• SEC Limits Non-Public Initial Review Submissions for Foreign Private Investors
  • April 3, 2012
  • Law Firm: Perley-Robertson Hill McDougall LLP/s.r.l. - Ottawa Office
  • What will this mean for Canadian companies seeking to list in the U.S.?

    On December 8, 2011 the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the “SEC”) announced, effective immediately, a significant change in its policy of confidentially reviewing first-time registration statements of foreign private issuers in connection with their initial public offerings and initial listings. The SEC has stated that this change in policy will help promote transparency and investor protection under U.S. securities laws.

    Traditionally in the U.S., domestic issuers have registered their securities by filing an initial registration statement through the SEC’s Electronic Data-Gathering, Analysis, and Retrieval (“EDGAR”) system, where the initial filing was made available immediately to the public before its review by the SEC staff. Conversely, Canadian companies and other foreign private issuers registering their securities for the first time with the SEC were afforded the ability to submit to the SEC staff their initial registration statement and amendments on a “draft” non-public basis. The SEC staff would proceed to review and comment on required disclosure on a confidential basis and allow the foreign registrant the opportunity to respond to the comments before a public filing of the registration statement was made through the EDGAR system. This confidential process would allow Canadian companies to avoid disclosing to the public their plans for an initial public offering or listing in the U.S. until the offering was ready to be filed. The reasoning behind this accommodation of non-public review procedure was that prior to listing their securities in the U.S., many foreign private issuers were already listed on foreign exchanges and often those foreign exchanges did not have disclosure requirements similar to those under U.S. securities law for domestic issuers. Canadian companies, for example, would already have been listed on the Toronto Stock Exchange prior to registering their securities in the U.S.

    However, recently the SEC has noticed a trend that most foreign private issuers who have access to the non-public review process are not listed, nor do they contemplate being listed, on a foreign exchange.

    Consequently, the SEC has decided to significantly limit the access to the non-public initial review procedure for foreign private issuers. Under the new policy the SEC staff will review initial registration statements of foreign private issuers which are submitted on a non-public basis only where the registrant is:

    (1) a foreign government registering its debt securities;

    (2) a foreign private issuer that is listed or is concurrently listing its securities on a non-U.S. securities exchange;

    (3) a foreign private issuer that is being privatized by a foreign government; or

    (4) a foreign private issuer that can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction.

    Specifically excluded from the non-public review procedure under the new policy are shell companies, blank check companies and issuers with no or substantially no business operations.

    The SEC has stated that circumstances may develop in which the SEC staff will request a foreign private issuer to publicly file its registration statement even though it comes within the general parameters of the new policy. Such circumstances shall include a competing bid in an acquisition transaction or publicity about a proposed offering or listing.

    As a result of this new policy, unless a Canadian company intending to submit its initial registration statement to the SEC in connection with a U.S. initial public offering or an initial listing falls within one of the exceptions listed above, the Canadian company will have to proceed to list its securities by filing its registration statement on the SEC’s EDGAR system, where the filing will be available immediately to the public.