Communications relating to foreign securities: Overview, definition, and example
What are communications relating to foreign securities?
Communications relating to foreign securities refer to any public or private disclosures, statements, or marketing materials about securities issued by non-U.S. companies. These communications can include investor reports, press releases, financial statements, offering documents, or advertisements targeting investors.
For example, if a European company issues shares that will be traded in the U.S. through American Depositary Receipts (ADRs), any announcements about the shares—such as earnings reports or investment presentations—would be considered communications relating to foreign securities.
Why are communications relating to foreign securities important?
These communications are important because they must comply with securities laws in multiple jurisdictions. Regulators, such as the U.S. Securities and Exchange Commission (SEC), monitor these communications to ensure they are accurate, transparent, and not misleading to investors.
For companies, improper communications—such as exaggerated investment claims or incomplete risk disclosures—can lead to regulatory penalties, lawsuits, or restrictions on selling securities. Investors rely on these communications to make informed decisions, so accuracy and compliance are critical.
Understanding communications relating to foreign securities through an example
Imagine a Japanese technology company wants to raise capital by issuing shares to U.S. investors. To promote the offering, the company releases investor presentations and press statements. However, under U.S. law, certain promotional materials may need to be reviewed and approved before being distributed. If the company fails to follow these requirements, it could face fines or restrictions on offering securities in the U.S.
In another case, a Latin American corporation provides financial statements to European investors. If these documents contain errors or omit key risks, the company could be held liable under European securities laws for misleading disclosures.
An example of a communications relating to foreign securities clause
Here’s how a clause regarding communications about foreign securities might appear in an agreement:
“All communications, disclosures, and marketing materials related to the offer or sale of Foreign Securities shall comply with applicable securities laws in each relevant jurisdiction. No Party shall make misleading statements or omit material information regarding such securities.”
Conclusion
Communications relating to foreign securities must follow legal and regulatory requirements to ensure accuracy and investor protection. Companies issuing foreign securities should carefully manage disclosures to avoid regulatory penalties and maintain investor confidence.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.