A re-assessment of the foreign private issuer definition

In the United States, a “foreign private issuer” is a foreign issuer other than a foreign government, except for an issuer that as of the last business day of its most recently completed second fiscal quarter:

• has more than 50% of its outstanding voting securities directly or indirectly held of record by US residents; and 
• meets any of the following tests:
  • a majority of its executive officers or directors are citizens or residents of the United States,
  • more than 50% of its assets are located in the United States, or
  • its business is principally administered in the United States.

Foreign Private Issuers (FPIs) enjoy certain accommodations and exemptions from US securities law disclosure and filing requirements. The current approach to FPI accommodations and exemptions was crafted assuming most FPIs would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions and that FPIs’ securities would be traded in foreign markets. 

Based on data collected by the Securities and Exchange Commission (the Commission), these assumptions may no longer be accurate and, as a result, on June 4, 2025, the Commission issued a concept release to solicit public comment on amending the definition of FPI to reflect market circumstances. The implications of such a request for comment are significant as a substantial change to the FPI definition could affect the disclosure requirements of many FPIs trading in the United States.

Basis for re-assessment

The Commission has determined the FPI definition may not be functioning as originally intended. In a study completed in 2003, the Commission found that the most common jurisdictions for both incorporation and headquarters for 20-F FPIs were Canada (non-multijurisdictional disclosure system issuers) and the United Kingdom, jurisdictions generally viewed as having regulatory requirements suitable for protecting US investors.

By contrast, in fiscal year 2023, the most common jurisdiction of incorporation among 20-F FPIs was the Cayman Islands, and the most common jurisdiction of headquarters for these issuers was mainland China. Further, the majority of 20-F FPIs today (approximately 55% of Exchange Act reporting FPIs) have their equity securities almost exclusively traded in US capital markets. The Commission is therefore soliciting comments on whether the current FPI definition should be amended to ensure US investors receive appropriate disclosure from FPIs and the discrepancy in regulatory requirements does not result in unintended competitive implications.

Key changes contemplated

The following approaches to amending the FPI regime are being contemplated, and the Commission’s concept release seeks public input on each of them:

Updating the existing FPI eligibility criteria

The Commission has suggested amending the FPI definition to update the existing bifurcated test. Two such changes being considered include (i) lowering the existing 50% threshold of US holders in the shareholder test; and (ii) revising the existing list of criteria under the business contacts test by either adding new criteria or revising the existing threshold for assets located in the United States.

Adding a foreign trading volume requirement

The Commission has also proposed adding a foreign trading volume test either as an alternative to or in addition to existing criteria. The Commission believes it is possible issuers that have a consistent and meaningful number of their securities traded on a non-US market could be more likely to be subject to home country oversight, disclosure, and other regulatory requirements that merit accommodation than issuers whose securities are primarily or exclusively traded in the United States. 

The foreign trading volume test could apply in addition to the shareholder test and business contacts test and require an FPI to have a certain percentage of the trading volume of its securities in a market or markets outside the United States over a preceding 12-month period. Such percentages being considered range from 1%, 3%, 5%, 10%, 15% to 50%. The Commission has run various models, and according to its estimates, at the lowest 1% threshold, over half of current reporting FPIs would lose their FPI status.

Adding a major foreign exchange listing requirement

In addition to the foreign trading volume requirement, the Commission has also considered updating the FPI definition to add a major exchange listing requirement. The belief is this may help to ensure FPIs are subject to meaningful regulation and oversight in a foreign market and increase the market incentives to provide material and timely disclosure to investors. 

In determining which exchanges fit the definition of a “major foreign exchange,” one approach would be for the Commission to maintain a list of foreign exchanges whose listing requirements meet certain specific criteria. Whilst this requirement could provide meaningful regulation, it would require the Commission to evaluate and stay apprised of other exchanges and their regulations. Once an exchange has been designated a “major foreign exchange,” any subsequent determination that warrants a change in the designation could be highly disruptive to issuers.

Incorporating an assessment of foreign regulation applicable to the FPI

Similar to the potential major foreign exchange requirement discussed above, the Commission could designate certain foreign jurisdictions as meeting applicable criteria considered indicative of robust securities regulation and oversight. Such a requirement could also be problematic where it necessitates the Commission individually assess the regulatory regimes of foreign jurisdictions on an ongoing basis to determine if they meet certain regulatory standards that the Commission deems adequate for protecting US investors. Further, any changes in the Commission’s determination could be highly disruptive to issuers.

Establishing new mutual recognition systems

Another contemplated approach would be to apply a mutual recognition system, similar to the approach for Canadian issuers under the multijurisdictional disclosure system, which permits eligible US and Canadian issuers to conduct cross-border securities offerings and fulfill their reporting requirements primarily by complying with, and using disclosure documents prepared in accordance with, home country securities regulations. While there are advantages and disadvantages to such an approach, the Commission has indicated such jurisdictions would only need to prove they offer comparable protections to US investors, not an identical regulatory regime.

Adding an international cooperation arrangement requirement

The Commission has stated it could require, as a criterion for FPI eligibility, that an FPI certify it is either incorporated or headquartered in, and subject to the oversight of the signatory authority of, a jurisdiction in which the foreign securities authority has signed the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information or the Enhanced Multilateral Memorandum of Understanding. Multilateral MoUs are voluntary and non-binding, and do not supersede domestic laws. This would only be complimentary to any of the preceding approaches.

Comment response deadline

The concept release has been published on the Commission’s website and in the Federal Register. The comment period will remain open for 90 days.

For those interested in reviewing the materials published by the Commission, they can be found here.