It has been almost a year and a half since the Securities and Exchange Commission adopted Release No. 34-55540 in which the SEC made it easier for foreign private issuers (FPIs) to deregister and thus terminate their U.S. reporting obligations. In September 2008, the economic research staff at the Federal Reserve Board published International Discussion Paper Number 945, in which the staff provided a tentative review of the economic impact of Rule 12h-6. Following adoption of Rule 12h-6, a FPI may deregister (i) a class of equity security, (ii) a class of debt security, (iii) securities affected by a merger, consolidation, exchange of securities, or other acquisition of assets, and (iv) securities that were the subject of a termination of registration prior to the effective date of Rule 12h-6. Each mode of deregistration requires the FPI to make numerous certifications regarding the deregistration on Form 15F.
The FRB staff study observed that prior to the adoption of Rule 12h-6, there were very few FPI deregistrations. But during the period covered by the study, the authors noted that 80 FPIs planned to avail themselves of Rule 12h-6. The authors also noted that although one purpose of Rule 12h-6 was to make U.S. capital markets more competitive versus global counterparts, the period after adoption of Rule 12h-6 appears to be the first time that FPI deregistrations from U.S. securities laws outnumbered new FPI U.S. registrations.
Based upon analysis of economic data, the authors tentatively concluded that capital markets and FPIs generally still place high value on a U.S. registration. The value of a U.S. registration, however, was greatest for FPIs whose home country securities regulations are weak or whose home country judicial systems are based on civil law or are otherwise inefficient. In these instances, markets reacted negatively to the more lenient deregistration provisions contained in Rule 12h-6. The authors’ data also suggested an insignificant market reaction for FPIs with strong home country securities regulations.