Tag Archives: Foreign Broker Dealer

What is Regulation S?

Reg S Covers Offers and Sales of Securities to Non US Persons

A brief summary of Regulation S is that it provides safe harbors, and a possible exemption from SEC registration for sales of securities to Non US Persons. For the purposes of Reg S, a US Person would basically be a United States citizen, a US resident, or a corporation, LLC or Trust domiciled in one of the 50 US states.

The most important element of Regulation S is when securities are considered to have “come to rest abroad” so that their resale would not require registration under the Securities Act of 1933 (“Securities Act”).

Reg S Covers Offers and Sales That Occur Outside of the United States

Regulation S uses a “territorial approach” to Securities Act registration, which makes sense because this is a geographical issue.  The basic rules are that offers and sales subject to Section 5 of the Securities Act include any offers and sales occurring within the United States but that they do not include offers and sales that occur outside of the United States.

Must Be an Offshore Transaction with No Directed Selling Efforts in the US

Regulation S also includes several safe harbor exemptions addressing specific types of transactions.  Each Regulation S safe harbor is subject to two general conditions:

  1. The offer or sale must occur in an “offshore transaction.” The Seller must reasonably believe that the Buyer is offshore at the time of the offer or sale.  Or the transaction must happen on certain “designated offshore securities markets.”  This includes Canadian markets.  The transaction cannot be “pre-arranged” with a Buyer in the US.
  2. No “directed selling efforts” may be made within the US by the Issuer, a Distributor, any of their affiliates, or Agents acting on their behalf.  This essentially means no marketing whatsoever within the United States or on the internet, unless the website includes certain disclaimers designed to discourage US Persons from reading the materials.

Reg S Has Many Potential Pitfalls for Issuers and Shareholders

Reg S may sound simple but there are many more caveats associated with its use, including several nuances depending on the type of securities being offered,  and whether the Issuer is a foreign or US based company.  Depending on these factors, Regulation S may treat two OTC Bulletin Board or OTC Markets public companies very differently, and this has an impact on the Shareholder’s ability to cite Reg S as an exemption from registration.

Issuers considering using Regulation S, and Shareholders that own Reg S Shares can contact securities lawyer Matt Stout for further information at (410) 429-7076 or mstout@otclawyers.com

 

 

Foreign Broker Dealer Registration Under the Securities Exchange Act of 1934

Foreign broker-dealers are required to be registered under Section 15 of the Securities Exchange Act of 1934 (the “Exchange Act”) unless they are exempt under the Foreign Broker-Dealer Exemption (Rule 15a-6).

Every broker dealer which physically operates in the US must register with the SEC even if their business is directed only to foreign investors outside of the boundaries of the United States.

Every foreign broker dealer that attempts to market securities to any person in the United States must also register with the SEC.   This marketing includes the use of the internet, including blogs, websites, and emails to offer securities to US citizens, residents or companies.

Further information on what foreign broker dealers can do to remain exempt under the Foreign Broker-Dealer Exemption is shown in this post by Matheau J. W. Stout, Securities Lawyer.