In December 2011, the Securities and Exchange Commission (SEC) announced that it has revised its policies to limit the ability of foreign private issuers (FPIs) to submit initial registration statements (and amendments) on a confidential, basis. As a result of this change in policy, FPIs may no longer be able to take advantage of the confidential submission process when attempting to access the U.S. public capital markets.
Practice under the Prior Policy
Historically, the SEC has allowed FPIs and foreign governments the ability to submit initial registrations and amendments (for example, submissions made on Form F-1 for an initial public offering) on a confidential basis. This process permitted the staff to review and comment on a draft version of the initial documents and allowed the issuer to respond to staff comments prior to public filing via the EDGAR system.
Submissions of initial registrations to the SEC on a confidential basis provided FPIs with several benefits, such as:
- navigating much of the lengthy IPO process without publicly disclosing their intention to register securities
- keeping potentially sensitive competitive information confidential until the ultimate filing of the offering
- revising disclosures to conform with regulatory requirements without having to provide the public access to previous drafts
Summary of Updated Policy
Effective December 8, 2011, the Division will limit its review of non-public submissions of initial registration statements by FPIs to submissions made under the following circumstances:
- the registrant is a foreign government registering its debt securities
- the registrant is a foreign private issuer that is listed or is concurrently listing its securities on a non-U.S. securities exchange;
- the registrant is a foreign private issuer that is being privatized by a foreign government; or
- the registrant is a foreign private issuer that can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction
Foreign issuers should also be aware that circumstances may develop in which the SEC will request a foreign issuer to publicly file its registration statement even though it falls within the general parameters of the policy listed above. The SEC indicated that these circumstances would include a competing bid in an acquisition transaction or publicity about a proposed offering or listing.
The SEC reminded foreign issuers that, when non-public registration statements are submitted to the staff, the document must be complete and that the SEC’s Office of International Corporate Finance should be contacted in advance of any non-public submission under these procedures.
Confidential submissions of a registration statement do not constitute the filing of a registration statement under the Securities Act of 1933. Under Section 5(c) of the Securities Act, offers of securities cannot be made in the United States until a registration statement is publicly filed with the Commission using the EDGAR systems.
Shell companies, blank check companies and issuers with no or substantially no business operations will not be permitted to use the non-public submission procedure.
Pending Confidential Submissions
Non-public submissions made by FPIs that do not fall within the new policy and were received by the SEC before December 8, 2011, will continue to be reviewed by the staff without public filing; however, the SEC has indicated that subsequent amendments filed on or after December 8, 2011, whether in response to comments issued by the staff or otherwise, must be filed on the EDGAR system.
Reasons for Policy Change
When the SEC’s previous policy was initially developed, most FPIs registering securities with the Commission were previously traded on foreign exchanges which often do not require public disclosure of registration statements before completion of regulatory review. More recently, the vast majority of FPIs using the confidential review procedure were not traded on a foreign securities exchange and were not contemplating listing securities outside the United States. As such, the SEC no longer believes that the non-public submission process is useful.
The SEC believes this change in policy will promote transparency and investor protection and has indicated that it will continue to assess the use of the confidential filing procedures and may make additional changes to the policy in the future. FPIs intending to register securities in the US should work with their attorneys and accountants to ensure that initial registrations are fully compliant with all SEC rules and regulations prior to submission.
i The SEC’s announcement can be found at the following link: http://www.sec.gov/divisions/corpfin/internatl/nonpublicsubmissions.htm
ii The term “foreign private issuer” is defined in Rule 405 of Regulation C as follows:
1 The term "foreign private issuer" means any foreign issuer other than a foreign government except an issuer meeting the following conditions as of the last business day of its most recently completed second fiscal quarter:
i More than 50 percent of the outstanding voting securities of such issuer are directly or indirectly owned of record by residents of the United States; and
ii Any of the following:
(A) The majority of the executive officers or directors are United States citizens or residents;
(B) More than 50 percent of the assets of the issuer are located in the United States; or
(C) The business of the issuer is administered principally in the United States.