Foreign Private Issuers – Foreign Private Issuers and ADRs
Posted by Laura Anthony, Esq. on November 28, 2016
Foreign Private Issuers – Foreign Private Issuers and ADRs – In the last few Lawcasts in this series I described the registration rules for foreign private issuers and the differences in the general disclosure and reporting rules from domestic filers. The deregistration rules for a foreign private issuer are also different from those for domestic companies. A foreign private issuer may deregister if: (i) the average daily volume of trading of its securities in the U.S. for a recent 12-month period is less than 5% of the worldwide average daily trading volume; or (ii) the company has fewer than 300 shareholders worldwide. In addition, the company must: (i) have been reporting in the US for at least one year and have filed at least one annual report and be current in all reports; (ii) must not have registered securities for sale in the US in the last 12 months; and (iii) must have maintained a listing of securities in its primary trading markets for at least 12 months prior to deregistration.
In this Lawcast series I have also mentioned American Depository Receipts or ADR’s. An ADR is a certificate that evidences ownership of American Depository Shares or ADS which, in turn, reflect a specified interest in a foreign company’s shares. Technically the ADR is a certificate reflecting ownership of an ADS, but in practice market participants just use the term ADR to reflect both. An ADR trades in U.S. dollars and clears through the U.S. DTC, thus avoiding foreign currency issues. ADR’s are issued by a U.S. bank which, in turn, either directly or indirectly through a relationship with a foreign custodian bank, holds a deposit of the underlying foreign company’s shares. ADR securities must either be subject to the Exchange Act reporting requirements or be exempt under Rule 12g3-2(b). ADR’s are always registered on Form F-6.
In this Lawcast series I have also detailed the definition of a “foreign private issuer” for determining the availability of the F series of forms and scaled back disclosure and reporting requirements available to these foreign issuers. OTC Markets allows for the listing and trading of foreign entities on the OTCQX and OTCQB that do not meet the definition of a foreign private issuer as long as such company has its securities listed on a Qualifying Foreign Stock Exchange for a minimum of the preceding 40 calendar days. If the company does not meet the definition of foreign private issuer, it still must fully comply with Exchange Act Rule 12g3-2(b) and comply with the OTC Markets alternative reporting standards. Accordingly, many foreign listed companies opt to trade on the OTC Markets without registering with or becoming subject to SEC reporting requirements.