(The news featured below is a selection from the news covered in SEC Today, which is distributed to subscribers of SEC Today.)

Nazareth Outlines SEC's Recent Steps To Accommodate Foreign Issuers

The SEC has made a concerted effort recently to address regulatory conflicts in cross-border transactions, according to SEC Commissioner Annette Nazareth, and may take further steps at an early December open meeting. At that meeting, the Commission will consider issuing guidance to management regarding Sarbanes-Oxley section 404, and will address final rules relating to the deregistration of foreign private issuers. Nazareth spoke at the UCLA law institute on corporate aspects of M&A, and her remarks are posted on the SEC's Web site.

She said that the Commission has been sensitive to the special circumstances of foreign companies for many years, as evidenced by the several accommodations made in the implementation of the Sarbanes-Oxley Act. Those included allowing non-management employees to serve as audit committee members and shareholders to select or ratify the selection of auditors, she said, and extensions of the section 404 compliance date for certain foreign private issuers.

More recently, Nazareth noted, the amendments to the tender offer best price rule included special arrangements for foreign private issuers. In general, the tender offer best price rule amendments clarify that the rule applies only to the consideration paid for securities tendered in a tender offer, and exempt from the rule compensation received pursuant to employee benefit arrangements. The amendments also provide a safe harbor for arrangements that are approved by independent directors.

In recognition of the special circumstances of foreign private issuers, she said, the amendments provide that foreign private issuers may obtain approval for purposes of the safe harbor by any and all members of the board, or any committee of the board authorized to approve the arrangement, according the laws or regulations of their home countries.

Foreign private issuers also may rely on the independence requirements of the laws, regulations, codes, or standards of their home countries when determining the independence of the directors approving the arrangements, she noted. Nazareth strongly supported the amendments to the best price rule, and is pleased that foreign companies were given the flexibility to rely on their home country standards.

Another important area where the SEC is working to address the conflicts in international regulatory standards, according to Nazareth, relates to the proposed consolidation of transatlantic financial markets. With regard to the proposed NYSE/Euronext merger, she believes that fears that European issuers will become subject to U.S. laws because of the merger are unwarranted. Built into the transaction, she said, is the idea that multiple regulatory structures would apply.

This was confirmed in late September when SEC Chairman Christopher Cox and a committee of Euronext regulators met in Lisbon to discuss the potential merger. She noted that the participants affirmed that joint ownership or affiliation of markets alone would not lead to regulation from one jurisdiction becoming applicable in the other, and also reiterated their shared belief in the importance of local regulation of local markets.

Nazareth also discussed that SEC's participation in the International Organization of Securities Commissions ("IOSCO"), and how that organization's efforts had a direct impact on the recently enacted Credit Rating Agency Reform Act of 2006.

In 2003, IOSCO formed a task force chaired by the SEC to develop international principles relating to credit rating agencies. That task force helped to develop the "IOSCO Statement of Principles Regarding the Activities of Credit Rating Agencies," which sets forth high level objectives designed to improve the quality, integrity and transparency of the credit-rating process. Nazareth noted that the principles apply to all credit rating agencies, regardless of their size or jurisdiction in which they operate.

A year later, the SEC helped IOSCO write a code of conduct for credit rating agencies to help them put the 2003 principles into practice. Nazareth said that the provisions of the code of conduct influenced the drafting of the Credit Rating Agency Reform Act. Much of the information that credit rating agencies need to furnish to the Commission when they apply to become registered, she noted, is entirely consistent with the fundamental provisions of the IOSCO code. It is clear, she said, that the new U.S. law was influenced by, and is largely a reflection of, international standards that have now been embraced by many jurisdictions.

John Filar Atwood