37672 Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Rules and Regulations

1See Offer and Sale of Securities to Canadian

Tax-Deferred Retirement Savings Accounts,

Securities Act Release No. 7656 (Mar. 19, 1999) [64

FR 14648 (Mar. 26, 1999)] (‘‘Proposing Release’’).

The registration requirements of the Securities Act

generally would not preclude Canadian/U.S.

Participants from purchasing some types of

securities for their Canadian retirement accounts in

secondary market transactions on stock exchanges

or in other markets. However, there are generally no

secondary markets for the securities of open-end

management funds (or ‘‘mutual funds’’), which

continuously publicly offer and redeem securities.

The requirement that public offers and sales be

registered under the Securities Act thus deters most

foreign mutual funds from offering securities to

Canadian/U.S. Participants.

2The commenters included sixteen financial

institutions, eight professional and trade

associations, seven investors, two government

agencies, one elected official, and one consultant

firm. The comment letters, and a summary of the

comment letters received during the comment

period, are available in the Commission’s Public

Reference Room, 450 Fifth Street, NW, Washington,

DC (File No. S7–10–99).

3We are also issuing an order that provides

exemptive relief from the broker-dealer registration

requirements of the Exchange Act for certain

Canadian broker-dealers that effect transactions for

Canadian/U.S. Participants with respect to their

Canadian retirement accounts. See In the Matter of

the Investment Dealers Association of Canada;

Order Granting Exemption, Release No. 34–42906

(June 7, 2000).

4The following discussion focuses on the scope

and conditions of rule 237. The scope and

conditions of rule 7d–2, as discussed below, are

largely identical.

5The rule exempts sales to a Canadian/U.S.

Participant’s retirement account in connection with

an exchange or re-allocation of existing Canadian

retirement account investments, as well as sales in

connection with new investments made with

additional contributions to the account.

Commenters confirmed our understanding that

most Canadian/U.S. Participants will not make

significant additional contributions to their

Canadian retirement accounts because Canadian tax

law penalizes contributions greater than a specified

percentage of an individual’s Canadian earned

income (i.e., income that is earned and taxable in

Canada), which an individual employed in the

United States ordinarily would not have. See

Proposing Release, supra note 1, at n.4.

6See rule 237(a)(6). The proposed definition of

‘‘participant’’ would have included only

individuals who are entitled to receive the income

and assets from a Canadian retirement account (i.e.,

beneficiaries). We revised the definition, at the

suggestion of commenters, to include individuals

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Parts 230, 240 and 270

[Release Nos. 33–7860, 34–42905, IC–24491;

File No. S7–10–99 International Series

Release No.1226]

RIN 3235–AH32

Offer and Sale of Securities to

Canadian Tax-Deferred Retirement

Savings Accounts

AGENCY: Securities and Exchange

Commission.

ACTION: Final rule.

SUMMARY: The Commission is adopting

a new rule that would permit foreign

securities to be offered to U.S.

participants in certain Canadian taxdeferred retirement accounts and sold to

those accounts without being registered

under the Securities Act of 1933. The

Commission also is adopting a new rule

that would permit foreign investment

companies to offer securities to those

U.S. participants and sell securities to

their Canadian retirement accounts

without registering under the

Investment Company Act of 1940. These

rules will enable investors who hold

securities in certain Canadian taxdeferred retirement accounts, and who

reside or are temporarily present in the

United States, to manage their

investments within those accounts.

EFFECTIVE DATE: June 23, 2000.

FOR FURTHER INFORMATION CONTACT:

Curtis A. Young, Senior Counsel, or C.

Hunter Jones, Assistant Director, at

(202) 942–0690, Office of Regulatory

Policy, Division of Investment

Management, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, DC 20549–0506.

SUPPLEMENTARY INFORMATION: The

Securities and Exchange Commission

(‘‘Commission’’) today is adopting rule

237 [17 CFR 230.237] under the

Securities Act of 1933 [15 U.S.C. 77a–

aa] (the ‘‘Securities Act’’), rule 7d–2 [17

CFR 270.7d–2] under the Investment

Company Act of 1940 [15 U.S.C. 80a]

(the ‘‘Investment Company Act’’), and

amendments to rule 12g3–2 under the

Securities Exchange Act of 1934 [15

U.S.C. 78a–mm] (the ‘‘Exchange Act’’).

Table of Contents

Executive Summary

I. Discussion

A. Rule 237 Under the Securities Act

B. Rule 7d–2 Under the Investment

Company Act

C. Amendments to Rule 12g3–2 Under the

Exchange Act

II. Effective Date

III. Cost Benefit Analysis

IV. Effects On Efficiency, Competition And

Capital Formation

V. Paperwork Reduction Act

VI. Summary Of Final Regulatory Flexibility

Analysis

VII. Statutory Authority

Text of Rules

Executive Summary

In Canada, individuals can invest a

portion of their earnings in tax-deferred

retirement savings accounts (‘‘Canadian

retirement accounts’’), which operate in

a manner similar to Individual

Retirement Accounts (‘‘IRAs’’) in the

United States. Individuals who have

established Canadian retirement

accounts and later moved to the United

States (‘‘Canadian/U.S. Participants’’ or

‘‘participants’’) have been unable to

make changes in their retirement

accounts because the changes would

involve the sale of unregistered

securities and investment companies

(‘‘funds’’) in violation of U.S. securities

laws.

The Commission is adopting two

rules that are designed to enable

Canadian/U.S. Participants to manage

the assets in their Canadian retirement

accounts. The new rules: (i) permit

securities of foreign issuers, including

securities of foreign funds, to be offered

to Canadian/U.S. Participants and sold

to their Canadian retirement accounts

without being registered under the

Securities Act or the Exchange Act, and

(ii) permit foreign funds to offer

securities to Canadian/U.S. Participants

and sell securities to their Canadian

retirement accounts without registering

as investment companies under the

Investment Company Act. The offer and

sale of these securities, however, will

remain fully subject to the antifraud

provisions of the U.S. securities laws.

The Commission also is issuing an order

exempting Canadian broker-dealers that

maintain these retirement accounts for

Canadian/U.S. Participants, from the

registration requirements and certain

related provisions of the Exchange Act.

I. Discussion

The Commission has received

complaints from many Canadian/U.S.

Participants that the application of the

U.S. securities laws to their retirement

accounts has left them unable to manage

their investments in those accounts. In

response, we proposed rules last year to

provide relief from the registration

requirements of the federal securities

laws for offers of securities to

participants in Canadian retirement

accounts, and sales to their accounts.1

We received 35 comment letters on the

proposed rules, all of which supported

the proposal.2 Today we are adopting

the rules substantially as proposed, with

modifications that reflect a number of

technical changes suggested by

commenters.3

A. Rule 237 Under the Securities Act 4

Rule 237 exempts from the

registration requirements of the

Securities Act the offer of a foreign

issuer’s securities to a ‘‘participant’’ and

the sale of those securities to his or her

Canadian retirement account.5 A

‘‘participant’’ includes an individual

permanently or temporarily in the

United States who contributes to or is

(or will be) entitled to receive the assets

from a Canadian retirement account.6 A

Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Rules and Regulations 37673

who contribute to a Canadian retirement account

but are not beneficiaries, and those who are

beneficiaries but have yet to reach the age when

they may receive income and assets from the plan.

7See rule 237(a)(2). The proposed rule used the

term ‘‘self-directed,’’ which we have not included

in the final rule. Commenters expressed concern

that the term might not be understood in Canada

to include certain plans in which the participant

selects or controls the investments.

8A ‘‘foreign issuer’’ includes foreign governments

and political subdivisions, foreign nationals, and

foreign private issuers as defined under Securities

Act rule 405 [17 CFR 230.405].

9A ‘‘prominent’’ statement under the rule would

be one that is designed to attract the reader’s

attention. See, e.g., Securities Act rule 421 [17 CFR

230.421] (guidelines on presenting information in a

prospectus in a clear, concise, and understandable

manner); U.S. Securities and Exchange

Commission, Office of Investor Education and

Assistance, A Plain English Handbook: How to

Create Clear SEC Disclosure Documents 43–54

(1998) (providing suggestions for emphasizing

information, such as extra white space, bold type,

shading, boxes, and sidebars).

10The rule defines Canadian law as the federal,

provincial, or territorial laws and regulations of

Canada, as well as the rules and regulations of any

Canadian self-regulatory authority. See rule

237(a)(1). Unlike the proposed rule, the rule as

adopted does not prevent a person relying on the

rule from asserting that the law or jurisdiction of

a particular Canadian province or territory should

apply in a legal action rather than the law or

jurisdiction of another Canadian province or

territory.

11See rule 237(b)(2). We are not adopting the

proposed condition that a person relying on the rule

not disclaim the applicability of U.S. law or the

jurisdiction of U.S. courts, in any proceeding

involving eligible securities. Rule 237 is premised

on the availability of investor protections afforded

by Canadian law for Canadian retirement account

investments. Because the rule is premised on the

availability of Canadian remedies, we believe, on

further reflection, that conditioning the rule on not

disclaiming U.S. remedies is unnecessary.

12See In the Matter of the Investment Dealers

Association of Canada; Order Granting Exemption,

Release No. 34–42906 (June 7, 2000). Under the

order, a broker-dealer also may not solicit

individuals in the United States for new Canadian

retirement accounts.

13See rule 7d–2(b).

14See supra Part I.A (discussion of the scope and

conditions of proposed rule 237). The one

difference is that rule 7d–2 requires written offering

materials for eligible securities to disclose

prominently not only that the securities are not

registered with the Commission, but also that the

foreign fund that issued those securities is not

registered with the Commission. Rule 7d–2(b)(1).

15See rule 12g3–2(a)(2).

16See 5 U.S.C. 553(d)(1) (permitting exemptive

rules to become effective less than 30 days after

publication).

Canadian retirement account includes a

Registered Retirement Savings Plan

(‘‘RRSP’’), Registered Retirement Income

Fund (‘‘RRIF’’), and similar retirement

accounts established under Canadian

law to provide tax-deferred retirement

benefits. The accounts covered by the

rule are limited to those that are

managed by the participants, i.e., are

plans for which the participant selects

or controls the securities in the

account.7

The exemption provided by rule 237

would be available for offers and sales

of securities of foreign issuers, if the

securities are available for purchase by

Canadian investors other than

Canadian/U.S. Participants. The

requirement that the issuer be a ‘‘foreign

issuer’’ is designed to prevent a U.S.

issuer from using the rule to sell

unregistered securities to persons in the

United States.8

An issuer or other person who relies

on rule 237 must comply with two

conditions. First, all written offering

materials for eligible securities

(including advertisements and

newsletters) delivered to a participant

must prominently disclose that the

securities are not registered with the

U.S. Securities and Exchange

Commission.9 Second, a person relying

on the rule must not disclaim the

applicability of Canadian law or

jurisdiction 10 in any proceeding

involving eligible securities.11

We have eliminated a number of

restrictions included in proposed rule

237 that on further reflection we believe

are unnecessary. First, the proposed rule

would have specified the activities in

which persons relying on the rule

would be permitted to engage with

respect to participants, such as paying

dividends on investments and sending

updated offering materials. One

commenter pointed out the difficulty in

identifying all permitted activities and

expressed concern that the rule could

prohibit activities that are consistent

with the purpose of the rule. We share

this concern and have revised the rule

to exclude any description of permitted

activities.

Second, proposed rule 237 would

have permitted a person relying on the

rule to solicit a Canadian/U.S.

Participant only if the person was an

authorized agent of the participant

before the solicitation. That condition

was designed to prevent the exemption

from being used as an avenue for a

distribution of securities in the United

States beyond the rule’s limited

purposes. In the order we are issuing

today, we are requiring that, as a

condition for exemptive relief from the

broker-dealer registration requirements

of the Exchange Act, the broker-dealer

must have had a bona fide, pre-existing

relationship with the participant before

he or she entered the United States.12

We believe this condition of the

exemptive order is sufficient and

therefore have not included the

condition in the rule.

Finally, proposed rule 237 would

have prohibited persons relying on the

rule from engaging in activities that

would condition the U.S. market for the

securities (such as advertising the

securities in the United States) or that

would facilitate secondary trading in the

securities. We believe this provision

also is unnecessary. As one commenter

noted, such marketing activities would

almost certainly result in a ‘‘public

offering’’ to U.S. persons other than

Canadian/U.S. Participants, and thus

would not be exempted under the rule

from the registration requirements of the

Securities Act.

B. Rule 7d–2 Under the Investment

Company Act

Rule 7d–2 under the Investment

Company Act provides that a foreign

fund’s offer of securities to Canadian/

U.S. Participants, and a sale to their

accounts, are not ‘‘public offerings’’ that

would require the fund to register as an

investment company under that Act.13

The scope of this rule, and the

conditions that must be met by a foreign

fund relying on the rule, are

substantially the same as the scope and

conditions of rule 237 under the

Securities Act.14

C. Amendments to Rule 12g3–2 Under

the Exchange Act

The Commission is adopting as

proposed amendments to rule 12g3–2,

which exempts securities of a foreign

private issuer from the registration

requirements of the Securities Exchange

Act if the issuer has fewer than 300

shareholders resident in the United

States. The amendments provide that

Canadian/U.S. Participants who hold

shares of a foreign private issuer only

through their Canadian retirement

accounts do not count towards the 300

shareholders in the United States.15

II. Effective Date

The effective date will be June 23,

2000. This effective date is less than 30

days after publication so that Canadian/

U.S. Participants, issuers, and others

may benefit sooner from the relief

provided by the rule changes.16

III. Cost Benefit Analysis

The Commission is sensitive to the

costs and benefits imposed by its rules.

37674 Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Rules and Regulations

17See Proposing Release, supra note 1, at text

accompanying nn. 9–10.

18The U.S. securities laws do not directly

prohibit participants from managing their accounts,

but offers and sales to participants and their

accounts necessitate registration in the United

States. 19 15 U.S.C. 78w(a).

20 15 U.S.C. 77b(b), 80a–2(c), and 78c(f). 21As stated in the Proposing Release, the

Commission estimates that the annual reporting and

recordkeeping burden for the rule 237 disclosure

requirement will be approximately 17.5 hours. See

Proposing Release, supra note 1, at Part IV.B. The

Commission estimates that the annual reporting and

recordkeeping burden for the rule 7d–2 disclosure

requirement will be approximately 32.5 hours. See

id. at Part IV.A.

The rules provide substantial benefits to

Canadian/U.S. Participants. Because

most securities that are held in

Canadian retirement accounts, and the

Canadian funds that issue many of those

securities, are not registered under the

U.S. securities laws, those securities

generally cannot be sold by issuers to

persons in the United States without

violating the registration requirements

of the Securities Act and, in the case of

securities of an unregistered fund, the

Investment Company Act.17 As a

consequence, Canadian/U.S.

Participants have not been able to

purchase or exchange securities for their

Canadian retirement accounts as needed

to meet their changing investment goals

or income needs. 18 Rules 237 and 7d–

2 permit offers of a foreign issuer’s

securities to a Canadian/U.S. Participant

and sales to his or her account, under

certain conditions consistent with the

protection of investors. The rules thus

will benefit these investors by making it

possible for them to manage their

Canadian retirement account

investments.

Rules 237 and 7d–2 also will benefit

foreign issuers (including foreign funds)

and persons that sell securities of

foreign issuers to Canadian retirement

accounts in two ways. First, absent the

rules, these persons likely could not

offer foreign securities to Canadian/U.S.

Participants or sell foreign securities to

their accounts. Second, absent the rules,

they could be exposed to substantial

liability if they sold securities of foreign

issuers to participants accidentally.

Foreign issuers and other persons may

incur costs when relying on the rules to

offer or sell securities. The rules require

that any written offering materials

delivered to a Canadian/U.S. Participant

in reliance on the rules include a

prominent statement that the securities

are not registered with the Commission

and, in the case of securities issued by

a foreign fund, that the fund also is not

registered with the Commission. To

meet the requirements, the foreign

issuer, underwriter, or broker-dealer

may redraft an existing prospectus or

other written offering material to add

this disclosure statement, or may draft

a sticker or supplement containing this

disclosure to be added to existing

offering materials. The associated costs

are likely to be minimal and are justified

by the benefits of the relief provided by

the new rules, which are, of course, not

mandatory.

Rules 237 and 7d–2 also may result in

some U.S. issuers, including some U.S.

funds, incurring costs in the form of lost

new business from Canadian/U.S.

Participants who, absent the proposals,

might cash out their Canadian

retirement accounts and invest those

assets in securities that are registered in

the United States. Based on comments

that the Commission has received from

Canadian/U.S. Participants, however, it

appears that many currently do not

choose this investment strategy because

of the adverse tax consequences that

likely would result. It therefore appears

that the rules will not significantly

affect the number of participants that

may cash out their Canadian retirement

accounts in order to invest their

retirement assets in U.S.-registered

securities. The rules thus should not

result in significant costs for U.S.

issuers, including U.S. funds, in the

form of lost new business. Because the

rules primarily will affect foreign

issuers and other foreign persons, it

appears that the rules also will not

cause any other costs or benefits for U.S.

issuers.

The amendments to rule 12g3–2(a)

provide that a foreign issuer need not

count the Canadian/U.S. Participants

who hold its securities only through

their Canadian retirement accounts for

purposes of determining whether the

issuer has fewer than 300 shareholders

resident in the United States and thus

qualifies for the exemption from

Exchange Act registration afforded by

the rule. These amendments will benefit

any foreign issuer whose securities

might not qualify for the rule 12g3–2(a)

exemption from Exchange Act

registration if it were required to count

participants who hold its securities in

Canadian retirement accounts for

purposes of determining whether it has

fewer than 300 U.S. shareholders. The

amendments also will benefit Canadian/

U.S. Participants, because without the

amendments foreign issuers and brokerdealers might be reluctant to sell foreign

securities to participants’ Canadian

retirement accounts out of concern that

those sales might make the foreign

securities subject to registration under

section 12(g). There appear to be no

significant costs to foreign issuers,

domestic issuers, or investors associated

with these amendments.

IV. Effects On Efficiency, Competition

and Capital Formation

Section 23(a) 19 of the Exchange Act

requires the Commission, in adopting

rules under the Exchange Act, to

consider the competitive effects of such

rules, if any, and to refrain from

adopting a rule that would impose a

burden on competition not necessary or

appropriate in furthering the purposes

of the Exchange Act. In addition, section

2(b) of the Securities Act, section 2(c) of

the Investment Company Act, and

section 3(f) of the Exchange Act provide

that when the Commission is engaged in

rulemaking and is required to consider

whether an action is necessary or

appropriate in the public interest, it

must consider, in addition to the

protection of investors, whether the

action will promote efficiency,

competition, and capital formation.20

The Commission does not believe rule

237, rule 7d–2, and the amendment to

rule 12g3–2 will impose any burden on

competition. Based on the reasons

stated in the cost-benefit analysis above,

the Commission believes that the rules

will promote efficiency, competition,

and capital formation. Two commenters

stated that the rules would promote

efficiency by removing the regulatory

barrier that hinders the ability of

participants to manage their Canadian

retirement accounts. One of these

commenters also stated that the rules

would promote competition among the

issuers of eligible securities because

participants represent a significant

market segment in terms of dollar value

of assets held in their Canadian

retirement accounts.

As discussed above, we anticipate

that the rules will not result in any

major increase in costs to funds or fund

investors.

V. Paperwork Reduction Act

Certain provisions of the rules

constitute a ‘‘collection of information’’

requirement within the meaning of the

Paperwork Reduction Act of 1995 [44

U.S.C. 3501–3520]. The Commission

solicited, but did not receive, comments

on the collection of information

requirements in the Proposing

Release.21 The Commission submitted

the proposed rules to the Office of

Management and Budget (‘‘OMB’’)

pursuant to 44 U.S. 3507(d) and

received approval of the rules’

collection of information requirements

(OMB control number 3235–0527). An

agency may not conduct or sponsor, and

Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Rules and Regulations 37675

22Rule 12g–1 under the Exchange Act [17 CFR

240.12g–1] exempts an issuer from this section

12(g)(1) registration requirement if its total assets at

fiscal year end do not exceed $10 million and, with

respect to a foreign private issuer, the securities

were not quoted in an automated inter-dealer

quotation system. 23See 13 CFR 121.105 (defining ‘‘business

concern’’ for purposes of the Small Business

Administration’s definition of ‘‘small business’’). 24For purposes of the rules, a domestic issuer

(other than an investment company) that has total

assets of $5 million or less and that is engaged or

proposes to engage in small business financing is

considered a small entity. 17 CFR 230.157. A

domestic investment company that, together with

other investment companies in the same group of

related investment companies, has net assets of $50

million or less is considered a small entity. 17 CFR

270.0–10.

25See supra note 23 and accompanying text.

26See id.

a person is not required to respond to,

a collection of information unless it

displays a currently valid control

number.

VI. Summary Of Final Regulatory

Flexibility Analysis

The Commission has prepared a Final

Regulatory Flexibility Analysis

(‘‘FRFA’’) in accordance with 5 U.S.C.

604 regarding rules 237 and 7d–2, and

the proposed amendments to rule 12g3–

2. A summary of the Initial Regulatory

Flexibility Analysis (‘‘IRFA’’), which

was prepared in accordance with 5

U.S.C. 603, was published in the

Proposing Release. We received no

comments on the IRFA.

A. Need for the Rules and Rule

Amendments

As discussed more fully in the FRFA,

the rules and rule amendments are

intended to give participants the ability

to manage the assets in their taxdeferred retirement savings accounts. To

permit this, the Commission is adopting

two new rules that provide relief from

the U.S. registration requirements,

under certain conditions, for offers of

foreign securities to Canadian/U.S.

Participants and sales to their accounts.

Rule 237 under the Securities Act

permits securities of foreign issuers,

including securities of foreign funds, to

be offered to Canadian/U.S. Participants

and sold to their Canadian retirement

accounts without being registered under

the Securities Act. Rule 7d–2 under the

Investment Company Act permits

foreign funds to offer securities to

Canadian/U.S. Participants and sell

securities to their Canadian retirement

accounts without registering as

investment companies under the

Investment Company Act.

The FRFA notes that to ensure that

the securities registration requirements

of the Exchange Act do not deter foreign

issuers from relying on rules 237 and

7d–2 to sell their securities to Canadian

retirement accounts of Canadian/U.S.

Participants, the Commission also is

amending rule 12g3–2 under the

Exchange Act. Section 12(g)(1) of the

Exchange Act [15 U.S.C. 78l(g)(1)]

provides that an issuer whose securities

are traded by any means of interstate

commerce must register its equity

securities with the Commission under

the Exchange Act if it has more than 500

shareholders and total assets over $1

million.22 The Commission is

authorized to exempt securities of

foreign issuers from this registration

requirement, and has adopted rule

12g3–2 to exempt (i) securities of a

foreign private issuer if it has fewer than

300 shareholders resident in the United

States (rule 12g3–2(a)), and (ii)

securities of a foreign private issuer

with 300 or more shareholders resident

in the United States if the issuer

furnishes certain information to the

Commission that it provides to

shareholders in its home country, and

meets certain other requirements (rule

12g3–2(b)).

B. Small Entities Subject to the Rules

and Rule Amendments

As discussed more fully in the FRFA,

the rules will affect foreign issuers and

other persons that offer foreign

securities to Canadian/U.S. Participants

and sell those securities to Canadian

retirement accounts. Foreign businesses,

however, are not small entities for

purposes of the Regulatory Flexibility

Act.23 Therefore, these rules are

unlikely to have a significant economic

impact on a substantial number of small

entities.

The FRFA notes that it is possible

that, as a result of the rules, some

domestic issuers may incur costs in the

form of lost new business from

Canadian/U.S. Participants who, absent

the rules, might choose to cash out their

Canadian retirement accounts and

invest those assets in securities

registered under the U.S. securities

laws. However, it appears that many

Canadian/U.S. Participants currently do

not choose this investment strategy.

Moreover, even if absent the rules some

participants would cash out their

Canadian retirement accounts and

invest those assets in domestic issuers,

including domestic funds, we have no

basis for predicting whether they would

invest in domestic issuers that are small

entities.24 Therefore, it appears that

these rules are unlikely to have a

significant economic impact on a

substantial number of domestic issuers

that are small entities.

As discussed more fully in the FRFA,

because foreign businesses are not small

entities for purposes of the Regulatory

Flexibility Act,25 it appears that the

amendments to rule 12g3–2 will not

have a significant economic impact on

a substantial number of small entities.

C. Reporting, Recordkeeping, and Other

Compliance Requirements

The FRFA notes that rule 237 and rule

7d–2 would require written offering

materials relating to securities that are

offered and sold in reliance on the rules

to disclose prominently that those

securities are not registered with the

Commission and that the securities are

being offered or sold in the United

States under an exemption from

registration. Rule 7d–2 would require

that written offering materials also

disclose that the foreign fund that

issued the securities is not registered

with the Commission. Rule 237 and rule

7d–2 are available only for offers and

sales of securities of foreign issuers.

This compliance requirement thus

would have no impact on small entities,

because foreign businesses are not small

entities for purposes of the Regulatory

Flexibility Act.26 Rules 237 and 7d–2,

and the amendments to rule 12g3–2, do

not involve any other reporting,

recordkeeping, or compliance

requirements.

D. Alternatives to Minimize Effect on

Small Entities

As discussed more fully in the FRFA,

the Commission considered various

alternatives that might minimize any

significant economic impact of the rules

on small entities. These include (i)

establishing different compliance or

reporting standards that take into

account the resources available to small

entities; (ii) clarifying, consolidating, or

simplifying the compliance

requirements for small entities; (iii)

using performance rather than design

standards; or (iv) exempting small

entities from coverage of all or part of

the rules. The FRFA concludes that

alternative requirements or

simplification or consolidation of the

requirements is unnecessary because the

amendments are designed to reduce the

compliance burdens for all funds,

including small entities. In addition, an

exemption from any of the requirements

for small entities would increase their

regulatory burden rather than decrease

it.

A copy of the FRFA may be obtained

by contacting Curtis A. Young, Division

of Investment Management, Securities

and Exchange Commission, 450 Fifth

37676 Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Rules and Regulations

Street, NW, Washington, DC 20549–

0506.

VII. Statutory Authority

The Commission is adopting rule 237

under the authority in sections 19(a)

and 28 of the Securities Act [15 U.S.C.

77s(a); 77z–3], rule 7d–2 under the

authority in section 38(a) of the

Investment Company Act [15 U.S.C.

80a–37(a)], and the amendments to rule

12g3–2 under the authority in section

19(a) of the Securities Act and section

12(g)(3) of the Exchange Act [15 U.S.C.

78l(g)(3)].

List of Subjects

17 CFR Parts 230 and 270

Investment companies, Reporting and

recordkeeping requirements, Securities.

17 CFR Part 240

Reporting and recordkeeping

requirements, Securities.

Text of Rules

For the reasons set out in the

preamble, Title 17, Chapter II of the

Code of Federal Regulations is amended

as follows:

PART 230—GENERAL RULES AND

REGULATIONS, SECURITIES ACT OF

1933

1. The authority citation for Part 230

continues to read, in part, as follows:

Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j,

77r, 77s, 77sss, 77z–3, 78c, 78d, 78l, 78m,

78n, 78o, 78w, 78ll(d), 79t, 80a–8, 80a–24,

80a–28, 80a–29, 80a–30 and 80a–37, unless

otherwise noted.

* * * * *

2. Section 230.237 is added to read as

follows:

§ 230.237 Exemption for offers and sales

to certain Canadian tax-deferred retirement

savings accounts.

(a) Definitions. As used in this

section:

(1) Canadian law means the federal

laws of Canada, the laws of any

province or territory of Canada, and the

rules or regulations of any federal,

provincial, or territorial regulatory

authority, or any self-regulatory

authority, of Canada.

(2) Canadian Retirement Account

means a trust or other arrangement,

including, but not limited to, a

‘‘Registered Retirement Savings Plan’’ or

‘‘Registered Retirement Income Fund’’

administered under Canadian law, that

is managed by the Participant and:

(i) Operated to provide retirement

benefits to a Participant; and

(ii) Established in Canada,

administered under Canadian law, and

qualified for tax-deferred treatment

under Canadian law.

(3) Eligible Security means a security

issued by a Qualified Company that:

(i) Is offered to a Participant, or sold

to his or her Canadian Retirement

Account, in reliance on this section; and

(ii) May also be purchased by

Canadians other than Participants.

(4) Foreign Government means the

government of any foreign country or of

any political subdivision of a foreign

country.

(5) Foreign Issuer means any issuer

that is a Foreign Government, a national

of any foreign country or a corporation

or other organization incorporated or

organized under the laws of any foreign

country, except an issuer meeting the

following conditions:

(i) More than 50 percent of the

outstanding voting securities of the

issuer are held of record either directly

or through voting trust certificates or

depositary receipts by residents of the

United States; and

(ii) Any of the following:

(A) The majority of the executive

officers or directors are United States

citizens or residents;

(B) More than 50 percent of the assets

of the issuer are located in the United

States; or

(C) The business of the issuer is

administered principally in the United

States.

(iii) For purposes of this definition,

the term resident, as applied to security

holders, means any person whose

address appears on the records of the

issuer, the voting trustee, or the

depositary as being located in the

United States.

(6) Participant means a natural person

who is a resident of the United States,

or is temporarily present in the United

States, and who contributes to, or is or

will be entitled to receive the income

and assets from, a Canadian Retirement

Account.

(7) Qualified Company means a

Foreign Issuer whose securities are

qualified for investment on a taxdeferred basis by a Canadian Retirement

Account under Canadian law.

(8) United States means the United

States of America, its territories and

possessions, any State of the United

States, and the District of Columbia.

(b) Exemption. The offer to a

Participant, or the sale to his or her

Canadian Retirement Account, of

Eligible Securities by any person is

exempt from Section 5 of the Act (15

U.S.C. 77e) if the person:

(1) Includes in any written offering

materials delivered to a Participant, or

to his or her Canadian Retirement

Account, a prominent statement that the

Eligible Security is not registered with

the U.S. Securities and Exchange

Commission and the Eligible Security is

being offered or sold in the United

States under an exemption from

registration.

(2) Has not asserted that Canadian

law, or the jurisdiction of the courts of

Canada, does not apply in a proceeding

involving an Eligible Security.

PART 240—GENERAL RULES AND

REGULATIONS, SECURITIES

EXCHANGE ACT OF 1934

3. The authority citation for Part 240

continues to read, in part, as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,

77s, 77z–2, 77eee, 77ggg, 77nnn, 77sss, 77ttt,

78c, 78d, 78f, 78i, 78j, 78j–1, 78k, 78k–1, 78l,

78m, 78n, 78o, 78p, 78q, 78s, 78u–5, 78w,

78x, 78ll(d), 78mm, 79q, 79t, 80a–20, 80a–23,

80a—29, 80a–37, 80b–3, 80b–4 and 80b–11,

unless otherwise noted.

* * * * *

4. Section 240.12g3–2 is amended by

revising paragraph (a) to read as follows:

§ 240.12g3–2 Exemptions for American

depositary receipts and certain foreign

securities.

(a) Securities of any class issued by

any foreign private issuer shall be

exempt from section 12(g) (15 U.S.C.

78l(g)) of the Act if the class has fewer

than 300 holders resident in the United

States. This exemption shall continue

until the next fiscal year end at which

the issuer has a class of equity securities

held by 300 or more persons resident in

the United States. For the purpose of

determining whether a security is

exempt pursuant to this paragraph:

(1) Securities held of record by

persons resident in the United States

shall be determined as provided in

§ 240.12g5–1 except that securities held

of record by a broker, dealer, bank or

nominee for any of them for the

accounts of customers resident in the

United States shall be counted as held

in the United States by the number of

separate accounts for which the

securities are held. The issuer may rely

in good faith on information as to the

number of such separate accounts

supplied by all owners of the class of its

securities which are brokers, dealers, or

banks or a nominee for any of them.

(2) Persons in the United States who

hold the security only through a

Canadian Retirement Account (as that

term is defined in rule 237(a)(2) under

the Securities Act of 1933

(§ 230.237(a)(2) of this chapter)), shall

not be counted as holders resident in

the United States.

* * * * *

Federal Register / Vol. 65, No. 116 / Thursday, June 15, 2000 / Rules and Regulations 37677

PART 270—RULES AND

REGULATIONS, INVESTMENT

COMPANY ACT OF 1940

5. The general authority citation for

Part 270 continues to read in part as

follows:

Authority: 15 U.S.C. 80a–1 et seq., 80a–

34(d), 80a–37, 80a–39 unless otherwise

noted:

* * * * *

6. Section 270.7d–2 is added to read

as follows:

§ 270.7d–2 Definition of ‘‘public offering’’

as used in section 7(d) of the Act with

respect to certain Canadian tax-deferred

retirement savings accounts.

(a) Definitions. As used in this

section:

(1) Canadian law means the federal

laws of Canada, the laws of any

province or territory of Canada, and the

rules or regulations of any federal,

provincial, or territorial regulatory

authority, or any self-regulatory

authority, of Canada.

(2) Canadian Retirement Account

means a trust or other arrangement,

including, but not limited to, a

‘‘Registered Retirement Savings Plan’’ or

‘‘Registered Retirement Income Fund’’

administered under Canadian law, that

is managed by the Participant and:

(i) Operated to provide retirement

benefits to a Participant; and

(ii) Established in Canada,

administered under Canadian law, and

qualified for tax-deferred treatment

under Canadian law.

(3) Eligible Security means a security

issued by a Qualified Company that:

(i) Is offered to a Participant, or sold

to his or her Canadian Retirement

Account, in reliance on this section; and

(ii) May also be purchased by

Canadians other than Participants.

(4) Foreign Government means the

government of any foreign country or of

any political subdivision of a foreign

country.

(5) Foreign Issuer means any issuer

that is a Foreign Government, a national

of any foreign country or a corporation

or other organization incorporated or

organized under the laws of any foreign

country, except an issuer meeting the

following conditions:

(i) More than 50 percent of the

outstanding voting securities of the

issuer are held of record either directly

or through voting trust certificates or

depositary receipts by residents of the

United States; and

(ii) Any of the following:

(A) The majority of the executive

officers or directors are United States

citizens or residents;

(B) More than 50 percent of the assets

of the issuer are located in the United

States; or

(C) The business of the issuer is

administered principally in the United

States.

(iii) For purposes of this definition,

the term resident, as applied to security

holders, means any person whose

address appears on the records of the

issuer, the voting trustee, or the

depositary as being located in the

United States.

(6) Participant means a natural person

who is a resident of the United States,

or is temporarily present in the United

States, and who contributes to, or is or

will be entitled to receive the income

and assets from, a Canadian Retirement

Account.

(7) Qualified Company means a

Foreign Issuer whose securities are

qualified for investment on a taxdeferred basis by a Canadian Retirement

Account under Canadian law.

(8) United States means the United

States of America, its territories and

possessions, any State of the United

States, and the District of Columbia.

(b) Public Offering. For purposes of

section 7(d) of the Act (15 U.S.C. 80a–

7(d)), the term ‘‘public offering’’ does

not include the offer to a Participant, or

the sale to his or her Canadian

Retirement Account, of Eligible

Securities issued by a Qualified

Company, if the Qualified Company:

(1) Includes in any written offering

materials delivered to a Participant, or

to his or her Canadian Retirement

Account, a prominent statement that the

Eligible Security, and the Qualified

Company that issued the Eligible

Security, are not registered with the U.S.

Securities and Exchange Commission,

and that the Eligible Security and the

Qualified Company are relying on

exemptions from registration.

(2) Has not asserted that Canadian

law, or the jurisdiction of the courts of

Canada, does not apply in a proceeding

involving an Eligible Security.

Dated: June 7, 2000.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–15086 Filed 6–14–00; 8:45 am]

BILLING CODE 8010–01–U