California’s Corporate Securities Law of 1968 makes offers it unlawful for any person to offer or sell a security in any nonissuer transaction unless it is qualified or exempt (or not subject to) qualification. Cal. Corp. Code § 25130. Transaction exempt from this requirement can be found in Section 25104 and securities not subject to this requirement can be found in Section 25100.1. The Commissioner has also exempted by rule any offer or sale of a security issued by any corporation organized under the laws of a foreign country or a certificate of deposit, receipt or other evidence relating to such security provided that one of several conditions is met. Because omnes causas paginae exiguitas non caperet, this post is limited to just one of these conditions – the security appears on the most recent Federal Reserve Board List of Foreign Margin Stocks. 10 CCR § 260.105.11.
The problem with this condition is that the Federal Reserve Board ceased publishing the List of Foreign Margin Stocks almost two decades ago – in 2003. The beginning of the end of the List of Foreign Margin Stocks came in 1996 when the Federal Reserve Board included all foreign equity securities on the Financial Times/Standard & Poor’s World Actuaries Indices on the list in reliance upon a “no-action” letter issued by the SEC. Two years later, the Federal Reserve Board amended Section 220.2 of Regulation T (12 C.F.R. 220.2) to include (in addition to foreign equity securities appearing on the List), foreign equity securities deemed have a “ready market” under SEC Rule 15c3-1 or a “no-action” letter issued by the SEC regarding its “ready market” criteria. 63 FR 2821 (Jan. 16, 1998). This caused a decline in the number of stock included on the List of Foreign Margin Stock as creditors preferred to rely on the “ready market” alternative. In 2003, the Federal Reserve Board discontinued publication of the List of Foreign Margin Stocks because it was no longer receiving the necessary information from the New York Stock Exchange.
The Department of Financial Protection & Innovation (then known as the Department of Corporations) amended Rule 260.105.11 in 2000 to conform to the Federal Reserve Board’s amendment to Section 220.2. However, the Department has not since amended the rule to reflect the demise of the List of Foreign Margin Stocks.