Amid a shift in the population of foreign firms accessing U.S. securities markets, the U.S. Securities and Exchange Commission (SEC) is launching a consultation on its approach to foreign private issuers.
The regulator issued a paper Tuesday seeking feedback on whether it should revise who qualifies as a foreign private issuer in the U.S. — a status that confers certain benefits on firms, including exemptions from U.S. disclosure and filing requirements.
The SEC is revisiting the definition for the first time since 2003, noting that the population of companies that qualify as foreign private issuers has shifted dramatically over that time.
For instance, when the definition was first adopted, most of the companies that qualified were based in Canada and the U.K., the paper noted. The SEC’s research found that in 2023, the most common location for company headquarters was China, and the most common jurisdiction of incorporation was the Cayman Islands.
Additionally, it found that more than half of the foreign issuers trade exclusively on U.S. markets, and not in their home country or on other markets.
“Where companies are not trading in their home markets, they may not be subject to the rigorous disclosure or regulatory regimes that the commission had in mind when it erected this framework,” noted Caroline Crenshaw, SEC commissioner, in a statement.
“The data appear to paint a picture of regulatory forum shopping,” she said. “Companies seem to be setting up headquarters in one country (perhaps based on the location of the founders, cheap labor, resources, extradition laws or other reasons); then seeking incorporation in a separate country, which may provide diminished oversight, disclosure or reporting requirements; and then, finally, coming to the U.S. to satiate their capital needs.”
Among other things, the paper considers various approaches for the SEC to facilitate foreign access to U.S. capital markets — including possibly extending the mutual recognition approach that exists under the multi-jurisdictional disclosure system (MJDS) between Canada and the U.S. to other jurisdictions.
“Attracting foreign companies to U.S. markets and providing U.S. investors with the opportunity to trade in those companies under U.S. laws and regulations remains an objective. That objective must be balanced with other considerations, including providing investors with material information about these foreign companies, and ensuring that domestic companies are not competitively disadvantaged with respect to regulatory requirements,” said SEC chairman Paul Atkins in a release.
“The first step in striking this balance is to determine which foreign companies should qualify as foreign private issuers and be able to avail themselves of the accommodations that go with that status,” he said.
The consultation will be open for comment for 90 days following its publication in the Federal Register.