The Securities and Exchange Commission (SEC) published a concept release on June 4, 2025, seeking feedback on whether the SEC should amend the definition of “foreign private issuer” (FPI). In the release, the SEC asks whether significant changes in the characteristics of foreign private issuers over the last 20 years warrants amending the definition of FPIs.
Background
Foreign private issuers benefit from accommodations and exemptions that provide partial relief from the SEC disclosure and filing requirements. Such benefits include a longer filing period for annual reports; no requirement to file quarterly reports; and being exempt from reporting requirements for directors, officers, and principal stockholders under Section 16 regarding their beneficial ownership and trading in the company’s securities.
An issuer qualifies as a foreign issuer if:
- 50% or less of its outstanding voting securities are held of record directly or indirectly by U.S. residents; or
- More than 50% of its outstanding voting securities are held by U.S. residents, and it has none of the following contacts with the United States: (i) a majority of its executive officers or directors are U.S. citizens or residents; (ii) more than 50% of its assets are located in the United States; or (iii) its business is administered principally in the United States.
Reasons for Revisiting the Definition of FPI
The SEC’s objectives include ensuring the accommodations for FPIs are tailored to reflect today’s FPI population while protecting U.S. investors and providing access to foreign issuers’ securities, according to the release.
The SEC noted in its fact sheet announcing the concept release that the population of FPIs that file annual reports on Form 20-F has changed significantly over the last 20 years. In 2003, the two jurisdictions represented most frequently among these FPIs were Canada and the United Kingdom. In 2023, the Cayman Islands was the most common jurisdiction of incorporation (about one-third of FPIs), while mainland China was the most common jurisdiction of headquarters (about 23% of FPIs).
More importantly, SEC staff found that trading of FPIs’ equity securities has become much more concentrated in U.S. capital markets in recent years. Close to 55% of FPIs appear to trade exclusively in the U.S. markets. As such, the United States is effectively the exclusive or primary trading market for those issuers.
Possible Changes to FPI Eligibility
The concept release invites comments in response to several questions, including those relating to:
- The adequacy of the current definition of FPI and whether any updates to the eligibility criteria are warranted.
- Whether a foreign trading volume test is an appropriate way to determine whether an issuer should be eligible for FPI accommodations.
- Whether foreign issuers should be required to be listed on major foreign exchange to qualify as an FPI.
- Incorporating an SEC assessment of foreign regulation and oversight applicable to the FPI sufficient to protect U.S. investors.
- Whether there are any subsets of existing FPIs that should not be subject to any additional disclosure or other requirements that they may incur due to any amendments to the FPI definition.
Although concept releases are not formal rule proposals, they can shed light on the SEC’s thinking when it comes to rulemaking. This release’s significant focus on whether to impose a foreign trading volume requirement to the FPI definition could be telling. For instance, the release includes analysis by SEC staff about how a foreign trading volume requirement would affect existing FPIs. According to this analysis, adopting a requirement that at least 3% of an FPI’s trading activity occur outside the United States could affect more than 60% of the existing FPI population.
Next steps
While it may be premature for FPIs to take significant action in response to a concept release when rule amendments have not yet been proposed, the release still presents some actionable items for FPIs. First, issuers should consider assessing where they fall among the categories of FPIs that the SEC identified in the release, especially how much (if any) of their equity securities are trading on any non-U.S. market. Also, FPIs who wish to submit comments should consider how their views and proposals could affect investor protection and the amount of information available to U.S. investors.
The comment period for the concept release will remain open for 90 days from the date the release is published on the Federal Register.
