United States: Second Circuit Rejects "Listing Theory," Finds That Cross-Listing On A US Exchange Is Insufficient To Justify An Exception Under Morrison

In a case of first impression, the US Court of Appeals for the Second Circuit recently held in a published opinion that the Supreme Court's decision in Morrison v. National Australia Bank Ltd., 561 US 247 (2010), precludes Securities Exchange Act of 1934 ("Exchange Act") claims brought by a putative class of foreign and domestic purchasers of shares of UBS AG—a foreign issuer listed on a foreign exchange—even where those shares were cross-listed on a US exchange. City of Pontiac Policemen's and Firemen's Retirement System v. UBS AG, No. 12-4355-cv, 2014 US App. LEXIS 8533 (2d Cir. May 6, 2014). This ruling, which affirmed Judge Richard Sullivan's dismissal with prejudice of all claims in plaintiffs' amended complaint, further demonstrates that the focus of US securities laws is on domestic transactions and not the location of the securities exchange or the citizenship of the purchaser. The ruling also establishes that foreign issuers will not incur liability under the Exchange Act simply by cross-listing on a US exchange. Separate from its holdings on Morrison, the court affirmed the dismissal of the remaining securities claims under the Securities Act of 1933 ("Securities Act") and the Exchange Act, finding that UBS's alleged general statements regarding corporate policies, regulatory compliance, risk management, and portfolio valuation are immaterial and do not establish scienter. The Second Circuit also affirmed the district court's decision to deny plaintiffs further leave to amend their complaint.

Reading Morrison As A Whole

"Foreign Cubed" Claims — The Court Rejects The "Listing Theory" As An Exception To Morrison

A "foreign cubed" claim involves claims by foreign plaintiffs suing a foreign issuer based on securities transactions in foreign countries. In Morrison, the Supreme Court rejected the assertion that Section 10(b) of the Exchange Act provides a private cause of action for foreign-cubed claims; instead, the Court held that US securities laws only apply to "transactions in securities listed on a domestic exchange" and to "purchases and sales of securities in the United States." Morrison, 561 US at 267. The City of Pontiac plaintiffs argued, however, that Morrison's preclusive effect was limited to claims relating to securities "[not] listed" on a domestic exchange. Op. at 11-12 (emphasis and alteration in original) (citing Morrison, 561 US at 273). Under this "listing theory," plaintiffs argued that they could bring Section 10(b) claims against a foreign issuer based on foreign transactions, because the relevant shares were cross-listed on the New York Stock Exchange. Op. at 11-12.

The Second Circuit firmly rejected plaintiffs' argument, holding that the listing theory is "irreconcilable with Morrison read as a whole." Id. Instead, the court reiterated Morrison's emphasis that the Exchange Act is focused on "purchases and sales" of securities in the United States, which demonstrates a concern with the location of the securities transaction and not with the location of the exchange. Id. (emphasis in original). In supporting its reasoning, the court pointed out that the Supreme Court's analysis in Morrison was not affected by the fact that the Morrison defendant's American Depository Receipts (ADRs)—which represented the right to receive a specified number of its ordinary shares—had been listed on the NYSE. Id. at 13. Further, the court recognized Morrison's rejection of the Second Circuit's "conduct and effects" test, pursuant to which the Circuit had previously applied the Exchange Act to "transactions regarding stocks traded in the United States which are effected outside the United States." Id. at 13-14. The court therefore found that Morrison's bar is not lifted simply because the shares at issue are also listed on a domestic exchange.

"Foreign Squared" Claims — The Mere Placement Of A "Buy Order" Does Not Establish "Irrevocable Liability"

In contrast to "foreign cubed" claims, "foreign squared" claims involve claims asserted by domestic investors who purchased securities of foreign issuers on foreign exchanges. In another issue of first impression, the Second Circuit addressed whether the placement of a buy order in the United States for the purchase of foreign securities on a foreign exchange is sufficient to allege that the purchaser incurred "irrevocable liability" in the United States, such that the purchase is governed by US securities laws. Op. at 15. The Section 10(b) claims at issue were asserted by the Oregon Public Employees Board ("OPEB"), a domestic entity that purchased UBS shares by placing a "buy order" in the United States. Although this order was later executed on a Swiss Exchange, OPEB asserted that the placement of its order in the United States was sufficient to satisfy Morrison's second prong as a "purchase[] . . . of securities in the United States." Id. at 14.

In dismissing OPEB's Section 10(b) claims, the Second Circuit relied on its decision in Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012), to conclude that the mere placement of a buy order in the United States is too tenuous a connection to confer US securities laws jurisdiction over those securities. Op. at 15. Absolute Activist defined a domestic securities transaction for purposes of Morrison as one where "the parties incur irrevocable liability to carry out the transaction within the United States or when title is passed within the United States." Absolute Activist, 677 F.3d at 69. The Second Circuit rejected OPEB's argument that, when the purchaser is a domestic entity, "irrevocable liability" is incurred in the United States where the order is placed and not when the security is actually purchased on a foreign exchange. Op. at 15-16. In so doing, the Circuit pointed to its own prior holdings that a purchaser's citizenship or residency does not affect where a transaction occurs. Id.

Looking Forward

City of Pontiac, while not addressing Morrison's application to Securities Act claims, presents a major victory for foreign issuers facing potential Exchange Act claims involving cross-listing on US exchanges, as the decision's holistic approach to Morrison appears to definitely dispose of the "listing theory"—at least in the Second Circuit. Following this decision, the fact that a foreign issuer might cross-list a foreign security on a US exchange should not affect the limitations imposed by Morrison on Exchange Act claims. Similarly, the Second Circuit appears to have made clear that merely placing a buy order in the United States is not sufficient to make the purchase a "domestic transaction" for purposes of Morrison's second prong, although the opinion leaves open the question of what more could be pleaded to sufficiently state a Section 10(b) claim. While these Morrison issues have yet to be addressed by other circuit courts, the Second Circuit's decision offers persuasive precedent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions