SEC Agrees to Provide an Easier Exit for Foreign Companies
The Securities and Exchange Commission will make it easier for foreign companies to delist from U.S. stock exchanges and withdraw from SEC oversight, including the requirements of the Sarbanes-Oxley law.
A new SEC regulation, approved yesterday, will allow companies to de-register their shares if U.S. trading is 5 percent or less of the firm's daily volume worldwide. The rules will take effect before a June deadline for complying with Sarbanes-Oxley's audit requirements, regulators said.
"By changing the rule to make exit easier, we may well attract more interest" in U.S. capital markets, SEC Chairman Christopher Cox said at a commission meeting.
Congress passed the Sarbanes-Oxley Act, which requires executives to certify the accuracy of financial statements, in 2002 after accounting frauds at Enron and WorldCom. Higher audit and legal costs stemming from the law have prompted foreign companies to reconsider the benefit of listing their shares in the United States.
European regulators have said that earlier versions of the SEC's de-registration rules made it too hard for overseas companies to leave, making the decision to list shares in the United States in the first place a risky one.
The SEC's move comes as U.S. regulators are debating ways to make U.S. markets more competitive with overseas rivals. Executives and business groups blame Sarbanes-Oxley for a decline in U.S. stock-market listings, saying the law's costs have driven companies to less-regulated markets, such as London. U.S. companies spent an estimated $6 billion last year complying with Sarbanes-Oxley, according to AMR Research in Boston.
Twenty-nine percent of the 1,200 foreign companies regulated by the SEC will be eligible to pull their U.S. listings under the proposed rules, said John White, director of the SEC's corporate finance division.
Paul S. Atkins, a member of the SEC, noted that some overseas companies had started referring to the agency as a "roach motel" because firms could withdraw from SEC oversight only after a "nose count" of their U.S. investors. "Surely, none of us at the SEC want to perpetuate such ill-famed requirements," Atkins said at yesterday's meeting. "We are remedying a problem that has been festering for decades."
By Jesse Westbrook