Safe Harbour

A “safe harbor” exemption is one that is not the only way to fall under a more general exemption or jurisdictional limitation. The SEC ensures compliance with the rules for a broader exemption or limitation by promulgating a safe harbor. Each safe harbor is subject to the following two general conditions:

➀  The Reg S securities must be offered or sold in an offshore transaction. This means that I the seller has a reasonable belief that the buyer of the Reg S stock or bonds is located outside of the United States (i.e., offshore, at the time of offer/sale) or (ii) the transaction will take place at one of several “designated offshore securities markets.” Such offshore securities markets would include the Canadian stock exchange, with the caveat that no pre-arranged deal with a buyer in the United States had been made prior to this. Furthermore, neither the issuer nor its representative may make any direct efforts to sell their Reg S securities in the United States (such as their broker dealer or underwriter or distributor etc.).

➁  Rule 903 specifies the following rules for offerings by issuers, distributors, and their respective affiliates:
➢  Category 1
(a) securities of a “foreign issuer,” such as a non-US company such as a UK entity or a Cayman Islands fund, in which there is no “substantial U.S. market interest”, (b) securities such as debt or equity issued by a non-US company and offered by the “foreign issuer” in “overseas directed offerings”, (c) non-convertible debt securities such as notes, bonds, or global notes issued by a U.S. company and offered in a currency other than U.S. dollars, and (d) stocks or bonds (equity or debt) securities backed by the full faith and credit of a foreign government such as the United States.
➢  Category 2
(a) Regulation S offerings of equity securities (such as stocks, units, interests, and so on) by reporting foreign issuers, and (b) Regulation S offerings of debt securities such as notes or bonds and non-convertible, non-participating preferred stock by reporting domestic issuers or non-reporting foreign issuers outside the United States. Because these Reg S securities are issued by a qualified reporting issuer, the issuer must have filed all required materials and reports for at least 12 months prior to the offering of the Reg S securities (and prior to the actual offering as well).

In terms of Reg S restrictions for offering the securities, this would include a prohibition on resales to any U.S. citizen during the distribution compliance period. This is in addition to the numerous rules that must be followed. There is a 40-day compliance period during which restrictions must be maintained, after which this must be settled in a written agreement with each distributor and reflected in the prospectus, offering memorandum, or other offering circular documents. Furthermore, all confirmations issued to broker dealers, investment banks, advisory firms, underwriters, distributors, and others who will be paid a commission once the securities are sold must be followed.

➂  Reg S offerings of all other securities, including (a) equity offerings such as stocks, common shares, units, and interests by US issuers that must report, (b) offerings of regulating s equity securities by non-US companies that do not report even if the securities have a large US market, and (c) reg s offerings by US companies that are not reporting issuers. All of this is subject to stringent regulatory oversight.