As discussed at an open meeting held on June 4, 2025, the US Securities and Exchange Commission (Commission) published a concept release (Release) soliciting comments on whether to revise the definition of “foreign private issuer” (FPI) under Commission rules in light of considerable changes to the FPI population over the past two decades. The public comment period expires 90 days following publication of the comment request in the Federal Register.
In this alert, we present a brief background of the genesis of the current definition of FPI and highlight five key changes proposed by the Commission. In a subsequent article, we will do a deeper dive into certain factual reasons noted by the Commission as to why it may be appropriate to reassess the definition of FPI.
Background
In 1983, the Commission developed the current definition of FPI through a set of eligibility criteria to determine whether a foreign issuer is “essentially [a] US issuer” due to the extent of its US shareholder base or business contacts. Under the definition, a foreign issuer is an FPI if either of the following criteria are met:
- Shareholder test: 50 percent or less of the issuer’s outstanding voting securities are held of record by US residents, or
- Business contacts test: If more than 50 percent of the issuer’s outstanding voting securities are held of record by US residents, and none of the following is the case: (i) the majority of the issuer’s executive officers or directors are US citizens or residents, (ii) more than 50 percent of the issuer’s assets are located in the US, or (iii) the issuer’s business is administered principally in the US.
A foreign issuer that fails both tests does not qualify as an FPI and must file on the same basis as a domestic US entity. Because accessing US investors is a primary reason foreign issuers enter the US markets, it is commonly the case that FPIs eventually fail the shareholder test, making it critical for them to pass all three prongs of the business contacts test in order to maintain their FPI status.
FPI status provides significant accommodations and exemptions from disclosure and filing requirements of the federal securities laws and certain corporate governance requirements of the New York Stock Exchange and the Nasdaq Stock Market. The advantages bestowed on FPIs under US securities laws were premised on the Commission’s understanding that most FPIs would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions.
The changes proposed in the Release reflect the Commission’s concern that the current FPI definition and regulatory framework may no longer align with the realities of today’s global markets, particularly given the increasing number of FPIs with little or no meaningful foreign regulatory oversight and whose securities are traded almost exclusively in the US. In issuing the Release, the Commission’s focus is on ensuring appropriate investor protections, maintaining fair competition, and promoting capital formation while updating the FPI framework to reflect these evolving market dynamics.
The proposed changes
1. Updating the existing FPI eligibility criteria
The Commission is considering revising the current definition of FPI, which is based on a bifurcated test involving US ownership and business contacts. Potential changes include lowering the 50 percent threshold of US holders in the shareholder test, revising the criteria for the business contacts test (such as adjusting the threshold for US assets), or adding new criteria to better capture issuers that should or should not benefit from FPI accommodations. The goal is to ensure that only those foreign issuers that are truly subject to meaningful home country regulation and oversight receive the regulatory flexibilities intended for FPIs.
2. Implementing a foreign trading volume requirement
The Commission is considering adding a foreign trading volume test as a condition for FPI status. This would require FPIs to have a certain percentage of their securities’ trading volume occur on non-US markets over a specified period (eg, one, three, five, ten, fifteen, or fifty percent). The rationale is that issuers with meaningful trading outside the US are more likely to be subject to home country oversight and disclosure requirements. This change is aimed at addressing the growing number of FPIs whose securities are traded almost exclusively in US markets and may not be subject to robust foreign regulation.
3. Requiring a major foreign exchange listing
The Commission is seeking comment on whether FPIs should be required to be listed on a “major foreign exchange” as a condition of eligibility. This would help ensure that FPIs are subject to meaningful regulation and oversight in a foreign market, and that there are market incentives for timely and material disclosure to investors. The Commission is considering how to define a “major foreign exchange,” possibly by setting specific criteria such as market size, governance requirements, and disclosure standards.
4. Commission assessment of foreign regulation
Another approach under consideration is to require that FPIs be incorporated or headquartered in jurisdictions that the Commission has determined to have robust regulatory and oversight frameworks. The Commission would assess whether a foreign jurisdiction’s securities regulation is sufficient to protect US investors, considering factors such as disclosure requirements, enforcement mechanisms, and the effectiveness of regulatory oversight. This would ensure that only issuers from jurisdictions with adequate investor protections could benefit from FPI accommodations.
5. Mutual recognition systems and international cooperation arrangements
The Commission is exploring the possibility of establishing mutual recognition systems with selected foreign jurisdictions, similar to the existing Multijurisdictional Disclosure System (MJDS) with Canada. Under such systems, eligible issuers could fulfill US registration and reporting requirements primarily by complying with their home country’s regulations, provided those regimes offer comparable investor protections. Additionally, the Commission is considering requiring that FPIs be subject to the oversight of a foreign securities authority that is a signatory to international cooperation agreements, such as the International Organization of Securities Commissions’ Multilateral Memorandum of Understanding (MMoU) or Enhanced MMoU, to facilitate enforcement and information sharing.
Conclusion
In light of significant changes in the global capital markets and characteristics of FPIs since the last Commission review of the FPI requirements, it is no surprise that the Commission is taking a hard look at the accommodations available to such companies. The Release includes an analysis of considerable data gathered from disclosures included in Annual Reports on Form 20-F and Form 40-F filed with the Commission and related statistics from the past two decades, including jurisdictions of incorporation and headquarters, global market capitalizations, and trading patterns of the equity securities of such FPIs in the US market.
The changes proposed by the Commission attempt to balance the accommodations and exemptions under the federal securities laws necessary to attract foreign companies to US markets while protecting US investors and ensuring that domestic companies are not competitively disadvantaged with respect to regulatory requirements.
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