On June 4, 2025, the SEC published a concept release in which the agency analyzes trends related to foreign private issuers (FPIs) and solicits extensive feedback regarding whether and how the definition of FPI should be amended. This results from the fact that FPIs are increasingly traded exclusively in the United States and are not subject to any non-U.S. disclosure requirements, and yet benefit from significant exemptions that are not available to their U.S. counterparts.
The current framework for the definition of “foreign private issuer” was adopted in 1983 and last amended in 1999. The test for FPI status is based on whether a majority of the shareholders of a non-U.S. incorporated company are U.S. residents. Even if that is the case, a non-U.S. incorporated company can still be a FPI if it does not maintain certain U.S. nexuses.[1]
At this stage, no definitive rule changes are proposed, and it is not clear how the SEC will proceed. The concept release does not seek comment on the exemptions that apply to FPIs, focusing instead only on the definition of FPI.
The public has 90 days from when the concept release is published in the Federal Register to provide comments in response to the SEC’s solicitation.
Shift in the Nature of Foreign Private Issuers[2]
The Concept Release sets forth data on the changes in the nature of FPIs that has occurred between 2003 and 2023.
The following table sets forth the top five jurisdictions of incorporation for FPIs and related information from 2003 and 2023:
The SEC noted the following points based on this data:
- FPIs tended to be incorporated in a different jurisdiction from their headquarters, and the most common jurisdictions shifted to the Cayman Islands for issuers’ jurisdiction of incorporation and mainland China for their headquarters.
- Despite the shift in foreign jurisdictions, the market capitalization of FPIs incorporated in the Cayman Islands and/or headquartered in mainland China tended to be relatively small, resulting in those issuers representing a small percentage of the aggregate global market capitalization of all FPIs despite their numerosity. In 2023, the aggregate global market capitalization of FPIs incorporated in the Cayman Islands represented 11.6% and the aggregate global market capitalization of FPIs headquartered in mainland China represented 5.1% of the aggregate global market capitalization of all FPIs.
- The increase in China-based issuers[3] from approximately 5% of FPIs in 2003 to an estimated 28% in 2023 led to a corresponding increase in issuers incorporated in the Cayman Islands or the British Virgin Islands, since 97% of China-based issuers are incorporated in either of those two territories.
The following table sets forth the percentage of trading on U.S. exchanges by FPIs:
The SEC noted the following points based on this data:
- Global trading of FPIs has not only become more concentrated in the United States over the past 20 years, but also a majority of FPIs’ equity securities trade nearly exclusively on U.S. exchanges.
- FPIs that trade almost exclusively on U.S. exchanges are likely to have smaller market capitalizations and be incorporated in the Cayman Islands and headquartered in China. These exclusive FPIs represent only 9.2% of the aggregate FPI market capitalization due to their smaller market capitalizations, despite being numerous as a percentage of total FPIs.
- After reviewing the data, the SEC notes that a growing number of FPIs are subject to limited current disclosure requirements compared to U.S. domestic reporting requirements and the reporting requirements of jurisdictions like Canada, the European Union, the United Kingdom, Brazil and Japan, which are declining in prevalence as jurisdictions in which FPIs are incorporated or headquartered.
Potential Changes in Foreign Private Issuer Eligibilty
The SEC is concerned that there is a significant uptick in issuers that are not subject to substantive disclosure and regulatory frameworks outside of the United States while still being afforded the scaled disclosure obligations conferred by FPI status. In the SEC’s view, the absence of home jurisdiction regulation is at odds with the central underpinning of the FPI regime — that foreign issuers should be accommodated because they are subject to meaningful regulation under the laws of their home jurisdictions and traded in foreign markets.
The concept release includes 69 multipart questions organized around the following central themes:
Statement on the Concept Release — Commissioner Mark T. Uyeda
SEC Commissioner Mark T. Uyeda voiced support for the SEC’s efforts to review the regulatory treatment of FPIs while cautioning against unintended consequences that could undermine the system’s longstanding benefits. Commissioner Uyeda emphasized that the current regime has effectively enabled foreign companies to access the U.S. capital markets and allowed U.S. investors to diversify their holdings, noting that:
Notwithstanding these concerns, it is important to note that we have not seen to date large-scale market failures from the differing disclosure regimes for U.S. issuers and foreign private issuers. To the extent that there have been issues with respect to FPIs, they often involve outright fraud and material misstatements and omissions. In other words, fraud can occur irrespective of the form the issuer files — or the exemption the issuer relies on.
Commissioner Uyeda underscored that while investor protection remains critical, any changes to the framework should preserve the economic substance of cross-border access and the benefits it provides to both issuers and U.S. investors.
Conclusion
If the SEC pursues any of the changes outlined in the concept release, a sizable percentage of FPIs could lose their status. It is also not clear how any potential new rules would be applied in the context of a company undertaking an initial public offering. Furthermore, it is likely that any changes would disproportionately impact smaller market capitalization FPIs or would be FPIs, with the greatest numerical impact being on those headquartered in Canada (non-MJDS reporting companies), China, Hong Kong, Israel and Singapore, which represent the largest group of FPIs after Canada. FPIs that are likely to be impacted by a rule change should considering submitting feedback to the SEC.
[1] A “foreign private issuer” is any foreign issuer, other than a foreign government, that as of the last business day of its most recently completed fiscal quarter meets the following conditions:
- 50% or less of its outstanding shares are held by U.S. residents; or
- If more than 50% of its outstanding shares are held by U.S. residents, all of the following conditions are met:
-
- A majority of the issuer’s executive officers or directors are non-U.S. citizens or residents;
- More than 50% of the issuer’s assets are located outside of the U.S.; and
- The issuer’s business is administered principally outside of the U.S.
[2] FPIs are permitted to adopt voluntarily the forms filed by U.S. domestic filers. The SEC’s survey of FPIs is limited to those that file annual reports on Form 20-F.
[3] “China-based issuers” are defined as those issuers that are either headquartered or incorporated in any of mainland China, Hong Kong or Macau.
[4] The concept of Percentage of U.S. Global Trading is based on an analysis conducted by the SEC, where it computed global daily trading volume in U.S. dollars for all FPIs across all global markets for which daily trading volume information was available for each FPI. This global daily trading volume was then aggregated for a 12-month window around each FPI’s fiscal year-end date, with a similar variable constructed for each FPI’s aggregated 12-month U.S. dollar trading volume specifically in U.S. capital markets.
