Morrison's Transactional Test – How Has It Affected Securities Offerings by Non-U.S. Issuers?

Seven years after it was issued, the U.S. Supreme Court’s decision in Morrison v. National Australia Bank continues to provide non-U.S. companies with a significant defense against claims made under the U.S. federal securities laws. However, the law remains unsettled in many areas and does not provide certainty as to how courts will treat transactions involving non-U.S. issuers under the U.S. federal securities laws.

In 2010, the Supreme Court in Morrison reiterated the presumption against the extraterritorial effect of the U.S. federal laws and announced a new “transactional test” to determine the reach of Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934. The Supreme Court held that Section 10(b) applies only to “transactions in securities listed on domestic exchanges” and “domestic transactions in other securities.” Further, in the U.S. Court of Appeals for the Second Circuit, a “domestic transaction” is necessary but not necessarily sufficient to invoke Section 10(b). In Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE, the Second Circuit held that transactions that are “so predominantly foreign as to be impermissibly extraterritorial” will be dismissed. 

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