Two recent events highlight the ever-shifting dynamic between U.S. and international capital markets. The first, a technical NYSE rule affecting the reporting obligations of foreign private issuers, was subtle. The second, the proposed merger of two iconic European stock exchanges, could be dramatic.
NYSE’s new rule…
In Release No. 34-77198, the SEC approved, effective immediately, NYSE’s proposed rule requiring listed foreign private issuers to submit to the SEC semi-annually, at a minimum, a Form 6-K containing six-month unaudited financial information. Form 6-K must be submitted no later than six months following the end of a company’s second fiscal quarter. The financial information must be presented in English, but need not be reconciled to U.S. GAAP. Failure to comply with the new rule will be a “Late Filing Delinquency” and subject the company, following a cure period, to possible delisting.
New Section 203.03 of NYSE’s Listing Manual is intended to establish a minimum interim reporting requirement applicable to all foreign private issuers. Prior to the rule change, Form 6-K required foreign private issuers to furnish whatever information such company makes public under its home jurisdiction, files with a stock exchange on which its securities are traded or otherwise distributes to its security holders. (Foreign private issuers are any issuer organized under the laws of a foreign country, except where more than 50% of the outstanding voting securities are held of record by U.S. residents, more than 50% of the company’s assets are located in the U.S. or the company’s business is administered principally in the U.S.)
NYSE notes that almost all NYSE-listed foreign private issuers already provide the newly mandated information and that NASDAQ-listed companies are already subject to a comparable rule. Therefore, it concludes, the change is not expected to have a significant impact on competition. One wonders, however, if that is necessarily the case. Although it is true that this particular rule change is relatively insignificant, it is perhaps symbolic of how these things can add up over time and ultimately influence the cost/benefit analysis of accessing various capital markets.
Merger of the London Stock Exchange and the Deutsche Börse…
NYSE’s tightening of U.S. authority over foreign private issuer reporting comes at roughly the same time as the March 16th announcement that the London Stock Exchange and Deutsche Börse have agreed to merge. While consummation of the merger is subject to regulatory hurdles (which may be particularly tricky as Britons prepare to vote in June on whether to exit the European Union), a completed merger would likely create a powerful international competitor for NYSE. The combined exchanges, which would have headquarters in both London and Frankfurt, would present a viable alternative to foreign companies looking for a Euro-friendly way to tap the international capital markets. The reality of that threat was made apparent by NYSE’s prompt indication that it is considering a rival offer for the London Stock Exchange, which would certainly complicate the merger picture.
It will be interesting to monitor these and other developments as international regulators continue to jockey for control and market share, and as the marketplace evolves in response.