Thank you, Chairman Atkins, and thank you to the SEC staff for your presentation. One central issue that underpins today’s concept release is whether, and to what extent, the substance and frequency of disclosure by foreign issuers should differ from U.S. issuers when raising capital in the United States. How do we promote capital formation for companies and investment opportunities for investors, while minimizing the likelihood that foreign competitors might leverage regulatory vacuums to obtain a competitive advantage over their U.S. peers?

Today’s concept release contains extensive data with respect to foreign private issuers (FPI) and how the universe of such companies has changed over the past two decades. As a proponent of data-based policymaking, I find the work of the SEC economists helpful, and that data is included in the concept release. Such data analysis provides a good reason to reassess the FPI definition and the current regulatory regime.

It has been nearly half a century since the Commission last considered this question. The core requirements of the federal securities laws are based on the obligation of securities issuers to provide timely financial information and other material disclosures.[1] In a similar vein, it is important for SEC regulations to remain timely and relevant. I am pleased that today’s concept release attempts to address core capital market issues.

A year ago, I suggested that to mitigate the confusion and inconsistency caused by recent SEC rulemakings with respect to foreign private issuer disclosure, the agency should consider publishing its views in a white paper or concept release, and soliciting public feedback, on what principles should guide future FPI rulemakings.[2]Today, we are following through on that suggestion. I hope that the concept release will provide sufficient public comment on whether the Commission should revise its FPI regulatory framework—one that does not elevate legal form over economic substance.

Companies that qualify for foreign private issuer status benefit from accommodations that provide full or partial relief from domestic issuer disclosure requirements. This framework recognizes that foreign private issuers are subject to disclosure practices in their home jurisdictions, while maintaining regulatory standards that align with the federal securities laws.

Balancing these considerations requires evaluations of market data and a comparative look at foreign regulatory requirements. In adopting Form 20-F in 1979, the Commission stated that “[U.S.] investors in foreign securities should be supplied with information equal as nearly as possible and practicable to that provided to investors in securities of domestic issuers.”[3] However, as the agency also stated at the time, “[t]he examination of…securities regulation in international markets…should be…continuing and evolutionary…”[4]

Staff in the Division of Economic and Risk Analysis, the Office of International Corporate Finance, and the Office of International Affairs have analyzed market data and legal requirements to inform the discussion in this concept release—with a view to re-thinking the regulatory framework for U.S. investors and foreign issuers that are traded in U.S. capital markets.

A recent DERA study on this subject noted that “FPIs are increasingly relying on the U.S. securities market for the trading of their equity securities in more recent years … which contrasts with the notion that FPIs generally have their equity securities cross-listed on a foreign stock exchange.”[5]

One potential impact of this trend is whether foreign private issuers are subject to equivalent disclosure rules in other jurisdictions. There may be “less information about 20-F FPIs being made available to U.S. investors than in the past, due to the FPI disclosure accommodations and their interaction with home country requirements.”[6] This trend may increase investment risks for U.S. investors—and may also create unfair competitive advantages. It may also interfere with price discovery and reduce the potential benefits of the efficient market hypothesis.

These are areas of significant regulatory concern. Investment risks due to materially incomplete disclosure runs counter to the fundamental purpose behind U.S. securities laws. Further, unfair competitive advantages create artificial barriers to capital formation for the companies that are negatively impacted by such advantages—whether they be non-FPIs or other FPIs.

Any regulatory answer to the questions in today’s concept release should be based on ensuring that the SEC’s treatment of foreign issuers reflects today’s global capital markets and does not place U.S. companies at a competitive disadvantage or deprive U.S. investors from receiving appropriate disclosure. Informational asymmetries can increase investment risks and raise the cost of capital to compensate for such risk.

Notwithstanding these concerns, it is important to note that we have not seen to date large scale market failures from the differing disclosure regimes for U.S. issuers and foreign private issuers. To the extent that there have been issues with respect to FPIs, they often involve outright fraud and material misstatements and omissions.

In other words, fraud can occur irrespective of the form the issuer files—or the exemption the issuer relies on. In balancing investor protection considerations, we should be mindful that U.S. investors benefit from the ability to diversify their holdings through ownership of foreign securities.

I look forward to hearing the public’s thoughts on this issue—the views and experiences of both investors and market professionals. Today’s efforts are another step in getting us off in the right direction. Effective rulemaking is developed by actively engaging with the public. We have an opportunity to improve and modernize our regulatory framework by enhancing the quality of FPI disclosure and considering what rules of our regulatory regime should apply to such companies.

I thank the staff in the Division of Corporation Finance, the Division of Economic and Risk Analysis, the Office of International Affairs, the Office of the General Counsel, and the many other offices that have contributed to this concept release. Their hard work and expertise benefit our capital markets.