On June 4, 2025, the SEC issued a
concept release soliciting public comment on the definition of “foreign private issuer” (FPI) under U.S. securities laws. The SEC has identified potential changes to the definition that could significantly narrow FPI eligibility for foreign issuers with U.S.-based trading, operations, or management. If any such changes were implemented, affected companies could be required to restructure leadership, reincorporate, or list abroad to preserve FPI status. Issuers based in jurisdictions with limited investor protections or that have minimal foreign market activity could lose FPI eligibility entirely, potentially prompting a shift in capital-raising to non-U.S. markets.
Background on the FPI Framework
Under current rules, a foreign issuer qualifies as an FPI if it meets either:
- The shareholder test: 50% or less of its voting securities are held of record directly or indirectly by U.S. residents; or
- The business contacts test:
- A majority of the issuer’s executive officers or directors are not U.S. citizens or residents;
- A majority 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.
FPIs benefit from several accommodations, including reduced reporting obligations, extended reporting timelines, exemptions from SEC proxy and say-on-pay rules, and exemptions from Section 16 ownership reporting requirements and short swing profit rules under the Securities Exchange Act of 1934. These accommodations are justified by the presumption that FPIs are subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions.
Why the SEC Is Seeking Comment
The SEC identified in the release certain trends among FPIs that serve as the basis for its evaluation of the eligibility criteria for FPIs.
- Jurisdictional and Structural Shifts: Since 2003, the makeup of FPIs has shifted from issuers primarily based in a single, comparably regulated jurisdiction (e.g., Canada, the United Kingdom) to issuers incorporated and headquartered in different countries (e.g., incorporated in the Cayman Islands with headquarters in mainland China) with more limited regulatory oversight. The implication of this shift is that FPIs may be subject to decreased oversight, which could potentially result in increased risks to U.S. investors who invest in FPIs.
- U.S.-Dominated Market Presence: Many FPIs now function as de facto domestic issuers. The SEC found that, in 2023, the majority of FPIs that filed annual reports on Form 20-F had 99% or more of their equity securities trading volume in U.S. markets. This undermines the SEC’s intention that most FPIs be subject to meaningful disclosure and other regulatory requirements set by their home country or foreign markets.
- Competitive Imbalance: The current FPI framework permits foreign issuers with significant U.S. market activity to bypass regulatory requirements that domestic issuers operating in the same markets must meet. This creates a regulatory disparity that subjects U.S. issuers to more fulsome disclosure obligations than similarly situated FPIs.
Potential Reforms
In light of the factors described above and the passage of time since the FPI rules were last reviewed, the SEC is seeking input as to whether changes to the FPI definition are warranted. In addition to welcoming the public to submit opinions on any aspects of the current FPI definition, as well as comments and data on any costs, burdens or benefits that may result from potential changes, the SEC’s concept release discusses and provides questions related to a range of potential approaches to amending the definition of FPI, including:
- Adjusting Ownership and Business Contact Thresholds: Revising the 50% U.S. ownership threshold or tightening the business contacts test to increase control over where foreign issuers are managed and operate.
- Imposing a Foreign Trading Volume Requirement: Requiring a minimum level of non-U.S. trading activity to ensure that FPIs are subject to oversight triggered by trading in foreign markets.
- Requiring Listing on a Major Foreign Exchange: Conditioning FPI status on listing shares on a recognized non-U.S. exchange to ensure sufficient foreign regulatory oversight.
- Limiting Eligibility Based on Jurisdiction: Restricting FPI status to issuers incorporated and/or headquartered in jurisdictions with adequate investor protections.
- Establishing a Mutual Recognition System: Developing a system of mutual recognition of reporting requirements for issuers from selected jurisdictions.
- Linking Eligibility to Cross-Border Cooperation: Conditioning status on whether the issuer’s home jurisdiction participates in certain international enforcement frameworks.
Implications
The SEC’s potential reforms to the definition of FPI could pressure foreign issuers with U.S.-based trading, operations, or management to restructure key aspects of their business or withdraw from U.S. markets altogether to avoid full domestic issuer treatment and its associated regulatory obligations. Issuers whose securities are traded almost exclusively on U.S. exchanges could need to pursue or expand listings on foreign markets to retain FPI status. Issuers led by U.S.-based executives or with principal functions located in the United States might be required to reorganize their leadership or shift core functions abroad to meet a stricter business contacts test. Issuers incorporated or headquartered in jurisdictions with limited investor protections or regulatory oversight, especially those used for tax or compliance advantages, could lose their FPI eligibility entirely.
The comment period will remain open until September 8, 2025. We will continue to monitor developments as the SEC evaluates potential rulemaking in this area.
Summer associate Cristian Colwell co-authored this blog post.