SEC Concept Release on Foreign Private Issuer Eligibility: A Portent for the Foreign Private Issuer Regulatory Framework?

On June 4, 2025, the SEC published a concept release in which the agency analyzes trends related to foreign private issuers (FPIs) and solicits extensive feedback regarding whether and how the definition of FPI should be amended. This results from the fact that FPIs are increasingly traded exclusively in the United States and are not subject to any non-U.S. disclosure requirements, and yet benefit from significant exemptions that are not available to their U.S. counterparts.

The current framework for the definition of “foreign private issuer” was adopted in 1983 and last amended in 1999. The test for FPI status is based on whether a majority of the shareholders of a non-U.S. incorporated company are U.S. residents. Even if that is the case, a non-U.S. incorporated company can still be a FPI if it does not maintain certain U.S. nexuses.[1]

At this stage, no definitive rule changes are proposed, and it is not clear how the SEC will proceed. The concept release does not seek comment on the exemptions that apply to FPIs, focusing instead only on the definition of FPI.

The public has 90 days from when the concept release is published in the Federal Register to provide comments in response to the SEC’s solicitation.

Shift in the Nature of Foreign Private Issuers[2]

The Concept Release sets forth data on the changes in the nature of FPIs that has occurred between 2003 and 2023.

The following table sets forth the top five jurisdictions of incorporation for FPIs and related information from 2003 and 2023:

2003		2023
Country	Number	Country	Number	Aggregate Market Cap ($MM)	Median Market Cap ($MM)
Jurisdiction of Incorporation
Canada (non-MJDS)	224	Cayman Islands	322	$1,047,823	$104
United Kingdom	106	Israel	97	$116,454	$121
Israel	81	Canada (non-MJDS)	75	$24,097	$24
Brazil	48	British Virgin Islands	62	$13,008	$29
Mexico	38	United Kingdom	44	$1,593,934	$13,072
Jurisdiction of Headquarters
Canada (non-MJDS)	218	China	219	$462,669	$84
United Kingdom	106	Israel	103	$119,202	$121
Israel	81	Canada (non-MJDS)	70	$17,836	$24
Brazil	50	United Kingdom	63	$1,844,040	$2,957
Mexico	38	Hong Kong	45	$220,018	$56

The SEC noted the following points based on this data:

• FPIs tended to be incorporated in a different jurisdiction from their headquarters, and the most common jurisdictions shifted to the Cayman Islands for issuers’ jurisdiction of incorporation and mainland China for their headquarters.
• Despite the shift in foreign jurisdictions, the market capitalization of FPIs incorporated in the Cayman Islands and/or headquartered in mainland China tended to be relatively small, resulting in those issuers representing a small percentage of the aggregate global market capitalization of all FPIs despite their numerosity. In 2023, the aggregate global market capitalization of FPIs incorporated in the Cayman Islands represented 11.6% and the aggregate global market capitalization of FPIs headquartered in mainland China represented 5.1% of the aggregate global market capitalization of all FPIs.
• The increase in China-based issuers[3] from approximately 5% of FPIs in 2003 to an estimated 28% in 2023 led to a corresponding increase in issuers incorporated in the Cayman Islands or the British Virgin Islands, since 97% of China-based issuers are incorporated in either of those two territories.

The following table sets forth the percentage of trading on U.S. exchanges by FPIs:

	2014	2023
Percentage of FPIs > 99% Percentage of U.S. Global Trading[4]	44%	55%
Percentage of FPIs > 90% Percentage of U.S. Global Trading	48%	64%
Percentage of FPIs > 50% Percentage of U.S. Global Trading	64%	76%
Percentage of U.S. Global Trading of the lowest 25% of FPIs	22%	53%

The SEC noted the following points based on this data:

• Global trading of FPIs has not only become more concentrated in the United States over the past 20 years, but also a majority of FPIs’ equity securities trade nearly exclusively on U.S. exchanges.
• FPIs that trade almost exclusively on U.S. exchanges are likely to have smaller market capitalizations and be incorporated in the Cayman Islands and headquartered in China. These exclusive FPIs represent only 9.2% of the aggregate FPI market capitalization due to their smaller market capitalizations, despite being numerous as a percentage of total FPIs.
• After reviewing the data, the SEC notes that a growing number of FPIs are subject to limited current disclosure requirements compared to U.S. domestic reporting requirements and the reporting requirements of jurisdictions like Canada, the European Union, the United Kingdom, Brazil and Japan, which are declining in prevalence as jurisdictions in which FPIs are incorporated or headquartered.

Potential Changes in Foreign Private Issuer Eligibilty

The SEC is concerned that there is a significant uptick in issuers that are not subject to substantive disclosure and regulatory frameworks outside of the United States while still being afforded the scaled disclosure obligations conferred by FPI status. In the SEC’s view,  the absence of home jurisdiction regulation is at odds with the central underpinning of the FPI regime — that foreign issuers should be accommodated because they are subject to meaningful regulation under the laws of their home jurisdictions and traded in foreign markets.

The concept release includes 69 multipart questions organized around the following central themes:

Concept	Commentary
Should the 50% U.S. ownership threshold be lowered for FPI status?	In our view, the effect would be minimal because most FPIs do not rely on this prong, but on the three “nexus” tests.
Should a foreign trading volume test be added as a condition to FPI status?	According to the SEC’s data, requiring 5% of foreign trading volume would cause 62.4% of current FPIs to lose their status. It would cause 89% of China-headquartered companies to lose FPI status.
Should FPIs be required to be listed on a major foreign exchange?	The SEC points to its existing definition of “designated offshore securities exchange” under Regulation S as one possible way of determining such exchanges. It also solicits comment on other possible definitions.
Should FPIs be required to be incorporated or headquartered only in jurisdictions in which the SEC has determined there to be an adequately robust regulatory regime and be subject to their home country regimes without exemption?	The SEC notes that this would require the individual assessments of foreign securities regimes, which would necessitate cooperation of foreign authorities and potentially require SEC staff to monitor changes and updates in those foreign regimes. The tone of the SEC’s commentary indicates some concern about this approach.
Should the SEC establish additional systems of mutual recognition like the MDJS approach with other foreign jurisdictions?	This question is distinct from any change to the definition of FPI. MJDS is currently the only mutual recognition arrangement. The benefit of such arrangements is that they can be tailored to each non-U.S. system and can evolve over time.
Should the SEC require FPIs to certify that they are headquartered or incorporated, and under the oversight of, a foreign jurisdiction that is a party to the International Organization of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information (MMoU) or the enhanced MMoU?	The IOSCO is an international body of securities regulators, which seeks to develop and implement international standards regulating the financial markets. The MMoU is voluntary, nonbinding and does not supersede domestic laws. IOSCO members that sign the MMoU are expressing their intent and legal authority to assist other MMoU members in enforcement matters, including the sharing of information in enforcement matters involving FPIs.
What considerations should be given to the impact of FPIs having to transition to domestic reporting status?	The SEC raises numerous questions about the transition, including whether there should be a transition period for FPIs that report in IFRS before being required to report in U.S. GAAP. Currently there is only an 11-month de facto conversion period from the date on which FPI status is determined until the date that the next Form 20-F is due.

Statement on the Concept Release — Commissioner Mark T. Uyeda

SEC Commissioner Mark T. Uyeda voiced support for the SEC’s efforts to review the regulatory treatment of FPIs while cautioning against unintended consequences that could undermine the system’s longstanding benefits. Commissioner Uyeda emphasized that the current regime has effectively enabled foreign companies to access the U.S. capital markets and allowed U.S. investors to diversify their holdings, noting that:

Notwithstanding these concerns, it is important to note that we have not seen to date large-scale market failures from the differing disclosure regimes for U.S. issuers and foreign private issuers. To the extent that there have been issues with respect to FPIs, they often involve outright fraud and material misstatements and omissions. In other words, fraud can occur irrespective of the form the issuer files — or the exemption the issuer relies on.

Commissioner Uyeda underscored that while investor protection remains critical, any changes to the framework should preserve the economic substance of cross-border access and the benefits it provides to both issuers and U.S. investors.

Conclusion

If the SEC pursues any of the changes outlined in the concept release, a sizable percentage of FPIs could lose their status. It is also not clear how any potential new rules would be applied in the context of a company undertaking an initial public offering. Furthermore, it is  likely that any changes would disproportionately impact smaller market capitalization FPIs or would be FPIs, with the greatest numerical impact being on those headquartered in Canada (non-MJDS reporting companies), China, Hong Kong, Israel and Singapore, which represent the largest group of FPIs after Canada. FPIs that are likely to be impacted by a rule change should considering submitting feedback to the SEC.