[Federal Register Volume 68, Number 180 (Wednesday, September 17, 2003)]
[Proposed Rules]
[Pages 54644-54650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23737]



[[Page 54643]]

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Part V





Securities and Exchange Commission





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17 CFR Part 239



Additional Form F-6 Eligibility Requirement Related to the Listed 
Status of Deposited Securities Underlying American Depositary Receipts; 
Proposed Rule

  Federal Register / Vol. 68, No. 180 / Wednesday, September 17, 2003 / 
Proposed Rules  

[[Page 54644]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 239

[Release Nos. 33-8287, 34-48482, International Series Release No. 1273; 
File No. S7-16-03]
RIN 3235-A189


Additional Form F-6 Eligibility Requirement Related to the Listed 
Status of Deposited Securities Underlying American Depositary Receipts

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission is publishing for comment a proposed amendment 
to Form F-6 to make the form unavailable to register under the 
Securities Act of 1933 depositary shares evidenced by unsponsored 
American depositary receipts if the foreign issuer has separately 
listed the deposited securities on a registered national securities 
exchange or automated inter-dealer quotation system of a national 
securities association. The proposed amendment is intended to benefit 
U.S. investors by ensuring that investors in the equity securities of 
the same foreign issuer all enjoy a similar level of shareholder rights 
and by minimizing potential investor confusion. It also is intended to 
improve the ability of foreign companies to control the form in which 
their securities are traded in U.S. markets.

DATES: Please submit your comments on or before October 17, 2003.

ADDRESSES: To help us process and review your comments more 
efficiently, comments should be sent by hard copy or e-mail, but not by 
both methods. Comments sent by hard copy should be submitted in 
triplicate to Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Comments 
also may be submitted electronically at the following electronic mail 
address: [email protected]. All comment letters should refer to 
File No. S7-16-03. This file number should be included in the subject 
line if electronic mail is used. Comment letters will be available for 
public inspection and copying in the Commission's Public Reference 
Room, 450 Fifth Street, NW., Washington, DC 20549. Electronically 
submitted comment letters will be posted on the Commission's Internet 
website (http://www.sec.gov).\1\
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    \1\ We do not edit personal, identifying information, such as 
names or electronic mail addresses, from electronic submissions. 
Submit only information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Michael D. Coco, Special Counsel, 
Office of International Corporate Finance, Division of Corporation 
Finance, at (202) 942-2990, U.S. Securities & Exchange Commission, 450 
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Fifth Street, NW, Washington, DC 20549-0302.

SUPPLEMENTARY INFORMATION: The Commission is publishing for comment a 
proposed amendment to Form F-6,\2\ the registration statement form 
under the Securities Act of 1933 (``Securities Act'')\3\ for depositary 
shares evidenced by American depositary receipts.
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    \2\ 17 CFR 239.36.
    \3\ 15 U.S.C. 77a et seq.
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I. Background and Overview of the Proposal

    American depositary receipts (``ADRs'')\4\ are certificates that 
represent an ownership interest in foreign securities on deposit with 
an intermediary. ADRs were developed as a means to facilitate U.S. 
trading in foreign securities when direct ownership would have been 
impractical. With the increasing globalization of securities markets 
and technological advancements in clearance procedures, an increasing 
number of foreign issuers \5\ today choose to list their ordinary 
shares in the United States directly, rather than as ADRs. To better 
adapt the regulatory treatment of ADRs to the evolution of the market 
for foreign securities, the Commission is soliciting public comment on 
a proposed amendment to the eligibility requirements of Form F-6, the 
Securities Act registration form for ADRs. The Commission's proposed 
action has been prompted by proposals by market participants to issue 
unsponsored ADRs relating to the ordinary shares of a foreign issuer 
that are separately listed on a U.S. exchange.\6\ The proposed 
amendment would not permit the use of Form F-6 to register ADRs that a 
foreign issuer has not sponsored if that issuer has listed its 
securities in ordinary share form on a national securities exchange or 
automated quotation system of a national securities association.
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    \4\ Since 1983, the Commission's regulations have made a 
distinction between ADRs and American depositary shares (``ADSs''). 
Under this distinction, an ADR is the physical certificate that 
evidences ADSs (in much the same way as a stock certificate 
evidences shares of stock), and an ADS is the security that 
represents an ownership interest in deposited securities (in much 
the same way as a share of stock represents an ownership interest in 
a corporation). Although conceptually accurate, it appears that ADR 
market participants largely do not differentiate between ADRs and 
ADSs. In this release, the term ``ADS'' is not used, and the term 
``ADR'' may, depending on the context, refer to either the physical 
certificate or the security evidenced by the certificate.
    \5\ The term ``foreign issuer'' is defined in Securities Act 
Rule 405 [17 CFR 230.405]. A foreign issuer is any issuer that is a 
foreign government, a national of any foreign country or a 
corporation or other organization incorporated or organized under 
the laws of any foreign country.
    \6\ This is not the first time the Commission has addressed 
questions relating to unsponsored ADRs. In 1991, the Commission 
published a concept release to seek comment on several questions 
relating to ADRs. (Release No. 33-6894, May 23, 1991). One of the 
main issues at that time related to unsponsored ADRs that would 
essentially duplicate and be fungible with sponsored ADRs for the 
same securities of the same foreign issuer. The Commission did not 
propose or adopt any rules as a result of the concept release.
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A. American Depositary Receipts

    An American depositary receipt represents an ownership interest in 
a specified number or fraction of securities that have been deposited 
with a depositary (``deposited securities''). The deposited securities 
are typically equity securities \7\ of a foreign issuer, and the 
depositary is usually a U.S. bank or trust company. ADRs were developed 
primarily to facilitate the transfer of ownership of foreign securities 
in the United States and the conversion of foreign currency dividends 
into U.S. dollars, as an alternative to purchasing ordinary shares on 
foreign markets.
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    \7\ Debt securities may also underlie ADRs.
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    ADRs were developed in an era of physical securities and physical 
settlement as a means to facilitate the transfer of ownership of 
foreign securities in the United States. Because a foreign company's 
stock transfer books were generally maintained outside the United 
States, and because of differences in clearance and settlement 
practices, ADRs were a more convenient way to trade foreign securities. 
Even with vastly improved communications and clearance and settlement 
technology, ADRs remain the most common form in which foreign 
securities trade in the United States.
    An ADR facility may be ``sponsored'' or ``unsponsored.'' Although 
sponsored and unsponsored facilities are similar in many respects, for 
example each represents a fixed number or fraction of underlying 
securities on deposit with a depositary, there are a number of 
differences between them with regard to foreign issuer involvement, the 
rights and obligations of the ADR holders, and the practices of market 
participants.
1. Unsponsored ADRs
    An unsponsored facility is established by the depositary acting on 
its own,

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usually in response to a perceived interest among U.S. investors in a 
particular foreign security that is not traded on a U.S. exchange or 
quotation system. An unsponsored ADR facility does not involve the 
formal participation, or even require the acquiescence of, the foreign 
company whose securities will be represented by the ADRs. If the 
foreign issuer is neither reporting under the Securities Exchange Act 
of 1934 (the ``Exchange Act'')\8\ nor exempt from reporting obligations 
under the ``information supplying'' exemption of Exchange Act Rule 
12g3-2(b),\9\ the depositary requests that the issuer establish the 
exemption. Once the foreign issuer is either reporting under the 
Exchange Act or exempt, the depositary files a Securities Act 
registration statement on Form F-6 for the ADRs.\10\
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    \8\ 15 U.S.C. 78a et seq.
    \9\ 17 CFR 240.12g3-2(b).
    \10\ See Section II, infra.
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    An unsponsored ADR arrangement is essentially a two-party contract 
between the depositary and the ADR holders. The holders pay any fees 
relating to unsponsored ADRs, such as currency conversion fees, 
dividend distribution fees, and charges for other distributions and 
services. Under the deposit agreement for most unsponsored facilities, 
the depositary has no obligation to exercise voting rights on behalf of 
ADR holders, or to notify ADR holders about shareholder meetings or to 
distribute proxy information, annual reports, or other materials it 
receives from the foreign company.
2. Sponsored ADRs
    A sponsored ADR arrangement is effectively a three party-contract: 
it is established jointly by a deposit agreement between the foreign 
company whose securities will be represented by the ADRs and the 
depositary, with ADR holders as third-party beneficiaries. The foreign 
company generally bears some of the costs, such as dividend payment 
fees, but the ADR holders may pay other costs such as deposit and 
withdrawal fees. Under most sponsored ADRs, the depositary undertakes, 
at the foreign company's request (and at the company's expense), to 
arrange for the exercise of voting rights, the distribution of proxy 
materials, and the forwarding of shareholder communications to the ADR 
holders. Although the terms of the deposit agreement for a sponsored 
ADR are different from those of an unsponsored ADR, sponsorship does 
not lead to different reporting or registration requirements under 
either the Exchange Act or the Securities Act.
    Foreign companies undertaking public offerings or listings of ADRs 
in the United States, and which then become reporting companies under 
the Exchange Act, virtually always establish sponsored 
arrangements.\11\ The New York Stock Exchange (the ``NYSE'') and the 
American Stock Exchange (``AMEX'') will list only sponsored ADRs.\12\ 
In practice Nasdaq will also list only sponsored ADRs, although its 
rules do not contain such a requirement.\13\
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    \11\ Sponsored ADR facilities are described by market 
participants in terms of three categories based on the extent to 
which the foreign company has sought to access the U.S. capital 
markets. A ``Level I facility'' is a sponsored facility traded in 
the over-the-counter markets. A ``Level II facility'' denotes ADRs 
quoted on the Nasdaq Stock Market (``Nasdaq'') or listed on a 
national securities exchange when the ADRs have not been offered in 
a public offering in the United States (but are publicly traded in 
one or more markets outside the United States). A ``Level III 
facility'' refers to ADRs quoted on Nasdaq or listed on a national 
securities exchange following a U.S. public offering.
    \12\ See New York Stock Exchange (NYSE) Listed Company Manual, 
``Sponsored American Depositary Receipts or Shares,'' Section 
103.04; American Stock Exchange (AMEX) Constitution and Rules, 
``Original Listing Applications of Foreign Issuers,'' Section 220.
    \13\ See The Nasdaq Stock Market, ``Listing Requirements and 
Fees.''
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    The majority of non-Canadian foreign companies whose securities are 
listed both in the United States and on a non-U.S. exchange use ADRs to 
list in the United States. ADRs have developed as a cost effective and 
relatively efficient means to provide for the clearance and settlement 
of foreign securities, and distribution of dollar-denominated 
dividends, in the United States.

B. Other Forms in Which Foreign Securities Are Listed on U.S. Trading 
Markets

    Many foreign securities are listed in the United States in ordinary 
share form, without the use of ADRs. In this respect, these foreign 
securities are identical to securities of U.S. companies. For example, 
because the U.S. and Canadian securities markets and clearance and 
settlement systems developed along side one another over a long period 
of time, the markets have developed effective mechanisms that permit 
the same securities to list on a U.S. market and a Canadian market. As 
a result, Canadian companies list their securities in the United States 
without the use of ADRs. Some other foreign issuers, for example a 
number of Dutch issuers, issue a class of so-called ``New York shares'' 
rather than ADRs.
    There are some foreign companies whose sole trading market is in 
the United States and therefore do not need to have securities transfer 
arrangements in more than one country. These companies have a single 
transfer agent located in the United States. These companies, which are 
generally incorporated in Bermuda, the Bahamas or Cayman Islands, are 
identical to U.S. companies in this respect.
    Other foreign companies have created ``global share'' arrangements, 
in which the same security is traded in two markets without the use of 
ADRs.\14\ The first such global share arrangement was created in 
connection with Daimler-Benz's acquisition of Chrysler in 1998. Since 
that time, three other foreign companies listed in the United States 
have established global share arrangements: Celanese AG, UBS AG and 
Deutsche Bank.
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    \14\ Global shares allow foreign companies greater access to 
their shareholders, as they are no longer dependent on an ADR 
depositary bank for distribution of shareholder materials, 
tabulation of shareholder votes, distribution of dividends, and 
other shareholder services. They are also potentially attractive to 
investors wishing to trade foreign securities on a U.S. exchange, 
because investors who have purchased ordinary shares in a foreign 
market otherwise must first convert them into ADRs before being able 
to sell those securities on a U.S. exchange.
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C. Unsponsored ADR Facilities Relating to Listed Ordinary Shares

    Some market participants have proposed to establish unsponsored 
ADRs relating to shares of foreign issuers that are listed directly on 
a national securities exchange. These ADRs would bear a different CUSIP 
number from the underlying securities, each unsponsored ADR would 
represent a fraction or multiple of the underlying shares, and the 
unsponsored ADRs would trade in the over-the-counter market while the 
underlying shares would continue to trade on an exchange.
    The Commission is concerned that having listed shares and 
unsponsored ADRs for the same issuer could cause investor confusion and 
disadvantage investors who, by purchasing unsponsored ADRs, would not 
benefit from the same voting rights, shareholder communications and 
market liquidity as ordinary shareholders. We also are concerned that 
unsponsored ADRs representing listed shares might disadvantage foreign 
issuers that have chosen to list their shares directly by reducing the 
degree of control those companies retain over the form in which their 
securities trade in the United States compared to domestic issuers. The 
proposed amendment to Form F-6 is intended to address these concerns.

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II. Securities Act Registration and Eligibility Requirements for Form 
F-6

    For purposes of Securities Act registration, ADRs and the deposited 
securities are separate securities, requiring separate registration or 
exemption from Securities Act registration. The regulatory structure 
relating to ADRs was developed in 1955,\15\ and, other than a minor 
amendment in 1983, that structure remains in place today. The 
Commission has adopted Form F-6 specifically for the registration of 
ADRs,\16\ and this form may be used to register both sponsored and 
unsponsored facilities. A Form F-6 registration statement, which the 
depositary files with the Commission, must become effective before the 
depositary begins to accept deposits of securities and to issue ADRs. A 
Form F-6 registration statement contains no substantive disclosure 
about the foreign company whose securities the ADRs represent, and does 
not indicate where those securities are traded. The disclosure relates 
solely to the contractual terms of deposit.
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    \15\ In 1955, the Commission considered the regulatory framework 
for ADRs and permitted their registration on Form S-12, which was 
specifically adopted for the registration of ADRs [Securities Act 
Release No. 3593 (November 17, 1955)].
    \16\ Securities Act Release No. 6459 (March 24, 1983) [48 FR 
12348]. The adoption of Form F-6 replaced Form S-12.
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    Under the present eligibility requirements, ADRs may be registered 
under the Securities Act on Form F-6 if four conditions are satisfied:
    [sbull] The deposited securities are those of a foreign issuer;\17\
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    \17\ See General Instruction I.A. to Form F-6.
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    [sbull] the holder of the ADR has the right to withdraw the 
deposited securities at any time, subject to temporary delays, payment 
of fees and compliance with legal requirements;\18\
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    \18\ See General Instruction I.A.(1)(i)-(iii) to Form F-6.
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    [sbull] the deposited securities are exempt from Securities Act 
registration and freely tradable in the United States (for example, 
they are not restricted securities under Securities Act Rule 144) or 
are separately registered under the Securities Act;\19\ and
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    \19\ See General Instruction I.A.(2) to Form F-6.
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    [sbull] as of the filing date of the Form F-6, the foreign company 
is reporting under the periodic reporting requirements of Section 
13(a)\20\ or 15(d)\21\ of the Exchange Act or exempt from registration 
under Exchange Act Rule 12g3-2(b).\22\
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    \20\ 15 U.S.C. 78m(a).
    \21\ 15 U.S.C. 78o(d).
    \22\ See General Instruction I.A.(3) to Form F-6.
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    Form F-6 is signed and filed by the depositary bank and, for 
sponsored ADRs only, also by the foreign issuer and prescribed officers 
and directors. As a result, under the present eligibility requirements, 
a depositary bank could register and issue unsponsored ADRs relating to 
any foreign company that is registered under the Exchange Act and whose 
securities trade in the United States in ordinary share form.

III. Discussion of Proposed Changes

    We propose to add one new eligibility requirement to Form F-6, 
which would preclude the use of Form F-6 to register unsponsored ADRs 
if the shares of the foreign issuer to be deposited already trade in 
the United States in ordinary share form on a registered national 
securities exchange \23\ or an automated inter-dealer quotation system 
of a national securities association.\24\ The proposed requirement 
would prevent a depositary from establishing an unsponsored ADR 
facility relating to the shares of a foreign issuer that are already 
listed in the United States in ordinary share form. As discussed in the 
following sections, we believe various rationales support this 
amendment.
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    \23\ A ``national securities exchange'' is an exchange 
registered as such under section 6 of the Exchange Act [15 U.S.C. 
78f]. There are currently nine national securities exchanges 
registered under section 6(a) of the Exchange Act: AMEX, Boston 
Stock Exchange, Chicago Board Options Exchange, Chicago Stock 
Exchange, Cincinnati Stock Exchange, International Securities 
Exchange, NYSE, Philadelphia Stock Exchange and Pacific Exchange. In 
addition, an exchange that lists or trades security futures products 
(as defined in Exchange Act Section 3(a)(56) [15 U.S.C. 78c(a)(56)]) 
may register as a national securities exchange under Section 6(g) of 
the Exchange Act solely for the purpose of trading security futures 
products. Two have done so: NASDAQ Liffe and One Chicago.
    \24\ A ``national securities association'' is an association of 
brokers and dealers registered as such under Section 15A of the 
Exchange Act [15 U.S.C. 78o-3]. The National Association of 
Securities Dealers (NASD) is the only national securities 
association registered with the Commission under Section 15A(a) of 
the Exchange Act. The NASD partially owns and operates The Nasdaq 
Stock Market (Nasdaq). Nasdaq has filed an application with the 
Commission to register as a national securities exchange. In 
addition, Section 15A(d) of the Exchange Act [15 U.S.C. 78o-3(k)] 
provides that a futures association registered under Section 17 of 
the Commodity Exchange Act [7 U.S.C. 21] shall be a national 
securities association for the limited purpose of regulating the 
activities of members who are registered as broker-dealers in 
security futures products pursuant to Section 15(b)(11) of the 
Exchange Act [15 U.S.C. 78o(b)(11)].
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A. Investor Rights

    We are concerned that offering unsponsored ADRs for underlying 
securities of a foreign issuer that are also listed on a U.S. exchange 
or automated inter-dealer quotation system of a national securities 
association may create an imbalance between the information that ADR 
holders receive and the information that holders of the issuer's 
ordinary shares receive. Unsponsored ADR holders who neither receive 
shareholder communications nor enjoy voting rights are unable to 
participate in corporate actions or make fully informed investment 
decisions on equal footing with holders of the ordinary shares. The 
proposed amendment should benefit U.S. investors by ensuring that U.S. 
investors in equity securities of the same foreign issuer enjoy a 
similar level of shareholder rights.
Questions Related to Investor Rights
    [sbull] Do the purchasers of unsponsored ADRs understand the terms 
of the security? Specifically, do they understand the differences in 
dividends, voting, and other rights between the unsponsored ADR and the 
ordinary shares when those shares are listed on a registered national 
securities exchange or automated inter-dealer quotation system of a 
national securities association? What weight do investors give to the 
rights attached to security ownership in determining whether to 
purchase ADRs or ordinary shares?
    [sbull] Are investors aware, or are they made aware, by broker-
dealers or otherwise, of any differences in their rights as holders of 
unsponsored ADRs compared to their rights as ordinary shareholders? 
What obligations do broker-dealers have to provide this type of 
information to investors? What information do broker-dealers provide to 
investors in this area?
    [sbull] Is more disclosure about the differences between the rights 
of shareholders and unsponsored ADR holders necessary? If so, what 
additional disclosure would be helpful? Should these concerns be 
addressed by disclosure rather than by limiting the availability of 
unsponsored ADRs?

B. Potential for Investor Confusion

    Concurrent trading of global shares and unsponsored ADRs on 
different U.S. markets by U.S. investors may create an element of 
investor confusion. Investors may not be aware of the differences 
between the global shares and unsponsored ADRs, which generally have 
more restricted voting rights, limited availability of information to 
holders, higher fees, and more limited liquidity.
Questions Related to Investor Confusion
    [sbull] Would concurrent trading of unsponsored ADRs and global 
shares of the same issuer result in investor confusion? If so, would 
the confusion be disadvantageous to investors? What type

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of investors might be affected and how would they be disadvantaged?
    [sbull] Would different CUSIP numbers and different pricing,\25\ 
and the fact that the unsponsored ADRs and ordinary listed shares trade 
on different markets, be sufficient to prevent investor confusion? If 
not, how could investor confusion be further reduced? Would greater 
disclosure ameliorate the situation?
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    \25\ If an unsponsored ADR represented a multiple of underlying 
securities, presumably the ADRs and the underlying securities would 
trade at different prices.
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    [sbull] Who are the likely purchasers of these unsponsored ADRs? 
Are there circumstances where an unsponsored ADR is a more appropriate 
investment for a U.S. investor, or in which an investor may prefer to 
purchase unsponsored ADRs rather than the ordinary shares? If so, what 
are those circumstances?
    [sbull] Are there prohibitions, restrictions, or limitations on 
ownership by some U.S. investors of ordinary shares of a foreign 
company that are listed on a national securities exchange or automated 
system of a national securities association that would not apply in the 
case of ADRs representing those shares? To what type of investors would 
these restrictions apply?
    [sbull] Should Form F-6 be amended to require disclosure regarding 
the markets on which the deposited securities are traded? Would this 
disclosure be helpful to investors?

C. Equal Treatment of Foreign Issuers and Domestic Issuers

    The regulatory structure for ADRs under the Federal securities 
laws, in permitting a depositary to establish unsponsored ADRs without 
issuer participation, may disadvantage foreign issuers as compared to 
domestic companies. The Commission is of the view that a foreign 
company seeking full access to U.S. capital markets by listing on a 
U.S. exchange or Nasdaq should be able to retain a degree of control 
over the form in which its securities are traded comparable to that of 
a domestic issuer.
    The regulation of ADRs, in allowing for unsponsored facilities 
relating to shares of a foreign issuer that are listed in the United 
States in ordinary share form, may inadvertently operate to the 
detriment of foreign companies that have chosen to list their ordinary 
shares directly by facilitating an undesirable division in the market 
for their shares. For example, the ADRs relating to global shares would 
trade over-the-counter while the global shares themselves continue to 
trade on a registered national exchange. This potential does not exist 
for U.S. companies, to which Form F-6 does not apply.
    Our proposal to modify the eligibility requirements of Form F-6 to 
exclude its use to register unsponsored ADRs if the foreign company has 
listed the underlying securities directly in the U.S. market is 
intended to remedy this imbalance and place the ordinary shares of 
foreign companies on equal footing with the shares of U.S. issuers.
Questions Regarding Equal Treatment and Competitive Effects
    [sbull] Would a foreign issuer that has ordinary shares listed in 
the United States be placed at a competitive or other disadvantage with 
regard to either domestic companies, or to other foreign issuers, if an 
unsponsored ADR were created relating to the listed ordinary shares? If 
so, how? How would the possibility that an unsponsored ADR might be 
created affect the decision of a foreign issuer to seek a U.S. listing?
    [sbull] To what degree, if any, would unsponsored ADRs increase the 
risk of fragmentation and disorder in the market for securities of a 
listed foreign issuer?
    [sbull] Are there circumstances under which a foreign issuer would 
choose both to list its ordinary shares on a U.S. market and to sponsor 
an ADR facility relating to those securities? If so, under what 
circumstances? Would the sponsored ADRs and the underlying shares trade 
on the same U.S. market? Would they raise the same concerns related to 
investor rights and investor confusion? Would it be appropriate to 
defer to an issuer's choice to have its securities traded in both 
sponsored ADR form and ordinary share form?
    [sbull] Would the proposed amendment to Form F-6 create competitive 
burdens for depositaries or other ADR market participants? If so, what 
are those burdens and how could they be minimized or avoided?
    [sbull] Is the proposed amendment to Form F-6 appropriate to 
address these concerns?

D. Interference With the Corporate Governance Objectives of Foreign 
Companies

    As discussed above, some foreign companies have chosen not to have 
their securities trade as ADRs. Permitting unsponsored ADRs for listed 
securities may create a disincentive for foreign companies to list in 
global or ordinary share form. A foreign company's decision to list 
directly as a global or ordinary share may be based on corporate 
governance considerations, such as direct access to shareholders, and 
often entails a more costly procedure to coordinate the clearance and 
settlement systems in different jurisdictions. Unsponsored ADRs for 
listed shares may interfere with this decision by foreign companies, 
and may make foreign companies reluctant to enter or remain listed in 
the United States.
Questions Regarding Potential Interference With Corporate Governance 
Objectives of Foreign Issuers
    [sbull] What role do corporate governance issues, such as access to 
shareholders, play in a foreign issuer's determination of how it lists 
in the United States? Are unsponsored ADRs disadvantageous to foreign 
issuers from this perspective? If so, how?
    [sbull] Why do foreign issuers elect to list their securities in 
the form of global or ordinary shares? What are the advantages and 
disadvantages of these shares to market participants, including 
investors, broker-dealers, and exchanges? What are the costs, monetary 
and other, involved in listing directly global or ordinary shares as 
compared to ADRs? Would the possibility that an unsponsored ADR may be 
created deter foreign issuers from creating global shares?
    [sbull] Do investors prefer more direct access to issuers afforded 
by ownership of global or ordinary shares compared to unsponsored ADRs? 
Would they be likely to purchase global or ordinary shares over 
unsponsored ADRs for this reason? Do investors prefer more options in 
the form of securities available when investing in foreign issuers? Are 
issuers concerned if their securities trade in more than one form?

IV. General Request for Comments

    We request and encourage any interested persons to submit comments 
regarding:
    [sbull] The proposed changes that are the subject of this release,
    [sbull] Additional or different changes, or
    [sbull] Other matters that may have an effect on the proposals 
contained in this release, including whether there are other approaches 
or alternative means of addressing the concerns that it discusses.
    We request comment from the point of view of registrants, 
investors, depositaries, national securities exchanges, national 
securities associations and others who are involved in the market for 
ADRs and the securities of foreign issuers in the United States. With 
regard to any comments, we note that such comments are of greatest 
assistance to our

[[Page 54648]]

rulemaking initiative if accompanied by supporting data and analysis of 
the issues addressed in those comments.
    In addition to responding to the questions presented in this 
release, the Commission invites comments to supplement or correct the 
information and assumptions it contains related to:
    [sbull] The functioning of the ADR market,
    [sbull] The roles of market participants,
    [sbull] Advantages and disadvantages of unsponsored ADRs that 
either represent underlying shares that are listed in the U.S. or that 
duplicate sponsored ADRs,
    [sbull] The effects of unsponsored ADRs on investors, and
    [sbull] Any other related matters.

V. Paperwork Reduction Act

    The proposed amendment to Form F-6 contains ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\26\ We are submitting the proposed 
amendments to the Office of Management and Budget (``OMB'') for review 
in accordance with the PRA.\27\ The title for the collection of 
information is ``Form F-6.'' An agency may not conduct or sponsor, and 
a person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
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    \26\ 44 U.S.C. 3501 et seq.
    \27\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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    Form F-6 (OMB Control No. 3235-0292) prescribes information that an 
issuer must disclose to register American depositary receipts under the 
Securities Act. Preparing and filing a registration statement on Form 
F-6 is a collection of information. Respondents to this collection of 
information are institutions, usually U.S. banks or trust companies, 
that act as depositaries and establish ADR facilities. Foreign 
companies that sponsor ADR facilities are also respondents.
    The proposed amendment, if adopted, would add an eligibility 
requirement to Form F-6. The proposed eligibility requirement would not 
permit the use of Form F-6 to register ADRs that a foreign issuer has 
not sponsored if that issuer has listed its securities in ordinary 
share form on a national securities exchange or automated quotation 
system of a national securities association. We believe the proposed 
amendment would bring the ability of foreign companies to control the 
form in which their securities are traded in U.S. markets to a level 
comparable to that of domestic issuers and reduce the potential for 
investor confusion.
    We currently estimate that Form F-6 results in a total annual 
compliance burden of 2,550 hours and an annual cost of $765,000. The 
burden was calculated by multiplying the estimated number of 
respondents filing Form F-6 annually (150) by the estimated average 
number of hours each entity spends completing the form (34 hours). We 
estimate that 50% of the burden is prepared by the respondent (150 x 34 
x 0.50 = 2,550). We estimate that 50% of the burden is prepared by 
outside advisors retained by the respondent at an average cost of $300 
per hour (150 x 34 x 0.50 x $300 = $765,000). This portion of the 
burden is reflected as a cost.

A. Reporting and Cost Burden Estimates

    For our proposal regarding eligibility for use of Form F-6, the 
amount of information required to be included in a Form F-6 
registration statement would remain the same. Accordingly, for purposes 
of the Paperwork Reduction Act, our preliminary estimate is that the 
amount of time necessary to prepare the registration statement, and 
hence, the total amount of burden hours, would not change. However, 
there may be the possibility that determining eligibility for use of 
Form F-6 may result in the respondent investing more resources in 
technology, relying to a greater extent on outside advisors, or that 
the average cost associated with the portion of the burden prepared by 
outside advisors may increase. We request comment on whether, for 
purposes of the Paperwork Reduction Act, the burden will increase or 
decrease. If so, by what amount? Would the proposal have any other 
effect on the total compliance burden?
    We estimate that determining whether the proposed additional 
eligibility requirement for the use of Form F-6 is satisfied would add 
0.50 burden hours to each registration statement on Form F-6. Thus, we 
estimate this aspect of the proposal will add an additional 75 burden 
hours to the current Form F-6 (0.50 hours x 150 respondents). We 
estimate that 50% of the burden is prepared by the respondent (0.50 x 
150 x 0.50 = 37.5). We estimate that 50% of the burden is prepared by 
outside advisors retained by the respondent at an average cost of $300 
per hour (0.50 x 150 x 0.50 x $300 = $11,250). This portion of the 
burden is reflected as a cost.
    As a result, we estimate the total annual compliance burden for 
Form F-6 after our proposed revisions to be 2,587.5 hours and an annual 
cost of $776,250, an increase of 37.5 hours and $11,250 in cost. 
Compliance with the revised eligibility requirements for Form F-6 would 
be mandatory. There would be no mandatory retention period for the 
information disclosed, and responses to the requirements would not be 
kept confidential. We do not believe that the imposition of this 
requirement would alter significantly the number of respondents that 
file registration statements on Form F-6.

B. Request for Comment

    We request comment in order to:
    [sbull] Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;
    [sbull] Evaluate the accuracy of our estimates of the burden of the 
proposed collections of information;
    [sbull] Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
    [sbull] Evaluate whether there are ways to minimize the burden of 
the collections of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
    [sbull] Evaluate whether the proposed amendments will have any 
effects on any other collections of information not previously 
identified in this section.
    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the collection of 
information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
send a copy of the comments to Jonathan G. Katz, Secretary, Securities 
and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549, 
with reference to File No. S7-16-03. Requests for materials submitted 
to the OMB by us with regard to these collections of information should 
be in writing, refer to File No. S7-16-03, and be submitted to the 
Securities and Exchange Commission, Records Management, Office of 
Filings and Information Services, 450 Fifth Street NW., Washington DC 
20549. Because the OMB is required to make a decision concerning the 
collections of information between 30 and 60 days after publication, 
your comments are best assured of having their full effect if the OMB 
receives them within 30 days of publication.

[[Page 54649]]

VI. Cost-Benefit Analysis

    Globalization of capital markets and technological developments 
have contributed to increased interest among U.S. investors in foreign 
securities. Those factors also have led a greater number of foreign 
companies to list their shares directly in the United States. We are 
proposing to amend Form F-6 to not permit registration of unsponsored 
American depositary receipts relating to shares of foreign companies 
that are listed on a national securities exchange or automated 
quotation system of a national securities association. We are sensitive 
to the costs and benefits of our proposal, which we discuss below.

A. Expected Benefits

    The proposed amendment to Form F-6 should benefit both U.S. 
investors and foreign issuers who have their shares listed directly in 
the United States. The proposed amendment should benefit U.S. investors 
by ensuring that equity investors in the same foreign issuer enjoy a 
comparable level of shareholder rights. Unlike ordinary or global 
shareholders, unsponsored ADR holders typically neither receive 
shareholder communications from the issuer nor enjoy voting rights, and 
are therefore less able to participate in corporate actions. By 
eliminating unsponsored ADRs for listed foreign securities, the 
proposed amendment would provide that U.S. investors in equity 
securities of the same foreign company benefit from the rights attached 
to holding ordinary or global shares.
    We also expect that the proposed amendment would benefit investors 
by minimizing potential confusion between unsponsored ADRs that trade 
in the over-the-counter market and global or ordinary shares of the 
same foreign issuer that trade on an exchange or automated quotation 
system of a national securities association. We also anticipate that 
because the proposed rule may encourage more foreign issuers to seek 
listings of their shares in the United States in ordinary or global 
share form, U.S. investors may benefit by having a greater number of 
foreign issuers in which they may invest directly.
    Foreign issuers who have chosen to list their shares directly on a 
U.S. exchange or automated quotation system of a national securities 
association should, as a result of the proposed amendment, have more 
control over the form in which their securities are traded in the 
United States. This should discourage the detrimental segmentation of 
the market for their shares in the United States and avoid a potential 
imbalance as compared to the shares of U.S. issuers, for which a 
depositary would be less likely to create a depositary receipt. We 
believe this may encourage more foreign companies to enter U.S. capital 
markets.
    Foreign issuers may choose to list as global or ordinary shares 
directly in the United States for reasons related to corporate 
governance, including more direct access to U.S. shareholders. This 
decision to pursue a direct listing may entail greater financial, 
administrative and other costs to the company, as compared to listing 
in ADR form. The proposed amendment, if adopted, should allow foreign 
issuers that have chosen to list their shares directly in the United 
States to derive more completely the intended benefits of a direct 
listing as compared to listing as an ADR, and for which they have 
undertaken the greater expense.

B. Expected Costs

    The proposed amendment to Form F-6 may result in some costs to 
institutions that act as depositaries and other participants in the ADR 
market. If the amendment were adopted, depositaries seeking to 
establish unsponsored ADRs would be required to ascertain whether the 
securities of the foreign issuer to be deposited were already listed on 
a national exchange or automated quotation system of a national 
securities association. This would increase the time necessary to 
prepare a Form F-6 registration statement. For purposes of the PRA, we 
have estimated that the proposed amendment would increase the annual 
compliance cost for Form F-6 by 37.5 hours and $11,250. The proposed 
amendment also may create a competitive cost to depositaries, which 
would no longer be able to establish unsponsored ADRs to compete with 
directly listed foreign securities.
    The proposed amendment may also create a cost to investors who may 
prefer ADRs as the form in which they invest in a foreign company. To 
the extent unsponsored ADRs for listed companies would no longer be 
permitted if the proposal were adopted, the investment choice of these 
investors may be limited. These other costs are difficult to quantify.

C. Comment Solicited

    We request your views on the costs and benefits described above, 
particularly with regard to the questions raised in Sections III and 
IV, as well as on any other costs and benefits that could result from 
adoption of the proposed amendment to Form F-6. For example, what 
benefits do unsponsored ADRs that relate to listed securities bring to 
depositaries, investors or others? What effect would eliminating this 
particular product have on depositaries, investors or others? Would 
those parties incur a cost if the ADRs were not available? Would there 
be any effect on the trading of other securities? What is the likely 
economic impact of these or other costs or benefits? Can they be 
quantified in any meaningful way? If so, how and what conclusions 
should be drawn? The Commission also requests data to quantify the 
expected costs and the value of the anticipated benefits.

VII. Regulatory Flexibility Act Certification

    The Commission hereby certifies pursuant to 5 U.S.C. 605(b), that 
the amendment to Form F-6 under the Securities Act contained in this 
release, if adopted, would not have a significant economic impact on a 
substantial number of small entities. The proposal would add one new 
eligibility requirement to Form F-6 that would preclude the use of Form 
F-6 to register unsponsored ADRs if the shares of the foreign issuer to 
be deposited already trade in the United States in ordinary or global 
share form on a registered national securities exchange or an automated 
quotation system of a national securities association. Unsponsored ADR 
facilities are established by institutions that act as depositaries, 
which are typically large banks; these depositaries are not small 
entities. The ordinary or global shares underlying the unsponsored ADRs 
are listed foreign issuers; these foreign issuers are not small 
entities.\28\ The ordinary or global shares underlying the unsponsored 
ADRs are listed on registered securities exchanges or an automated 
quotation system of a national securities association; these exchanges 
and national securities associations are not small entities. For this 
reason, the proposed amendment should not have a significant economic 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \28\ Based on an analysis of the language and legislative 
history of the Act, Congress does not appear to have intended the 
Regulatory Flexibility Act to apply to foreign issuers.
---------------------------------------------------------------------------

    We encourage written comments regarding this certification. We 
solicit comment as to whether the proposed changes could have an effect 
that we have not considered. We request that commenters describe the 
nature of any impact on small entities and provide

[[Page 54650]]

empirical data to support the extent of the impact.

VIII.Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\29\ a rule is ``major'' if it has resulted, or is likely 
to result in:
---------------------------------------------------------------------------

    \29\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

    [sbull] An annual effect on the economy of $100 million or more;
    [sbull] A major increase in costs or prices for consumers or 
individual industries; or
    [sbull] Significant adverse effects on competition, investment or 
innovation.
    We request comment on the potential impact of the proposed 
amendments on the economy on an annual basis. Commenters are requested 
to provide empirical data and other factual support for their views if 
possible.
    Section 2(b) of the Securities Act \30\ and Section 3(f) of the 
Exchange Act \31\ require us, when engaging in rulemaking that requires 
us to consider or determine whether an action is necessary or 
appropriate in the public interest, to consider whether the action will 
promote efficiency, competition, and capital formation. Section 
23(a)(2) of the Exchange Act \32\ requires us, when adopting rules 
under the Exchange Act, to consider the impact that any new rule would 
have on competition. In addition, Section 23(a)(2) prohibits us from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 77b(b).
    \31\ 15 U.S.C. 78c(f).
    \32\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The purpose of this proposed amendment is to improve the ability of 
foreign companies to control the form in which their securities are 
traded in U.S. markets and to avoid potential investor confusion. We 
think that the proposal would promote efficiency by enhancing the 
ability of foreign issuers to access their U.S. shareholders. We also 
believe that the proposal would update the regulatory framework for 
ADRs to reflect the globalization and technological developments that 
have occurred in securities markets, eliminate the potential for 
differential treatment between foreign issuers with directly listed 
shares and domestic issuers, and make the U.S. capital markets more 
attractive to foreign issuers. In fact, we expect that the proposals 
would enhance competition among foreign issuers seeking to list in the 
United States by encouraging them to list in ordinary or global share 
form. The proposal may create a competitive burden for depositaries 
that would seek to establish unsponsored ADR facilities relating to 
foreign shares that are listed in the United States, and to any 
investors who would prefer to own such ADRs rather than ordinary 
shares.
    We solicit comment on these matters with respect to the proposed 
rules. Would the proposals have an adverse effect on competition that 
is neither necessary nor appropriate in furtherance of the purposes of 
the Securities Act? Would eliminating the use of Form F-6 for 
unsponsored ADRs related to listed securities give an unfair advantage 
to other market participants? Would the proposed amendments, if 
adopted, promote efficiency, competition and capital formation? 
Commenters are requested to provide empirical data and other factual 
support for their views, if possible.

IX. Statutory Basis and Text of Proposed Rule Amendment

    We propose the amendment to Securities Act Form F-6 pursuant to 
sections 6, 7, 10, and 19 of the Securities Act, as amended,\33\ and 
sections 12, 13, 15(d), and 23(a) of the Exchange Act.\34\
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 77f, 77g, 77j, and 77s.
    \34\ 15 U.S.C. 78l, 78m, 78o(d), and 78w.
---------------------------------------------------------------------------

Text of Proposed Amendment

List of Subjects in 17 CFR Part 239

    Reporting requirements, Securities.
    In accordance with the foregoing, we propose to amend Title 17, 
Chapter II of the Code of Federal Regulations as follows:

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    1. The authority citation for part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c, 
78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 
79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24, 80a-26, 80a-29, 80a-30, and 
80a-37, unless otherwise noted.
* * * * *
    2. Amend Form F-6 (referenced in Sec.  239.36), General Instruction 
I.A., by adding paragraph 4 to read as follows:

    Note: The text of Form F-6 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM F-6

* * * * *

General Instructions

I. Eligibility Requirements for Use of Form F-6

    A. General.
* * * * *
    (4) The deposited securities are not listed on a registered 
national securities exchange or automated inter-dealer quotation system 
of a national securities association, unless the issuer of the 
deposited securities sponsors the ADR arrangement.
* * * * *

    By the Commission.

    Dated: September 11, 2003.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-23737 Filed 9-16-03; 8:45 am]
BILLING CODE 8010-01-P