I feel like I’m venturing into arcane territory, but here goes: why are US citizens and institutions allowed to make direct purchases of foreign listed (i.e., secondary market) stocks when said stocks aren’t registered under the US Securities Act of 1933 ?
Whenever I peruse web sites and other materials concerning foreign listed funds and IPOs, there are usually big honking disclaimers about how none of the information therein is intended for the eyes of US investors. But I’ve always had the impression that research or other info secondary market listings don’t need such disclaimers. What’s the difference?
I’m a brokerage principal, so I’ll try to answer the question.
Different rules apply as to who can buy IPOS of foreign companies. It is very difficult for someone who isn’t a qualified investor to buy those shares.
But are individuals allowed to purchase already listed shares? If so, is there a general principle that distinguishes secondary market listings from foreign IPOs, funds and the like?
The securities act of 1933 deals with the initial offering of securities and when they need to be registered and under what circumstances they don’t need to be.
The Securities Exchange Act of 1934 covers trading in the secondary market.
Maybe if you give a bit more information, I can try to help a bit more. I’m not sure most brokers would recommend that an average individual should buy stocks that aren’t traded on a US Exchange, either as part of an ipo or a foreign stock exchange.
The US securities laws include exemptions available to certain “sophisticated” investors (“accredited” or “qualified” are other words used in the various exemptions) for the purchase of any type of security, US or otherwise, provided certain related rules are followed (not supposed to advertise generally in the US–hence the disclaimers–may be a holding period before the securities can be re-sold in the US). Typically, the purchaser is required to fill out a Subscription or Account Agreement certifying that he meets these exemption standards because he has beaucoup bucks invested in securities and has the knowledge and experience to protect himself in making his own investment decisions.
So, were you to try to actually initiate a purchase, you would likely meet up with some of this paperwork and be rejected if you don’t measure up.
Also, there are lots of foreign shares that are cross-listed in the USD (as ADRs, often) that are tradeable, and mere research on a company’s operations which is not an offer of securities would not require registration.