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Washington, D.C. 20549



I. Development of an Integrated

Disclosure System for Foreign Issuers

The Commission developed and adopted the foreign integrated disclosure system for several reasons. First, the adoption of Form 20-F' has substantially increased the amount of disclosure contained in the annual reports of foreign issuers filed with the Commission pursuant to the Exchange Act with the result that an integrated system became feasible. The results of a staff project to monitor the filings on Form 20-F are encouraging since most foreign registrants have complied with the increased requirements and many have furnished disclosure in excess of the literal requirements of the Form. The Commission has noted that a number of foreign registrants have used their annual report to shareholders, or an English language version of it, as the core of their Form 20-F filing. Typically, the registrant incorporates by reference various portions of the annual report to shareholders into the Form 20-F,? such as financial statements and description of current year's business, and furnishes any additional information that is required, e.g., discussions of differences in accounting principles and background of the registrant's business, in a specially prepared text of the Form 20-F attached to the annual report to shareholders. The Commission has stated that this "wraparound" approach produces a document that is readable and reduces the costs and the burdens of preparation to the registrant. Registrants are encouraged to utilize this approach. The annual reports to shareholders of several registrants initially using this procedure have been ranked among the best in the world according to a recent study.' Thus, the integration of disclosure documents of such high caliber into the Commission's disclosure system is a significant, practical step in the process of the internationalization of the world's securities markets.

The second basic reason for the commission's belief that an integrated disclosure system was feasible is the developing disclosure practices and accounting principles in many foreign countries and the harmonization of divergent practices by international guidelines. The Commission generally supports the efforts of orgnizations such as the European Economic Community, the International Accounting Standards Committee, the Organization for Economic Cooperation and Development, and the United Nations to formulate guidelines and international disclosure standards. The experience of the staff in processing and reviewing the disclosure documents of foreign issuers, both registrants and those exempt by Rule 12g3-2(b), is that in many cases the disparity between the accounting and disclosure practices of the United States and many other countries is narrowing. This trend is favorable for the development and use of an integrated disclosure system. Finally, the Commission desires to administer the federal securities laws in a manner that does not unfairly discriminate against or favor foreign issuers. Thus, the Commission attempted to design an integrated disclosure system that parallels the system for domestic issuers but also takes into account the different circumstances of foreign registrants. In developing this system the Commission attempted to balance certain competing policies.

The legislative history of the Securities Act indicates an intent to treat foreign private issuers (as distinct from foreign governments) the same as domestic issuers.“ Therefore, the Commission has generally perceived its function as neither discriminating against nor encouraging foreign investment in the United States or investments in foreign securities. The Commission's rulemaking authority in this area is conditioned upon findings that the relevant rule or form is necessary for the protection of investors and in the public interest."

In considering these findings in the context of the position of neutrality explained above, the Commission must evaluate two competing policies. One is the recognition that the investing public in the United States needs the same type of basic information disclosed for an investment decision regardless of whether the issuer is foreign or domestic. This view suggests that foreign registrants be subject to exactly the same requirements as domestic ones. The other is that the interests of the public are

'Release No. 34-16371 (November 29, 1979).

Rule 12b-23 (17 CFR 240.12b-23).

'M. Lafferty and D. Cairns, “Financial Times World Survey of Annual Reports 1980.”

‘Hearings before the Senate Committee on Banking and Currency on S. 875. 73d Cong., 1st Sess. 89-90 (1933) and Hearings Before the Committee on Interstate and Foreign Commerce on H.R. 4314, 73d Cong., 1st. Sess. 12-13 (1933).

'Sections 7 and 10 of the Securities Act.


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