Anne McBride, Dec 19, 2005

Signaling that the SEC has become more amenable to addressing concerns of the companies it regulates, the Commission voted this week to address certain rules that have been the subject of many complaints. The media has focused on one of the proposed rules/changes that would make it easier for foreign companies to stop registering with the SEC and avoid U.S. financial reporting obligations.

We agree that in the short-run, certain foreign companies, that believe SEC regulations including Sarbanes-Oxley, are too costly, and may choose to deregister. However, more importantly, the ability to more easily exit the U.S. market should persuade even more foreign companies to list in the U.S. over the longer-term. SEC Chairman Christopher Cox states, “This additional flexibility should encourage foreign issuers to list in U.S. exchanges because it will provide them a more clearly defined exit strategy.” The agency will solicit comments on the rules for two months before they are voted as final.

The SEC will generally look at U.S. investor ownership and U.S. trading volume to determine if a foreign company is eligible to deregister. The SEC resisted calls by some to focus solely on trading volume because it wanted to protect the interests of U.S. investors. SEC Corporation Finance division chief, Alan Beller, said “I know of a couple companies that have low U.S. trading volume but high U.S. ownership, so investor protection would not be accomplished using only a trading threshold.”

In other signs that the SEC is loosening the reins, the SEC’s advisory committee on small business voted to ask the Commission to permit many small-cap companies to avoid having their internal controls certified by auditors. The New York Times noted that the guidelines (if enacted) “would exempt 80 percent of American companies from having to comply fully with the Sarbanes-Oxley Act.” Further, the SEC approved a final rule to give large companies an extra year before requiring them to accelerate their filing of annual reports.

The Wall Street Journal on December 15th reported on U.S. investors’ enthusiasm for foreign stocks. The article explains, “The Treasury Department…is expected to release figures showing that American net purchases of stocks outside the U.S. in the first 10 months of 2005 are on a pace to smash their 2003 record of $88.6 billion.” The article noted that U.S. investor interest in foreign equities appears to be a long-term trend.

The growing influence of U.S. investors on foreign companies is prodding overseas firms to enhance disclosure and transparency and focus more intently on increasing shareholder value. Our position therefore is that overseas companies, whether registered with the SEC or not, still need to follow best practices from an investor relations standpoint, both to attract U.S. investors as well as keep pace with their competitors. We believe that the SEC’s willingness to positively react to the concerns of both U.S. and foreign companies should make the U.S markets an even more popular destination.

A happy and healthy holiday to all and we look forward to seeing you in 2006.

Sincerely,

Anne McBride
Vice Chairman, Global Investor Relations & Financial Communications
The Global Consulting Group
22 Cortlandt Street
New York, NY 10007
T: 646-284-9431 | F: 646-284-9485 | E: amcbride@hfgcg.com
www.hfgcg.com

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