Last week, the SEC issued this 71-page concept release to rethink the definition of “foreign private issuer” and determine which companies should get the benefits of reporting under the FPI reporting framework. Here’s the press release and the fact sheet. Comments are due 90 days from the concept release being published in the Federal Register.
These two changes noted in the fact sheet highlight why the SEC is considering this FPI reform:
- Jurisdiction shift over 20 years: In 2003, most FPIs came from Canada and the UK. By 2023, the Cayman Islands (for incorporation) and mainland China (for headquarters) became the most common.
- US trading dominance: Over the past decade, more FPIs have focused their trading in the US, with 55% in 2023 showing little or no trading outside US exchanges – making the US their main or only market.
What are the benefits of being an FPI? Here are 10 notable things that spotlight FPI disclosure flexibility and quirks:
1. Quarterly reports not required? Yes, really – FPIs aren’t required to file Form 10-Qs. Instead, they typically file only two annual reports: Form 20-F (or 40-F for MJDS filers) and occasional Form 6-Ks.
2. Form 6-K = news wire for FPIs – The Form 6-K lets FPIs submit material information already released abroad, such as press releases or investor presentations. No need to reinvent the 8-K.
3. Freedom from proxy rules – FPIs are generally exempt from US proxy rules (Schedule 14A), unless they voluntarily solicit proxies under US law!
4. Executive comp disclosure is leaner – No summary comp table? That’s right. FPIs can comply with their home country’s executive compensation disclosure rules.
5. Sarbanes-Oxley light – While FPIs must file CEO/CFO certifications (302 and 906), they are exempt from SOX 404(b) auditor attestation if they’re emerging growth companies (EGCs) or smaller reporting companies.
6. Insider reporting? Not applicable – FPI insiders generally aren’t subject to Section 16 reporting (Forms 3, 4 and 5). That’s a major compliance convenience for in-house counsel.
7. Regulation FD? Also not applicable – Regulation FD doesn’t apply to FPIs.
8. Home country practices allowed, if disclosed – FPIs can follow home country governance practices (like board composition or audit committee structures), as long as differences from NYSE/Nasdaq listing standards are disclosed.
9. Financials can follow IFRS – FPIs may file audited financials using IFRS as issued by the IASB, without reconciling to US GAAP, a huge cost and complexity saver.
10. Exiting the US market is easier – Deregistration under Exchange Act Rule 12h-6 lets FPIs exit US reporting obligations more easily than domestic companies if trading volume is low.
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