Last week, the Securities and Exchange Commission (SEC) agreed further extensions for complying with SOX Section 404 by smaller public companies. This will include those foreign private issuers not already working to SOX rules. It also agreed that all newly listing companies have a year’s grace in having to comply with that section of SOX.
In May, the SEC surprised everyone by going against the recommendations of its own Advisory Committee on Smaller Public Companies by announcing that full Section 404 compliance would remain for all. However in last Wednesday's press release, SEC Chairman Christopher Cox said they would “continue the Commission's efforts to be sensitive and responsive to the particular needs of smaller public companies and foreign private issuers, and to minimize the burdens that Section 404 may impose on them. By offering further relief for smaller companies and most foreign issuers, today's actions will allow time for the Commission and the PCAOB to redesign Section 404 implementation in a way that is efficient and cost effective for investors".
For companies with a public float of $75 million or less, including such foreign companies listed on US exchanges, the compliance date has gone back six months to on or after Dec. 15, 2007 with an extra year allowed for 404 compliance. Medium-sized foreign issuers have also had their deadline extended by a year.
Welcome as this news has been to existing non-US companies impacted by SOX, the view from Asia, as given in a report by the FT, was that it was too little, too late. Whilst small Asian technology companies continue to list on NASDAQ, the larger listing are avoiding the US. In 2000, 25% of the value of non-Japanese Asian listings was in the US, now that is 4%, and Hong Kong, Singapore, London and Seoul exchanges have all benefited. Asian markets are highly liquid, the main exchanges are well regulated and costs are lower, whilst Asian executives are spared the long flights to New York to raise funds as well as the possibility of US court actions. There seems to be little sign that this trend, also seen in Europe, can be reversed regardless of any dilutions of SOX that the SEC may announce.
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