In an American Depositary Receipt program, Securities Act Rule 405 defines the depositary share that the receipt evidences as a security representing what?

An unsecured claim on the depositary bank for the market value of the foreign shares it holds in custody

A foreign security deposited with a depositary, or a multiple of such a security or a fraction of one

A whole number of the foreign issuer's shares, held by the depositary in the name of the receipt holder

A dollar-denominated debt obligation of the foreign issuer, secured on the shares held by its custodian

Form F-6 carries a condition about how the deposited securities were originally offered or sold. Which offering history satisfies it?

A sale made on a foreign exchange the SEC has designated, whatever registration status the same sale would have had under United States law

A sale registered under the Securities Act and nothing else, so the deposited shares must have passed through SEC registration at some earlier point

A sale registered under the Securities Act, or one that would have been exempt from registration had it been made in the United States

A sale approved by the issuer's home regulator, the SEC deferring to that approval in place of any test drawn from United States securities law

Form F-6 normally requires that, at filing, the foreign issuer either reports under Section 13(a) or 15(d) of the Exchange Act or has the deposited securities exempt under Rule 12g3-2(b). A foreign issuer that satisfies neither is preparing to register its ordinary shares for a United States offering, and its depositary wants to file a Form F-6 for receipts over them. When can the depositary use the form?

When the foreign issuer has applied to a United States exchange to list the receipts, the listing application standing in for its missing reports

When the depositary undertakes in the deposit agreement to publish the foreign issuer's home country disclosure in English on the issuer's behalf

When the depositary obtains a letter from the foreign issuer's home regulator confirming that the issuer is in good standing under home country law

A proposed deposit agreement would let the depositary refuse to release the deposited shares to surrendering holders whenever it judges that withdrawals would depress the price of the American Depositary Receipts. Can the depositary shares be registered on Form F-6 under that agreement?

Yes, because the form leaves the terms on which holders may take out the deposited securities to be agreed between the depositary and the issuer in the agreement

No, because withdrawal may be held up by nothing beyond temporary delays of the kinds the form lists, charges such as fees and taxes, and legal requirements

Yes, provided the agreement discloses the price-support power to holders and the depositary keeps each refusal in place no longer than the issuer's transfer books stay closed

No, because the form requires the depositary to release the deposited securities on demand and allows no fee, tax or other charge to hold up the withdrawal

Rule 466 lets a depositary designate when a Form F-6 becomes effective where an earlier Form F-6 of its own, declared effective by the SEC, carried identical terms of deposit. Which difference between the earlier and the new terms still allows the designation?

A change in the circumstances in which holders may withdraw the deposited shares, provided the new terms are more generous to the holders

A change in the fees the depositary charges holders, fees being set aside because they are disclosed on the face of the receipts themselves

A change in how many foreign securities each depositary share represents, the ratio being set aside when the two sets of terms are compared

A change in the law governing the deposit agreement, provided the depositary certifies that the holders' rights are unaffected by the change

Under Rule 466, where must a depositary set out its designation of the date and time a Form F-6 registration statement is to become effective?

In a post-effective amendment filed after the registration statement, an amendment of that kind needing the SEC's written consent before the designation can operate

In a separate written request delivered to the SEC's staff, which becomes binding on the SEC once its staff has acknowledged receipt of the request from the depositary

In the deposit agreement filed as an exhibit to the registration statement, the designation taking effect once the foreign issuer has countersigned that agreement

On the facing page of the registration statement or in a pre-effective amendment, an amendment properly carrying it being deemed filed with the SEC's consent

On which ground may the SEC suspend a depositary's ability to designate the effectiveness of its Form F-6 registration statements under Rule 466?

A registration statement carrying a designation turns out to be materially incomplete or inaccurate, even one that has already become effective

Receipts registered on an earlier Form F-6 have traded below the value of the foreign shares behind them for a sustained period

The foreign issuer of the deposited securities has fallen behind in its Exchange Act reports, though every Form F-6 is accurate

A designating registration statement has not yet become effective and the SEC's staff has not completed its own review of it

The SEC has suspended a depositary's ability to designate effectiveness under Rule 466 while one of its Form F-6 registration statements is still pending. What becomes of that pending registration statement?

It stays on file and becomes effective on the date the depositary designated, because the suspension reaches only registration statements the depositary files after the notice

It stays on file and goes on to become effective in the ordinary way, the suspension reaching only the depositary's power to designate its effective date

It stays on file but cannot become effective by any route while the suspension lasts, the suspension freezing every pending filing of the depositary

It stays on file but becomes effective only once the foreign issuer files its own registration statement for the deposited securities alongside it

The SEC decides to suspend a depositary's ability to designate effectiveness under Rule 466. When does the suspension begin, and how long does it last?

It begins when the depositary next files a Form F-6, and it lasts until the SEC has completed its review of that particular registration statement and declared it effective

It begins when the SEC publishes its order in the Federal Register, and it lasts for a fixed period of one year unless the depositary's petition succeeds sooner

It begins when the SEC furnishes written notice of it to the depositary, and lasts until the SEC gives the depositary written notice that it has ended

It begins on the date of the registration statement found deficient, and it lasts until a hearing on the matter has either confirmed the suspension or lifted it

Two of Rule 12h-6's conditions for a class of equity securities look at trading outside the United States: the trading volume benchmark that United States volume must stay within, and the condition that the issuer have maintained a listing of the class abroad. Which trading outside the United States does each look to?

The benchmark compares United States volume with primary-market volume, while the listing condition can be met by a listing on any foreign exchange

Both look to the primary trading market, the benchmark comparing United States volume with volume on the exchanges that make up that market

Both look to worldwide trading, the listing condition being met by any combination of foreign exchanges on which the class happens to be listed

The benchmark compares United States volume with worldwide volume, while the listing condition looks to exchanges forming the primary trading market

Rule 466 lets a depositary designate the effective date of a new Form F-6 where it has an earlier Form F-6 of its own, declared effective by the SEC, with identical terms of deposit. What does the rule require of that earlier registration statement as to the foreign issuer whose securities it covered?

It may have covered receipts over a different foreign issuer's securities, the rule's comparison being confined to the terms of deposit

It must have covered the same foreign issuer's securities, though receipts over another class of that issuer's securities will serve

It must have covered the same foreign issuer and the same class of its securities, so each new issuer's first Form F-6 waits for the SEC

It may have covered another foreign issuer's securities where both issuers are organised under the law of the same home country

Rule 144A attaches several conditions to a resale. One of them concerns what the purchaser is to know about the seller's position. What does that condition require?

That the purchaser acknowledge it has received and reviewed the issuer's offering memorandum before it commits to buy the securities in the resale

That the purchaser represent in writing that it understands the securities are restricted and will not be resold except to another qualified buyer

That the seller take reasonable steps so that the purchaser knows the seller is relying on the resale exemption from Section 5

That the seller deliver a written statement of the risks of the securities to the purchaser, and obtain the purchaser's signature on it at the sale

A foreign issuer sells Global Depositary Receipts in an offering it is making under Regulation S. Which of these sales is made in an offshore transaction?

A sale to members of the United States armed forces stationed in Germany, in a campaign directed specifically at that group of investors

A sale to an investor resident in Singapore who placed the buy order during a business trip to New York, after an offer was made to the investor there

A sale to a fund manager in London who was offered the receipts by telephone while visiting clients in Boston and placed the order from London

A sale to an investor in Singapore who was in Singapore when the buy order was originated, the offer not having been made to anyone in the United States

For a Regulation S offering of depositary receipts, how is the bar on directed selling efforts in the United States defined?

As activity aimed at, or that could reasonably be expected to result in, preparing the United States market to receive the securities on offer

As any sale to a United States person completed before the distribution compliance period expires, however the distributor came to find the buyer

As any communication sent to a person in the United States that identifies the securities and states the price at which they are offered

As any purchase of the securities by a distributor for resale, unless that distributor has first agreed in writing to the offering restrictions

A foreign issuer reasonably believes at the start of its Regulation S equity offering that there is no substantial U.S. market interest in the class. What conditions apply to the offering?

The general conditions, plus a notice filed with the SEC once the offering is complete reporting how many securities were sold and to whom

No more than the general conditions: an offshore transaction, and no directed selling efforts in the United States by the issuer, distributors or affiliates

The general conditions, plus a legend on the securities and a written agreement by each purchaser not to engage in hedging transactions in them

No conditions of any kind, the absence of United States market interest putting the offering beyond the reach of Section 5 without more

Over its prior fiscal year a foreign issuer's ordinary shares traded 26 percent on United States exchanges and quotation systems (largely as depositary receipts), 62 percent in its home country and 12 percent elsewhere. Is there substantial U.S. market interest in the class for Regulation S purposes?

Yes, since depositary receipt trading is counted apart from trading in the ordinary shares, and the receipts' largest market by far is the one in the United States

Yes, since United States trading reached 20 percent of the total, and a share of that size establishes substantial U.S. market interest whatever share the home market carries

No, since the United States was not the single largest market and the home country carried at least 55 percent, so the 20 percent test is not met

No, since substantial U.S. market interest in an equity class is measured by the number of United States holders of record and not by where the class trades

In a Category Two Regulation S offering of a reporting foreign issuer's equity, a distributor sells part of its allotment to a dealer before the 40-day distribution compliance period ends. What must the distributor do?

Report the sale to the SEC within ten days, identifying the dealer and confirming that the dealer is not buying for the account of any United States person

Obtain the dealer's written undertaking to hold the securities until the compliance period has ended, and lodge that undertaking with the issuer before the sale

Have the issuer place a legend on the securities barring their transfer except in accordance with Regulation S, and tell the dealer the legend is there

Send the dealer a confirmation or other notice stating that it is subject to the same restrictions on offers and sales that apply to a distributor

A foreign issuer that files no Exchange Act reports has substantial U.S. market interest in its shares and offers them offshore under Regulation S. What must each purchaser other than a distributor do during the distribution compliance period that a Category Two purchaser is not asked to do?

Certify that it is not a United States person buying for one, or bought without needing registration, and agree to resell under Regulation S, registration or an exemption

Certify that it is a qualified institutional buyer, and agree to resell the shares only to another qualified institutional buyer during the compliance period

Deposit the shares with a depositary bank for the length of the compliance period, and accept receipts in their place until that period has ended

Certify that it has held other securities of the issuer for at least a year, and agree to report any resale to the issuer within ten days of making it

In a Regulation S offering, when does the distribution compliance period begin?

On the earlier of the date the securities are first offered to persons other than distributors and the date the offering closes

On the later of the date the securities are first offered to persons other than distributors and the date the offering closes

On the date the securities are first offered to anyone at all, whether or not the person approached is one of the distributors

On the date the last distributor sells the final part of its allotment, once the securities have all been placed with investors

How does Regulation S treat offers and sales by a distributor of securities left over from its unsold allotment or subscription?

They are treated as a new offering by the distributor, which needs its own registration unless a separate exemption covers that sale

They are treated as made after the period once it has run for the rest of the offering, the restrictions lapsing for every holder together

They are deemed made during the distribution compliance period, so the restrictions that apply within that period continue to govern them

They are treated as made after the period once the distributor gives the issuer notice of each sale and the price at which it was made

What reporting history must a foreign private issuer have before it can certify on Form 15F under Rule 12h-6 for a class of equity securities?

No minimum period of reporting, provided the issuer has filed its most recent annual report under Section 13(a) and has not been late with any report

Reporting obligations for at least the past 24 months, with every report due in that time filed or furnished, though no annual report need yet have been filed

Reporting obligations for at least the past 12 months, with every annual and quarterly report on Form 10-K and Form 10-Q due in that time filed on schedule

Reporting obligations for at least the past 12 months, every report due in that time filed or furnished, and at least one annual report under Section 13(a)

Rule 12h-6 bars a Form 15F where the issuer's securities were sold in the United States in a registered offering in the preceding twelve months, subject to exceptions. Which of these registered issues in that period counts against the issuer?

Shares issued on the exercise of rights granted pro rata to all holders, where the offering was backed by a standby underwriting in the United States

Shares issued to the issuer's employees under a plan, where the plan was registered with the SEC and the shares were issued in the United States

Shares sold by selling security holders in a registered offering that no underwriter took part in, the issuer receiving none of the proceeds

Shares issued under a dividend reinvestment plan registered with the SEC, to holders who elected to take shares in place of cash dividends

When a foreign private issuer's equity trades in the United States as American Depositary Receipts, how does Rule 12h-6 measure United States trading volume for its 5 percent test?

In the number of receipts traded, each receipt counting as one unit of volume whatever number of shares it happens to stand for

In the number of underlying securities the receipts traded represent, so that each receipt counts as many shares as it stands for

In the dollar value of the receipts traded, converted at each day's exchange rate into the currency of the issuer's home market

In trading in the ordinary shares alone, receipt trading being left out because the receipts are a separate security from the shares

Rule 12h-6 offers an alternative to its trading volume test that counts the class's holders of record on a recent date. How do the worldwide count and the United States resident count relate under that alternative?

The worldwide count governs, and the United States resident count matters only for an issuer whose class has no foreign listing

Both must be met: the class qualifies only if fewer than 300 hold it worldwide and fewer than 300 United States residents hold it

Either suffices: the class qualifies if fewer than 300 hold it worldwide or if fewer than 300 United States residents hold it

The United States resident count governs, and it must be taken on the last day of the issuer's most recent fiscal year

An issuer counting its United States resident holders for Rule 12h-6 makes reasonable inquiry but cannot, without unreasonable effort, learn how much of the class a nominee holds for United States customers. How may it treat that nominee's customers?

As left out of the count altogether, from the United States total and from the worldwide one alike

As residents of the United States, any doubt about where those customers live being resolved against the issuer in the count

In proportion to the United States share of trading in the class over the most recent fiscal year

As residents of the jurisdiction in which the nominee itself has its principal place of business, for counting purposes

Six months ago a foreign private issuer terminated its sponsored American Depositary Receipt facility, when United States trading in the receipts came to 9 percent of the trading volume in the underlying class over the preceding twelve months. Its holders of record are now few enough to satisfy Rule 12h-6's holder test. Can the issuer file Form 15F now?

Yes, relying on the holder test, since the twelve-month wait after such a termination bars a filing only where it relies on the trading volume test

No, since terminating a sponsored facility while United States trading was that high bars any Form 15F for twelve months, whichever test is relied on

No, since an issuer that has terminated a sponsored facility with significant United States trading may never afterwards rely on Rule 12h-6 to leave the system

Yes, relying on either test, since the twelve-month wait arises where an issuer delists from a United States exchange, not where it ends a facility

Filing Form 15F under Rule 12h-6 suspends a foreign private issuer's Exchange Act reporting at once. When does the termination of its registration and reporting duty take effect?

When the SEC issues an order approving the Form 15F, which it must do within thirty days of the filing of the form

Ninety days after the Form 15F is filed, or after a shorter period the SEC determines, provided the SEC has not objected

At the end of the issuer's current fiscal year, provided that no United States holder has objected to the termination

One year after the Form 15F is filed, the suspension lapsing and reporting resuming if the SEC has objected by then

What must a foreign private issuer do if, after it has filed Form 15F under Rule 12h-6, the form is withdrawn or the SEC denies it?

File its next annual report when it falls due, that report being required to cover the whole of the period since the Form 15F was filed

Resume reporting from the date of the withdrawal or denial, the reports for the period before it being excused because no duty to file them arose

Within 60 days of the withdrawal or denial, file or submit every report that would have been required had it not filed the Form 15F

Refile a corrected Form 15F within 30 days, the issuer's reports for the period before the refiling remaining excused in the meantime

What public notice must a foreign private issuer give as a condition of terminating its registration or reporting under Rule 12h-6?

A notice of its intent, posted by its depositary to all receipt holders within ten days after the Form 15F is filed, with a copy of the notice kept in the depositary's own records

A notice of its intent, mailed by first-class post to each United States holder of record at least thirty days before it files the Form 15F, with proof of the mailing kept for the SEC

A notice of the completed termination, published in its home country once the termination has taken effect, with a copy filed with its home regulator and with its depositary

A notice of its intent, published in the United States by a means reasonably designed for broad dissemination, on or before the date it files the Form 15F, with a copy to the SEC

ADR Program Registration, Offering and Deregistration

How Are ADR Programs Registered, Offered and Deregistered Under the Securities Act and the Exchange Act?

An American Depositary Receipt program is the legal machinery that lets shares of a company organised outside the United States be held and traded in the United States in the form of a domestic security. The instrument itself, its ratio, its currency exposure and the three sponsored levels are described in the separate dictionary entry for the American Depositary Receipt. This entry is about the registration, offering and deregistration of an ADR program: the registration form a depositary uses, how quickly that registration can take effect, how depositary receipts are placed privately with institutions under Rule 144A or offshore under Regulation S, and how a foreign private issuer whose receipts no longer attract much United States interest leaves the Exchange Act reporting system under Rule 12h-6.

Securities Act Rule 405 defines a depositary share as a security, evidenced by an American Depositary Receipt, that represents a foreign security or a multiple of or fraction thereof deposited with a depositary.

That definition explains why a depositary program needs its own registration. The foreign shares on deposit are one security; the depositary shares, created under a deposit agreement, are a second.

Form F-6 registers the depositary shares only. It is not a registration of the deposited securities, and an issuer that wants to offer new shares to the public in the United States must register those shares separately on another form.

The Three Form F-6 Eligibility Conditions

Rule 239.36 of the SEC's forms rules makes Form F-6 available for depositary shares evidenced by American Depositary Receipts issued against the deposit of a foreign issuer's securities, regardless of where the certificates for the deposited securities are physically located, if three conditions are met.

First, the holder of the receipts must be entitled to withdraw the deposited securities at any time, subject only to a short list of permitted limitations described in the next section. Second, the deposited securities must have been offered or sold in transactions registered under the Securities Act or in transactions that would have been exempt from registration if they had been made in the United States. Third, as of the filing date, the foreign issuer must either be reporting under Section 13(a) or 15(d) of the Exchange Act or have the deposited securities exempt under Rule 12g3-2(b), unless the issuer concurrently files a registration statement on another form for the deposited securities.

The second condition looks back at how the foreign shares reached the market, not at how the receipts will be sold. Form F-6 does not require that the underlying shares ever have been registered with the SEC.

The Holder's Right to Withdraw Deposited Securities

The withdrawal condition is the feature that makes a depositary share a stand-in for the foreign share rather than an independent investment. A holder who surrenders receipts must be able to take the deposited securities out, and the form allows only three kinds of limitation on that right.

The first is temporary delay caused by closing the transfer books of the depositary or of the foreign issuer, by the deposit of shares in connection with voting at a shareholders' meeting, or by the payment of dividends. The second is the payment of fees, taxes and similar charges. The third is compliance with any laws or governmental regulations relating to depositary receipts or to the withdrawal of deposited securities.

Anything beyond those three takes the facility outside Form F-6. A deposit agreement that let the depositary refuse withdrawals indefinitely, or suspend them whenever it judged that withdrawals would depress the receipt price, would not be a temporary delay, a charge or a legal requirement, and the depositary shares could not be registered on the form.

Designating Effectiveness Under Rule 466

Rule 466 gives a depositary a route to effectiveness for Form F-6 that does not wait on the SEC. A depositary that has previously filed a Form F-6 may designate a date and time for a new Form F-6, including a post-effective amendment, to become effective, and the registration statement becomes effective as designated.

Two conditions apply. The depositary must previously have filed a Form F-6 that the SEC declared effective with identical terms of deposit, except for the number of foreign securities a depositary share represents, and the depositary must so certify. And the designation must appear on the facing page of the registration statement or in a pre-effective amendment; a pre-effective amendment carrying a proper designation is deemed filed with the SEC's consent.

The condition looks to identical terms of deposit in an earlier Form F-6 of the depositary's that the SEC declared effective; the rule's text does not require that earlier filing to have concerned the same foreign issuer. A change limited to the ratio does not break the identity, because the rule expressly sets the number of foreign securities per depositary share aside, but any other change to the terms of deposit does.

Suspension of the Rule 466 Designation

The SEC may suspend a depositary's ability to designate effectiveness. It may do so where it appears that a registration statement containing a designation is incomplete or inaccurate in any material respect, whether or not that registration statement has already become effective, or where the depositary has not complied with any of the rule's conditions.

A suspension takes effect when the SEC furnishes written notice to the depositary and lasts until the SEC gives written notice that it has ended. While in effect it applies both to registration statements already filed but not yet effective and to any the depositary files afterwards.

The suspension is narrow. It removes only the ability to designate the date and time of effectiveness and does not otherwise affect the registration statement, which can still become effective in the ordinary way. The depositary may petition the SEC to review the suspension, and the SEC will order a hearing if the petition asks for one.

Rule 144A Depositary Facilities and the Information Condition

A foreign issuer can place receipts with qualified institutional buyers under Rule 144A, a resale safe harbour from Section 5 of the Securities Act. Its preliminary notes provide that securities acquired in a Rule 144A transaction are restricted securities within the meaning of Rule 144.

One of the rule's conditions is an information condition. For an issuer that is neither reporting under Section 13 or 15(d) of the Exchange Act, nor exempt from reporting under Rule 12g3-2(b), nor a foreign government eligible to register securities under Schedule B, the holder and a prospective purchaser designated by the holder must have the right to obtain, on request, a very brief statement of the issuer's business and its recent financial statements, reasonably current in relation to the resale.

The exemption from that condition matters most for foreign issuers. A foreign private issuer that publishes its home country information in English under Rule 12g3-2(b) is outside the information condition altogether, so the seller of its Rule 144A depositary receipts does not have to arrange the information delivery the rule otherwise requires.

Establishing Buyer Status and Giving Notice in a Rule 144A Placement

A Rule 144A sale may be made only to a qualified institutional buyer or to a purchaser the seller reasonably believes is one. The rule lists non-exclusive methods a seller may rely on to establish the amount of securities a prospective purchaser owns and invests: its most recent publicly available financial statements, its most recent publicly available filings with a government agency or self-regulatory organisation, the most recent information in a recognised securities manual, or a certification by its chief financial officer or another executive officer.

The three published sources carry an age limit that depends on where the purchaser is. The information must be as of a date within 16 months before the sale for a United States purchaser and within 18 months before the sale for a foreign purchaser. A seller placing depositary receipts with a foreign institution can therefore rely on published statements two months older than it could use for a United States institution.

A separate condition requires the seller, and anyone acting on its behalf, to take reasonable steps to ensure that the purchaser is aware that the seller may rely on Rule 144A. The condition concerns the purchaser's awareness of the exemption, not a representation by the purchaser about its own status.

Regulation S and Offshore Depositary Receipt Offerings

Regulation S's general statement, Rule 901, provides that for the purposes of Section 5 the terms offer and sale include offers and sales that occur within the United States and do not include offers and sales that occur outside it. A depositary receipt offering made entirely offshore, such as a Global Depositary Receipt placement with investors in Europe and Asia, can rely on it.

For the issuer's own offering, Rule 903 treats an offer or sale as occurring outside the United States if it is made in an offshore transaction, if no directed selling efforts are made in the United States by the issuer, a distributor, any of their affiliates or anyone acting for them, and if the conditions of the applicable category are met.

An offshore transaction requires that the offer not be made to a person in the United States and that either the buyer be outside the United States when the buy order is originated, or reasonably believed to be, or, for the issuer's offering, that the transaction be executed on the physical trading floor of an established foreign securities exchange. Offers targeted at identifiable groups of United States citizens abroad, such as members of the United States armed forces serving overseas, are not offshore transactions. Directed selling efforts means any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the securities being offered.

Substantial U.S. Market Interest and Category One

Regulation S sorts offerings into three categories. Category One carries no conditions beyond the offshore transaction and the absence of directed selling efforts. A foreign issuer's offering falls into it where the issuer reasonably believes at the commencement of the offering that there is no substantial U.S. market interest in the class of securities offered, and also where the offering is an overseas directed offering, is backed by the full faith and credit of a foreign government, or is made to employees under a foreign employee benefit plan.

For a class of equity securities, substantial U.S. market interest exists on either of two tests, measured over the shorter of the issuer's prior fiscal year or the period since its incorporation. It exists if United States exchanges and inter-dealer quotation systems, taken together, were the single largest market for the class. It also exists if 20 percent or more of all trading in the class took place on United States exchanges and inter-dealer quotation systems and less than 55 percent took place on the securities markets of a single foreign country.

The second test means that a large United States share of trading can be offset by a dominant home market. A class with 25 percent of its trading in the United States and 60 percent in its home country does not have substantial U.S. market interest; the same 25 percent United States share with no single foreign country reaching 55 percent does.

Categories Two and Three for Depositary Equity Offerings

Category Two applies to securities not eligible for Category One that are equity securities of a reporting foreign issuer, or debt securities of a reporting issuer or of a non-reporting foreign issuer. Its conditions are that offering restrictions are implemented, that before the end of a 40-day distribution compliance period the securities are not offered or sold to a United States person or for a United States person's account or benefit other than a distributor, and that each distributor selling to another distributor or dealer during that period sends a confirmation or notice stating that the purchaser is subject to the same restrictions.

Category Three is the residual category for everything else. For equity securities it imposes a one-year distribution compliance period, shortened to six months where the issuer is a reporting issuer, and adds purchaser-level conditions: the purchaser, other than a distributor, certifies that it is not a United States person and is not buying for one, or is a United States person who bought in a transaction that did not require registration; and the purchaser agrees to resell only in accordance with Regulation S, under registration or under an exemption, and not to engage in hedging transactions except in compliance with the Securities Act.

A non-reporting foreign issuer with substantial U.S. market interest in its shares therefore falls into Category Three for an equity offering, and its purchasers must give certifications that a reporting foreign issuer's Category Two purchasers are not asked for.

When the Distribution Compliance Period Starts

The distribution compliance period is the window during which the category's restrictions on sales to United States persons apply. It begins when the securities were first offered to persons other than distributors in reliance on Regulation S, or on the date of closing of the offering, whichever is later, and runs for the period the applicable category specifies.

Two refinements stop the period being evaded. All offers and sales by a distributor of an unsold allotment or subscription are deemed to be made during the distribution compliance period, however late they occur, so a distributor still holding part of its allotment remains restricted. And in a continuous offering the period commences only on completion of the distribution, as determined and certified by the managing underwriter or a person performing a similar function.

Because the start is the later of first offer and closing, an offering marketed to investors offshore for some weeks before it closes does not use up any of its compliance period during the marketing; the clock starts at closing.

Leaving the Reporting System Under Rule 12h-6

Before 2007 the primary determinant of whether a foreign private issuer could get out was a head count: whether the class was held of record by fewer than 300 United States residents. Section 15(d) reporting, moreover, could only be suspended, never terminated. The SEC adopted Rule 12h-6, effective June 4, 2007, because globalised trading had made that test hard to meet even where United States investor interest was slight.

For a class of equity securities, Rule 12h-6 permits a foreign private issuer to terminate registration under Section 12(g), or the duty to report under Section 15(d), or both, after certifying on Form 15F that four conditions are met. The issuer has had Exchange Act reporting obligations for at least the 12 months before filing Form 15F, has filed or furnished all reports required for that period, and has filed at least one annual report under Section 13(a). Its securities have not been sold in the United States in a registered offering in the preceding 12 months. It has maintained a listing of the class for at least the preceding 12 months on one or more foreign exchanges constituting its primary trading market. And it meets either the trading volume test or the 300-holder test described below.

The registered offering condition has exceptions for securities issued to employees, sold by selling security holders in non-underwritten offerings, issued on the exercise of rights granted pro rata to all existing holders of the class, issued under a dividend or interest reinvestment plan, or issued on conversion of outstanding convertible securities or exercise of outstanding transferable warrants. The last three do not apply to securities issued under a standby underwritten offering or similar arrangement in the United States.

The Trading Volume Benchmark and Depositary Receipts

The trading volume test is met where the average daily trading volume of the class in the United States over a recent 12-month period has been no greater than 5 percent of its average daily trading volume worldwide over the same period. A recent 12-month period is a period of 12 calendar months that ended no more than 60 days before the Form 15F is filed.

Where the issuer's equity trades in the United States in the form of American Depositary Receipts, the rule requires the United States volume to be calculated in terms of the number of underlying securities the receipts represent. A high ratio therefore cannot make United States trading look smaller than it is.

The denominator is worldwide trading, not trading in the primary market. The SEC chose it because the purpose of the benchmark is to measure the relative importance of the United States market for the issuer's securities, and an issuer listed in several foreign markets should be able to count all of its non-United States trading. The foreign listing condition, by contrast, uses the narrower primary trading market concept because its purpose is to assure that a non-United States jurisdiction principally regulates the issuer's securities and disclosure.

The 300-Holder Alternative and How Holders Are Counted

An issuer that fails the trading volume test can still qualify if, on a date within 120 days before it files Form 15F, the class is held of record by fewer than 300 persons worldwide or by fewer than 300 persons resident in the United States. For a class of debt securities this holder test is the route itself: a foreign private issuer may terminate its reporting for debt after filing all required reports, including at least one annual report, if the debt class is held of record by fewer than 300 persons worldwide or fewer than 300 United States residents on such a date.

Counting United States residents uses the record ownership method of Rule 12g3-2(a), with a limit that makes the search manageable: the issuer may confine its inquiry about accounts of United States customers to brokers, dealers, banks and other nominees located in the United States, in its own jurisdiction of incorporation, and in its primary trading market if that is different. If it aggregates two foreign jurisdictions to establish its primary trading market, it must include both in the inquiry.

Where, after reasonable inquiry, the issuer cannot without unreasonable effort find out how much of the class nominees hold for United States residents, it may assume that the customers are residents of the jurisdiction in which the nominee has its principal place of business. It must still count securities as held in the United States where filed beneficial ownership reports or other reliable information show that they are.

Waiting Periods After a Delisting or a Terminated Sponsored Facility

Rule 12h-6 contains a one-year bar designed to stop an issuer from manufacturing eligibility. An issuer must wait at least 12 months before filing Form 15F in reliance on the trading volume test if it has delisted a class of equity securities from a United States exchange or inter-dealer quotation system and, at the time of delisting, United States average daily trading volume exceeded 5 percent of worldwide volume for the preceding 12 months.

The same 12-month wait applies where the issuer has terminated a sponsored American Depositary Receipt facility and, at the time of termination, the United States average daily trading volume of the receipts exceeded 5 percent of the worldwide average daily trading volume of the underlying class for the preceding 12 months. The SEC included the facility condition to encourage issuers to keep their facilities after delisting and deregistering, so that the receipts can continue to trade over the counter in the United States.

The bar is tied to the volume at the moment of delisting or termination. An issuer whose United States volume had already fallen to 5 percent or below when it terminated its sponsored facility is not caught by it, and neither is an issuer relying on the 300-holder test rather than the trading volume test, since the wait applies only to filings made in reliance on the volume test.

Form 15F: Suspension, Termination and Public Notice

Filing Form 15F under Rule 12h-6 suspends the issuer's duty to file Exchange Act reports immediately. If the SEC does not object, the termination of the Section 12(g) registration and of the Section 13(a) or 15(d) reporting duty takes effect 90 days after the filing, or after any shorter period the SEC determines.

If the Form 15F is later withdrawn or denied, the issuer must, within 60 days after the withdrawal or denial, file or submit all the reports that would have been required had it never filed the form. The immediate suspension is therefore provisional: an issuer that files a Form 15F it cannot support has not escaped the reports that fall due during the waiting period, it has only deferred them.

As a condition of termination, the issuer must publish in the United States, before or on the date it files Form 15F, a notice disclosing its intent to terminate its registration, its reporting obligations, or both, through a means reasonably designed to provide broad dissemination to the United States public. It must also submit a copy of the notice to the SEC, either under cover of a Form 6-K before or at the time of filing the Form 15F, or as an exhibit to the Form 15F.

What Holders Face When a Sponsored Facility Ends

The SEC's 2007 adopting release for Rule 12h-6 described what happens to holders when an issuer terminates its depositary facility. The holders generally have the option of making arrangements to hold the underlying securities directly. If they are unable or unwilling to make those arrangements, or to pay their costs, their investment is cashed out: the underlying securities are generally sold into the home market and the net proceeds, after the fees and expenses of the selling broker and the depositary bank, are remitted to the former receipt holders.

The release identified the harm in that outcome. Termination imposes fees and other charges on investors, subjects investors who are cashed out to unplanned tax consequences and limits their investment choices, and limits the ability of many United States investors to trade the foreign company's securities at all.

Common Errors and Exam Traps

Treating Form F-6 as a registration of the foreign shares. It registers the depositary shares only; new shares offered to the public need their own registration statement.

Reading the withdrawal right as absolute or as freely restrictable. It may be limited only by temporary delays of the listed kinds, by fees, taxes and similar charges, and by legal requirements.

Counting receipts rather than underlying shares in the Rule 12h-6 volume test, and comparing United States volume with the primary market rather than with worldwide volume.

Assuming the filing of Form 15F ends reporting for good. Reporting is suspended on filing and terminates after 90 days absent objection; withdrawal or denial brings back every report that would have been due.

Examination Relevance and Key Takeaways

The key points to retain are these. A depositary share represents a foreign security, or a multiple or fraction of one, deposited with a depositary, and Form F-6 registers it if the withdrawal, prior-offering and issuer-reporting conditions are met. Rule 466 lets a depositary with an effective Form F-6 on identical deposit terms designate effectiveness itself. Rule 144A placements of receipts escape the information condition where the issuer reports or is exempt under Rule 12g3-2(b). Regulation S offerings rest on offshore transactions, no directed selling efforts and the category conditions, which turn on substantial U.S. market interest and reporting status. Rule 12h-6 permits exit on a 5 percent worldwide trading volume test, counted in underlying shares, or a 300-holder test, through a Form 15F that suspends reporting at once and terminates it after 90 days.