Foreign Company Listings on Stock Exchanges in the U.S.

Reasons Foreign Issuers Are Attracted to Listing on U.S. Exchanges

Foreign companies that seek to list on U.S. financial markets are often looking for liquidity advantages. The also seek to raise additional capital. These companies can increase their liquidity by making their shares accessible to a wider group of global investors. Foreign issuer listings can also boost credibility because of the relatively stringent standards required to list on U.S. stock exchanges. On the flipside, some foreign exchanges may have even stricter standards than U.S. exchanges. Foreign companies might find thee stricter standards too burdensome. For example, Chinese exchanges impose overbearing regulations on public companies. This has motivated some Chinese companies to list on a U.S. exchange instead.

American Depositary Shares

As a result of legal requirements, foreign companies listing on U.S. exchanges must create American Depositary Shares (ADSs) for Americans to purchase. The ADSs represent securities in the foreign company that trade on U.S. exchanges. A U.S. custodian bank acts as an intermediary, holding the economic rights in the shares. For example, Wanda Sports Group, a Chinese global sports media platform, listed its ADSs on Nasdaq when it went public.

Foreign Companies SEC
Foreign Companies SEC

SEC Regulatory Requirements for Foreign Issuers Listing in the U.S.

Form 6-K is the analogue of a Form 8-K for foreign private issuers. An issuer must file it with the SEC promptly after the issuer makes a material disclosure to shareholders. Many foreign private issuers also elect to disclose unaudited quarterly financial reports. U.S. issuers must report using Form 10-Q within 45 days of each quarter-end, by filing their quarterly results with the SEC on Form 6-K. Under the Securities Exchange Act of 1934, foreign private issuers need not submit quarterly financial results to the SEC.

Exemptions for Foreign Companies Listing in the U.S.

Unlike U.S.-based companies, foreign issuers are exempt from the requirement to have a board with a majority of independent directors. An audit committee is the only type of committee that foreign companies are required to have. U.S. companies listing on the NYSE or NASDAQ must have a compensation committee.

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Carpenter Wellington PLLC

Carpenter Wellington PLLC

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.