SEC Speaks on FPIs, Online Forums, More

The Securities and Exchange Commission has published for comment the 107-page proposing release for amendments to its rules for foreign private issuers. Among other things, the amendments would accelerate the deadline for annual reports filed on Form 20-F.

The proposed changes are part of SEC efforts to update its disclosure rules and other requirements that apply to foreign issuers, to improve their access to the U.S. public capital markets and to enhance the information available to investors.

The amendments were proposed at the SEC’s Feb. 13 open meeting, where the commissioners also discussed amendments to the registration exemption for FPIs provided under Section 12(g) of the Securities Exchange Act. That proposal, out for comment until April 25, would make the exemption from U.S. reporting requirements automatic for issuers who meet new eligibility requirements. It also would end a requirement for issuers seeking the exemption to make paper submissions to the SEC. A new test based on trading volume would determine whether non-registered FPIs are subject to SEC reporting rules, rather than the current practice of counting of U.S. shareholders.

The proposals follow changes made last year to SEC rules to ease FPI deregistration requirements and to allow those issuers, under certain conditions, to file financial statements using International Financial Reporting Standards without reconciliation to U.S. Generally Accepted Accounting Principles.

As proposed, the amendments would, after a two-year transition period, shorten the filing deadline for annual reports on Form 20-F from six months to 90 days after the foreign issuer’s fiscal year-end for large accelerated filers and keep it at 120 days for all other foreign issuers.

The proposals would also let foreign issuers test their qualification to use the forms and rules available to FPIs once a year, rather than continuously; eliminate an option in an instruction to Form 20-F that permits certain FPIs to omit segment data from their U.S. GAAP financial statements; and would amend a rule pertaining to private transactions to reflect the new termination of reporting and deregistration rules for foreign private issuers.

The SEC is also seeking comments on proposals to amend Form 20-F to require FPIs to disclose information about changes in their certifying accountant, the fees, charges, and payments related to American Depositary Receipts, and for listed issuers, the differences in corporate governance practices from those that apply to domestic companies under exchange listing rules. The proposing release also seeks comment on plans to require that FPIs that must provide a U.S. GAAP reconciliation to do so pursuant to Item 18 of Form 20-F and to require FPIs to provide certain financial information in annual reports on Form 20-F about a significant, completed acquisition.

Comments are due 60 days after the proposals are published in the Federal Register.

More Guidance for Online Shareholder Forums

The SEC staff has posted a new Small Entity Compliance Guide to help companies comply with new rules and amendments aimed at facilitating the use of electronic shareholder forums.

The guide explains new Rule 14a-17 and an amendment to Rule 14a-2 under the Securities Exchange Act, which were adopted by the SEC last November to facilitate the use of electronic shareholder forums by public companies and shareholders.

The amendments, effective Feb. 25, aim to alleviate concerns that statements made by participants in an electronic shareholder forum will be construed as a “solicitation” under the proxy rules, or that someone who establishes, maintains, or operates an electronic shareholder forum will be liable under the federal securities laws for statements made by forum participants.

Under Section 14(a) of the Exchange Act, any solicitation of proxies in connection with securities that are registered under Section 12 are subject to the filing and disclosure requirements of the SEC’s proxy rules. The proxy rules apply to any person seeking to influence the voting of proxies, regardless of whether the person is seeking authorization to act as a proxy.

The new Rule 14a-2(b)(6) clarifies that a communication on an electronic shareholder forum that could potentially constitute a proxy solicitation in connection with an annual or special meeting of shareholders is exempt from most of the proxy rules. The guide explains the conditions a communication on an electronic shareholder forum must meet to qualify for the exemption.

The new Rule 14a-17 clarifies that a shareholder, company, or third party acting on behalf of a shareholder or company that establishes, maintains, or operates an electronic shareholder forum won’t be liable under the federal securities laws for statements made by another person participating in the forum, if the forum is conducted in compliance with the federal securities laws, applicable state law, and the company’s charter and bylaws.

While the guide summarizes and explains rules adopted by the commission, the SEC warns that it is “not a substitute for any rule itself.”

New Interpretations for Smaller-Co. Requirements

The SEC staff has posted six new compliance and disclosure interpretations related to its Smaller Reporting Company Requirements. Most of the new requirements, which were adopted by the SEC last November, took effect Feb. 4.

Among other things, the interpretations clarify that due to the application of the transition rules for accelerated filers a company can be both an accelerated filer and a smaller reporting company simultaneously. For example, a company with a fiscal year ended Dec. 31, 2007, that was an accelerated filer with respect to filings due in 2007 and had a public float of $60 million on the last business day of its second fiscal quarter of 2007 could use the scaled disclosure rules for smaller reporting companies in its annual report on Form 10-K, but the report is due 75 days after the end of the fiscal year and must include the Sarbanes-Oxley Section 404 auditor attestation report described in Item 308(b) of Regulation S-K.

The interpretations also note that all smaller reporting companies are required to provide the audit committee report required by Item 407(d)(3) of Regulation S-K. That should clear up confusion that may have resulted from a change made to the adopting release to correct the inadvertent omission of the words “Financial Expert” from a page in the original version.