Foreign private issuers have long complained that the conditions for deregistration were too restrictive, and these complaints have become louder with the increase in compliance requirements, such as the requirement that companies assess internal financial reporting controls under Section 404 of SOX. The SEC's 2005 proposal for deregistration was widely criticized as applying to too few companies.

Under the reproposal, a foreign private issuer would be able to deregister if the average daily trading volume of the subject securities in the United States was 5% or less of average daily trading volume in its primary market for the preceding 12 months. If the applicable securities were listed, deregistration would not be permitted until 12 months after delisting. During that 12-month period, the issuer would be permitted to engage in unregistered transactions in the United States, but not publicly registered transactions. The SEC is also proposing to impose additional conditions relating to foreign private issuers that have sponsored ADR programs.

Deregistration would be conditional upon the issuer having a home trading market to which it provides disclosure.

The exemption from registration under the Exchange Act provided by Rule 12g3-2(b) for issuers that furnish US investors with the information they make public in their home market would be available immediately upon registration.

Foreign private issuers that wish to terminate their reporting obligations before June 30, 2007 (i.e. when disclosure requirements under Section 404 of SOX will start to apply to most larger non-US registrants) may be able to benefit from the new deregistration rules if they become effective before that date. It is not clear when the new rules will be effective. The reproposal will be subject to a 30-day comment period starting from its publication in the Federal Register. After review of comments received, the SEC will meet again to decide whether to adopt final rules. If adopted, new deregistration rules will become effective upon expiration of an additional 30-day period following such resolution. There is no guarantee that this process will be complete by June 30, but the SEC staff stated at the meeting that they anticipated bringing final rules to the Commissioners for adoption by the end of the first quarter of 2007.

We will distribute a memorandum describing the reproposal in detail after the SEC releases the text of the proposed rule. We encourage any interested companies to discuss these issues with us.