10 February 2004

European Organisations request changes of SEC rules for deregistration

Eleven European organizations representing the largest publicly held companies in Europe requested that the SEC ease rules that currently make it almost impossible for non-U.S. companies to deregister and terminate their SEC reporting obligations.

In a letter addressed to SEC Chairman Donaldson, the organizations asked the SEC to allow companies with little U.S. trading volume to deregister two years after a U.S. listing or public securities offering, so long as they send the SEC copies of home country annual reports that meet the strict disclosure and accounting standards currently being put into place in the European Union.

The organisations believe companies should have the option to withdraw if they adequately protect their U.S. shareholders. Otherwise, a company could face substantial costs of complying with U.S. reporting rules forever, even if it never realizes the benefits it sought from its U.S. listing.

They also pointed out that this issue is an important one for companies that are thinking about listing in the United States in the future. The current rules make a listing decision essentially irreversible, which is a big disincentive for companies that might otherwise be tempted to enter the U.S. market.

The letter to the SEC proposes substituting a test based on trading volume for the test based on shareholder numbers. A company would be eligible to deregister if:

Two years have passed since its U.S. listing or its last U.S. public offering.

Less than 5% of its global trading volume takes place on a U.S. market, such as the New York Stock Exchange or NASDAQ.

At least 55% of its global trading volume takes place on a single non-U.S. market.

The company publishes reports meeting the recommendations of IOSCO and prepares audited accounts under International Financial Reporting Standards. All European companies will be required to meet this standard beginning with their 2005 annual reports.

The company sends the SEC copies of the information it publishes in its home market.

Background
Currently, non-U.S. companies can terminate a U.S. listing fairly easily, but it still has to comply with SEC reporting obligations. Under the SEC’s rules, a non-U.S. company has to show that it has fewer than 300 U.S. shareholders in order to deregister. This is difficult because most European shares are held through intermediaries, and it is hard to tell who is the ultimate shareholder. Also, the 300-holder limit, adopted in the 1960s, is very low in a world where numerous U.S. investors trade European shares electronically and there are no impediments to cross-border trading.

Press release
Letter to SEC Chairman Donaldson
Technical analysis

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