SEC Suggests Narrowing the Definition of "Foreign Private Issuer"
The SEC requested comment on whether the current definition of a "foreign private issuer" ("FPI") should be amended to account for "significant changes in that population since 2003" and to better "reflect the issuers that the Commission intended to benefit."
In the concept release, the SEC asked whether the current definition may need to be adjusted "to ensure that (1) [US] investors receive appropriate disclosure and remain adequately protected when investing in FPIs' securities and (2) that the discrepancy in regulatory requirements does not have unintended competitive implications."
Agency staff analyzed current FPI filings and found significant shifts in the population of FPIs, their jurisdictional makeup and the extent to which FPIs rely on the US capital markets (the latter "raises questions about the extent to which such issuers are regulated in foreign markets.") On jurisdiction, staff found that in 2023, "the most common jurisdiction of incorporation among 20-F FPIs was the Cayman Islands, and the most common jurisdiction of headquarters for these issuers was mainland China;" they contrasted this finding with those of 2003, when "the most common jurisdictions for both incorporation and headquarters for 20-F FPIs were Canada (non-MJDS issuers) and the United Kingdom."
The SEC also requested specific comment on "possible approaches" to amending the FPI definition. These include: (i) updating existing FPI eligibility criteria; (ii) amending the foreign trading volume requirement; (iii) amending the major foreign exchange listing requirement; (iv) changing the way the Commission assesses a foreign jurisdiction's regulatory requirements; (v) developing a system of "mutual recognition with foreign governments;" and/or (vi) requiring FPIs to certify they are subject to the oversight of a jurisdiction that has signed onto an international cooperation arrangement (e.g. the IOSCO Multilateral Memorandum of Understanding).
Comments are due within 90 days following publication of the comment request in the Federal Register.
On issuance of the concept release:
Chair Paul S. Atkins said that many FPIs still receive accommodations—such as exemptions from quarterly reporting and Regulation FD—while accessing US markets for "higher valuation, greater liquidity, and enhanced reputation." He questioned whether firms that are "incorporated in the Cayman Islands," "headquartered in China," and trading "exclusively, or nearly-exclusively, in the United States" should still qualify for regulatory relief not available to US companies.
Commissioner Caroline Crenshaw highlighted that over half of FPI filers trade exclusively on US exchanges, raising questions about whether they are subject to any meaningful home-country regulation. She called out specific exemptions FPIs enjoy—including no Form 10-Q filings, more lenient Form 8-K requirements and exemptions from Section 16 insider trading disclosures and blackout period rules. Ms. Crenshaw urged the SEC to further examine more than 20 regulatory exemptions granted to FPIs.
Commissioner Hester M. Peirce emphasized that the FPI framework, built on mutual regulatory trust, no longer fits today's market. She underscored the sharp shift toward issuers "incorporated in the Cayman Islands and headquartered in China," many trading "almost exclusively in the United States."
Commissioner Mark T. Uyeda stressed that the core issue is whether foreign issuers should provide lesser disclosures than US companies, cautioning that "regulatory vacuums" could give foreign competitors an unfair advantage. He welcomed the releases data-driven approach, pointing to evidence that many FPIs now rely primarily on US markets, potentially resulting in "less information ... being made available to U.S. investors." He warned that this raises investment risks, distorts price discovery, and creates "artificial barriers to capital formation."