[Federal Register Volume 59, Number 130 (Friday, July 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16569]
[[Page Unknown]]
[Federal Register: July 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34300; International Series Release No. 678; File No.
SR-Amex-94-04]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change and Notice of Filing
and Order Granting Accelerated Approval to Amendment No. 1 to Proposed
Rule Change Relating to Listing Standards for Non-U.S. Companies
July 1, 1994.
I. Introduction
On February 23, 1994, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to permit non-U.S. issuers to
distribute summary annual reports to U.S. holders of Amex-listed
foreign securities and American Depositary Receipts (ADRs) (``U.S.
Holders'') under certain circumstances.\3\ On May 19, 1994, the Amex
submitted Amendment No. 1 to the rule filing.\4\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\An ADR is a negotiable receipt that is issued by a
depositary, generally a bank, representing shares of a foreign
issuer that have been deposited and are held, on behalf of holders
of the ADRs, at a custodian bank in the foreign issuer's home
country. ADRs are traded on the national stock exchanges and in
over-the-counter markets like stocks of domestic companies.
\4\Letter from Claudia Crowley, Amex, to Sharon Lawson,
Assistant Director, SEC, dated May 18, 1994 (``Amex Letter''). The
amendment added the phrase ``including summary financial
information'' in subsection (i) of the new language. See text of new
rule, infra.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 33864 (April 5, 1994), 59 FR 17406 (April 12,
1994). No comments were received on the proposal.
II. Description of the Proposal
Current Amex policy requires all listed companies to submit to
shareholders an annual report with financial information as detailed in
the Amex Company Guide. The Exchange is modifying its annual report
requirements to allow U.S. Holders to receive summary annual reports if
it is the practice in the home country of the foreign issuer and
certain other conditions are met. The following is the text of the
rule, with italics representing the language added:
Section 110. Securities of Foreign Companies
* * * * *
(d) Disclosure--The Exchange will require the company to: (i)
furnish to American shareholders an English language version of its
annual financial statements and all other materials regularly provided
to other shareholders, and (ii) publish, at least semi-annually, an
English language version of its interim financial statements. In
addition, the Exchange will permit non-U.S. issuers to follow home
country practices regarding the distribution of annual reports to
shareholders, if, at a minimum, shareholders (i) are provided at least
summary annual reports, including summary financial information, and
(ii) have the ability, upon request, to receive a complete annual
report, and the financial information contained in the summary annual
report is reconciled to U.S. generally accepted accounting principles
to the extent that such reconciliation would be required in the full
annual report.
The rule change is, in part, in response to an amendment, adopted
in 1990, to the U.K. Companies Act that permits issuers listed on the
London Stock Exchange to provide holders of their ordinary shares a
choice to receive a full annual report or a summary annual report.\5\
The Amex rule is formulated to permit foreign issuers to distribute
summary annual reports consistent with the practices of their home
countries. The rule does not attempt to specify particular financial
requirements.\6\ Instead, the Exchange will review specific proposals
to ensure that U.S. Holders receive adequate information.\7\
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\5\The U.K. Companies Act sets forth the specific financial and
management information that must be contained in the summary
reports. In addition, the U.K. Companies Act requires that
shareholders who receive only the summary report be given the
opportunity, at any time, to obtain the full annual report from the
company and that companies must notify shareholders annually of this
right and how the report can be obtained. When the program was
instituted in the U.K. in 1990, shareholders received both reports
and notice of the available option with respect to future reports.
\6\Although the new rule is formulated to accommodate the U.K.'s
program, other foreign countries may adopt different practices.
\7\Amex Letter, supra note 4. The letter clarified that the
Exchange does not intend to adopt the substance of the U.K. program,
and that it will permit the practice of providing shareholders with
an option to receive summary annual reports as opposed to full
annual reports to evolve over time. The Amex has committed to review
each home country's practices to determine their sufficiency in
providing information to U.S. Holders.
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The rule also does not mandate any specific method for providing
U.S. Holders with summary annual reports. As with the substantive
requirements, the Amex proposal recognizes that foreign countries will
develop their own procedures for issuers to provide summary reports in
lieu of full annual reports. The Exchange, however, has indicated that
it will review all proposed programs to ensure that U.S. Holders have
reasonable access to the full annual report and receive full disclosure
of their option to receive the full report.\8\
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\8\Id. Under the Amex rule, full annual reports must still be
prepared and made available to all U.S. shareholders.
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III. Discussion
The Commission finds that the proposed rule change to permit non-
U.S. issuers to distribute summary annual reports to U.S. Holders
according to the home country practice of the foreign issuer is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and, in particular, with the requirements of Section 6(b) of the
Act.\9\ Specifically, the Commission believes the proposal is
consistent with the Section 6(b)(5) requirements that the rules of an
exchange be designed to promote just and equitable principles of trade,
to prevent fraudulent and manipulative acts, and, in general, to
protect investors and the public interest, in that it accommodates
foreign practices while ensuring that U.S. shareholders of foreign
securities and holders of ADRs continue to receive adequate information
concerning the companies in which they invest.
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\9\15 U.S.C. 78f(b) (1988).
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As the securities markets of the world become increasingly
interconnected, it is inevitable that application of certain exchange
rules conflict with customs and market practices in other
jurisdictions.\10\ The Commission believes that the Amex's rule
reflects an appropriate balance between the need to protect U.S.
investors and the costs associated with requiring non-U.S. companies to
provide U.S. investors with full annual reports while the companies'
home country law permits summary reports to foreign investors.
Accordingly, for the reasons discussed in more detail below, we believe
it is appropriate, in this limited situation pursuant to the conditions
set forth in Section 110, to allow foreign issuers to comply with their
home country practices for the distribution of annual reports to U.S.
Holders.
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\10\The Commission previously has allowed exchanges to waive or
modify certain of its listing standards for foreign companies based
on the laws, customs or practices of their home countries. See
Securities Exchange Act Release No. 33661 (February 23, 1994), 59 FR
10028 (March 2, 1994); Securities Exchange Act Release No. 24634
(June 23, 1987), 52 FR 24230 (June 29, 1987).
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First, the rule sets forth certain minimum requirements before
summary reports can be used, including that financial information
contained in the summary annual report be reconciled to U.S. generally-
accepted accounting principles, and that all shareholders have the
ability upon request to receive a full annual report. Second, the Amex
will evaluate each country's program for providing shareholders with
summary annual reports to verify that U.S. Holders are receiving
adequate information under the laws of the foreign country. Finally,
the Amex will also review the procedure the country has provided for
disclosing to shareholders the option to receive a full annual report.
If the Exchange determines that either the substance or the procedure
provided by a foreign country's law is unsatisfactory, the Exchange may
prescribe additional requirements before the summary annual report can
be distributed to U.S. Holders under the Amex rule. In this regard, the
Amex has stated it will ensure, under its new rule, that shareholders
receive adequate information and are provided with full and meaningful
disclosure of their choices to receive the full annual report as
opposed to the summary report.\11\ Based on the above, the Commission
believes the Exchange's review and oversight, combined with the minimum
requirements set forth in the rule, should ensure the continued
protection of investors and the public interest consistent with Section
6(b)(5) of the Act.
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\11\See Amex Letter, supra note 4.
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The Commission finds good cause for approving Amendment No. 1 to
the rule change prior to the thirtieth day after publication of notice
of filing thereof. Amendment No. 1 added language to subsection (a) of
the proposed rule to clarify the Exchange's intention that summary
annual reports include summary financial information.\12\ The Amex's
proposed rule change was published in the Federal Register for the full
statutory period and no comments were received.\13\
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\12\Id.
\13\See Securities Exchange Act Release No. 33864 (April 5,
1994), 59 FR 17406 (April 12, 1994).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549. Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying at the Commission's Public Reference Section, 450 Fifth Street,
NW., Washington, DC 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-94-04 and should be
submitted by July 29, 1994.
V. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-Amex-94-04), including
Amendment No. 1 on an accelerated basis, is approved.
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\14\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\17 CFR 200.30-3(a)(12) (1993).
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[FR Doc. 94-16569 Filed 7-7-94; 8:45 am]
BILLING CODE 8010-01-M