15 December 2005
(c) 2005 The Financial Times Limited. All rights reserved
US regulators yesterday proposed that foreign companies with New York stock market listings be able more easily to terminate expensive financial reporting obligations in the US.
The Securities and Exchange Commission plans to make it easier forforeign companies to end their reporting duties with the chief US financial regulator, after European complaints about the costs stemming from the Sarbanes-Oxley law on accountingand corporate governance.
The Organisation for International Investment, which represents US subsidiaries of Asian and European companies, gave the SEC plans a cautious welcome.
Todd Malan, OII president, said the plans were a "large step in the right direction" and a "serious effort to listen to foreign companies".
The Confederation of British Industry, which lobbied for reform, also said the SEC plans were "positive".
"We want to look in greater detail at whether it is workable for the companies we represent," said Rhian Chilcott, head of the CBI office in Washington.
Under the SEC plans, a big foreign company would be able to terminate its registration with the regulator, and the associated reporting obligations, if trading in its shares in the US was low and US investors held no more than 10 per cent of its stock.
The proposed deregistration tests represent aneasing of existing rules, under which a companymay have to continuefiling annual reportswith the SEC forever.
Christopher Cox, SEC chairman, said the "last thing" the regulator wanted US markets to be known for was as a place where "you can check in but never leave".
He said he hoped the SEC plans would encourage more foreign companies to have US listings because the reform would provide a "more flexible exit process".
European companies alarmed by the reporting costs resulting from the Sarbanes-Oxley law discovered that even if they scrapped their US listings they might be saddled with reporting obligations with the SEC indefinitely.
Existing SEC rulessay foreign companiescannot terminate their reporting obligations unless they have fewer than 300 US investors.
The proposed tests outlined by the SEC for ending reporting obligations require that a company retain alisting in its home country.
If a big company canshow that US trading in its shares is 5 per cent or less of average daily volume, it would be able to end its reporting obligations with the SEC so long as US investors held 10 per cent or less of its shares.
A big company is defined as one with stock in public hands worth Dollars 700m or more.
A big or small company could end its reporting obligations if US investors held 5 per cent or less of its shares.