SEC Signals 'Change of Tone' on Foreign SOX Compliance

With the New York Stock Exchange's reputation as the market of choice for overseas companies at stake, the Securities and Exchange Commission signaled “a change in tone” yesterday toward foreign companies looking to avoid strict U.S. governance rules, Financial Times reported.

The Sarbanes-Oxley Act of 2002 laid down stringent new rules designed to protect U.S. investors in the wake of a spate of corporate scandals. Foreign companies are currently required to follow Sarbanes-Oxley if they are publicly listed in the U.S. Some have tried to get out of complying by delisting, but that doesn't get them off the hook if they have 300 or more U.S. investors. As it stands now, foreign companies must begin complying with the requirements from July 15, 2005 forward.

Foreign have had concerns about the cost of complying particularly with the act's Section 404, which requires companies to report on internal controls and to have the efficiency of the controls independently verified.

SEC Chairman William Donaldson was due to give a speech yesterday at the London School of Economics where he was expected to announce the “change in tone” on the issue, Financial Times reported, citing a person familiar with the SEC's thinking.

The move comes after heavy lobbying by British and German executives representing foreign companies with shares traded in the U.S. Several European companies said the high cost outweighed the benefits of a dual listing in New York, Financial Times reported.

Donaldson will continue to emphasize that Section 404 is the gold standard for investors, he was expected to say yesterday he is now willing to compromise to provide an easier exit for foreign companies. However, Donaldson is not expected to push for a change in rules that were designed to protect U.S. investors.

The SEC has expressed concern that the NYSE is now seen as a “roach hotel,” where you can check in, but you can't check out, Financial Times reported.

China Construction Bank, one of the country's Big Four state lenders, is considering shunning New York and listing its shares only in Hong Kong because of the high cost and strict requirements of US corporate governance rules, Financial Times reported, adding that the move by CCB would deprive the New York Stock Exchange of a $5 billion to $10billion initial public offering, the biggest IPO yet by a Chinese company.

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