On June 4, 2025, the U.S. Securities and Exchange Commission (the “SEC”) published a concept release soliciting public comment on potential changes to the definition of “foreign private issuer” (“FPI”).
Currently, a foreign company will qualify as an FPI if:
- 50% or less of its outstanding voting securities are held by U.S. residents; or
- more than 50% of its outstanding voting securities are held by U.S. residents and none of the following applies:
- the majority of its executive officers or directors are U.S. citizens or residents;
- more than 50% of the issuer’s assets are located in the United States; or
- the issuer’s business is administered principally in the United States.
The FPI framework, first introduced by the SEC in the 1970s, has evolved through rulemaking under the Securities Act of 1933 and the Securities Exchange Act of 1934 (the “Exchange Act”). It was designed to encourage foreign companies to access U.S. capital markets by providing significant accommodations for FPIs in allowing them to follow home-market practices, including with respect to disclosure and governance requirements. For example, FPIs are exempt from the requirements of Regulation FD, which governs selective disclosures, and Section 16 of the Exchange Act, which imposes reporting and short-swing profit liability on insiders.
These accommodations are intended to reflect differences in home-country practices and to facilitate U.S. capital market access without imposing the full scope of domestic issuer obligations on FPIs.
In the SEC press release announcing the concept release, SEC Chair Paul Atkins reaffirmed the importance of maintaining a framework that both attracts foreign issuers and protects U.S. investors:
“Attracting foreign companies to U.S. markets and providing U.S. investors with the opportunity to trade in those companies under U.S. laws and regulations remains an objective. That objective must be balanced with other considerations, including providing investors with material information about these foreign companies, and ensuring that domestic companies are not competitively disadvantaged with respect to regulatory requirements.”
However, in a statement made by Chair Atkins at an open meeting of the SEC, to consider the recommendation from the Division of Corporation Finance that the SEC issue a concept release seeking comment on whether to revise the definition of foreign private issuer, Chair Atkins stated that:
“When the United States is effectively a foreign company’s exclusive or primary trading market and the company is not subject to meaningful disclosure requirements or securities law oversight in its jurisdiction of incorporation or headquarters, careful consideration should be given to whether the foreign company is eligible for accommodations under the federal securities laws that are unavailable to U.S. companies. This analysis begins with considering whether the current definition of a foreign private issuer is appropriately tailored. The concept release solicits public input on this issue, and I encourage market participants to submit their views and engage with my office and the other commissioners’ offices on this topic.”
Changes to FPI eligibility criteria could have significant consequences for both existing FPIs and foreign companies seeking to access U.S. capital markets in the future. Any such companies that do not meet the new FPI eligibility criteria must abide by the heightened compliance and disclosure standards applicable to U.S. companies and would be subject to Section 16 reporting and disgorgement rules applicable to company insiders and to proxy solicitation rules.
Potential regulatory responses proposed in the concept release include updating foreign private issuer eligibility criteria; creating a requirement that issuers’ securities trade at a certain volume or on a major exchange in a foreign capital market; assessment by the SEC of applicable foreign regulation; mutual recognition systems; and an international cooperation agreement.
The SEC is encouraging feedback from market participants and other interested parties, including issuers, investors, and intermediaries. The public comment period will remain open for 90 days following the date of the publication of the comment request in the Federal Register. Akin will continue to monitor developments and provide updates as the rulemaking process evolves.