Wachtell Lipton: The SEC Reconsiders What It Means to Be a Foreign Private Issuer
By Lawdragon News | June 10, 2025 | Press Releases, Wachtell Lipton News
The U.S. Securities and Exchange Commission recently issued a concept release soliciting public comments on the “foreign private issuer” (FPI) definition in light of the changes in global capital markets and the principal characteristics of FPIs in the decades since the Commission last reconsidered the definition. FPIs enjoy a variety of accommodations under U.S. federal securities laws, including less onerous disclosure and governance requirements, an exemption from Section 16 obligations, and a suite of potential exemptions under the Commission’s cross-border M&A rules. Additional information on FPIs and the relevant accommodations can be found in our Cross-Border M&A Guide.
The Commission noted that, based on data from 2003 to 2023, the most common jurisdiction of incorporation for FPIs has shifted to the Cayman Islands, and that the most common headquarters jurisdiction has shifted to China—two jurisdictions with meaningfully less stringent disclosure requirements. The Commission also found that an increasing percentage of FPIs—more than half—now trade almost exclusively in U.S. capital markets, a trend that appeared disproportionately prevalent among those FPIs incorporated in the Cayman Islands and headquartered in China. The Commission noted that “[a]t the time the current FPI accommodations were adopted, the Commission’s understanding was that most eligible 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,” and therefore, this trend draws into question whether the FPI definition is appropriately tailored.
The Commission is seeking comment on several possible changes to the FPI definition, including whether to require FPIs to be listed on a major foreign stock exchange, the introduction of a minimum foreign trading volume test and whether FPIs should be required to be incorporated or headquartered in jurisdictions with robust regulatory and oversight frameworks.
The FPI definition, which was first established in 1935 and most recently amended in 1999, is key to the regulatory framework for foreign issuers. In light of the changes in the market since that time, we commend the Commission for considering amendments that would align the FPI definition with the objectives and assumptions underlying the regulatory accommodations available to those issuers. Appropriate updates could benefit domestic investors and foreign issuers alike, preserving regulatory flexibility for some issuers and imposing additional requirements or limitations for others, in a manner that balances the information needs of U.S. investors with the benefits conveyed by robust opportunities to invest in foreign securities—benefits facilitated by appropriately tailored accommodations for FPIs.
The release may signal the beginning of a larger reconsideration of the FPI regime, which could impact the disclosure obligations applicable to existing FPIs and the ability of foreign issuers to access U.S. capital markets in the future, balancing legitimate U.S. interests in robust capital markets, full and fair disclosure, and access to non-U.S. companies for U.S. investors. These developments are welcome and reflect a thoughtful SEC initiative in this area.
