(a) General rule.—For purposes of section
1296, the term marketable stock means—
(1) Passive foreign investment company (PFIC) stock that is regularly traded, as defined
in paragraph (b) of this section, on a qualified exchange or other market, as defined in paragraph
(c) of this section;
(2) Stock in certain PFICs, as described in paragraph (d) of this section; and
(3) Options on stock that is described in paragraph (a)(1) or (2) of this section, to the
extent provided in paragraph (e) of this section.
(b) Regularly traded.—
(1) General rule.—For purposes of paragraph (a)(1) of this section, a
class of stock that is traded on one or more qualified exchanges or other markets, as defined in
paragraph (c) of this section, is regularly traded on such exchanges or markets for any calendar
year during which such class of stock is traded, other than in de minimis quantities, on at least 15
days during each calendar quarter.
(2) Special rule for year of initial public offering.—For the calendar year in which a
corporation initiates a public offering of a class of stock for trading on one or more qualified
exchanges or other markets, as defined in paragraph (c) of this section, such class of stock meets
the requirements of paragraph (b)(1) of this section for such year if the stock is regularly traded
on such exchanges or markets, other than in de minimis quantities, on 1 / 6 of the days remaining in
the quarter in which the offering occurs, and on at least 15 days during each remaining quarter of
the taxpayer’s calendar year. In cases where a corporation initiates a public offering of a class of
stock in the fourth quarter of the calendar year, such class of stock meets the requirements of
paragraph (b)(1) of this section in the calendar year of the offering if the stock is regularly traded
on such exchanges or markets, other than in de minimis quantities, on the greater of 1/6 of the
days remaining in the quarter in which the offering occurs, or 5 days.
(3) Anti-abuse rule.—Trades that have as one of their principal purposes the meeting of
the trading requirements of paragraph (b)(1) or (2) of this section shall be disregarded. Further, a
class of stock shall not be treated as meeting the trading requirement of paragraph (b)(1) or (2) of
this section if there is a pattern of trades conducted to meet the requirement of paragraph (b)(1)
or (2) of this section. Similarly, paragraph (b)(2) of this section shall not apply to a public offering
of stock that has as one of its principal purposes to avail itself of the reduced trading requirements
under the special rule for the calendar year of an initial public offering. For purposes of applying
the immediately preceding sentence, consideration will be given to whether the trading require-
ments of paragraph (b)(1) of this section are satisfied in the subsequent calendar year.
(c) Qualified exchange or other market.—
(1) General rule.—For purposes of paragraph (a)(1)
of this section, the term qualified exchange or other market means, for any calendar year—
(i) A national securities exchange that is registered with the Securities and Exchange Commission or the national market system established pursuant to section 11A of the
Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(ii) A foreign securities exchange that is regulated or supervised by a governmental
authority of the country in which the market is located and which has the following characteristics—
(A) The exchange has trading volume, listing, financial disclosure, surveillance, and other requirements designed to prevent fraudulent and manipulative acts and practices,
to remove impediments to and perfect the mechanism of a free and open, fair and orderly, market,
and to protect investors; and the laws of the country in which the exchange is located and the
rules of the exchange ensure that such requirements are actually enforced; and
(B) The rules of the exchange effectively promote active trading of listed
stocks.
(2) Exchange with multiple tiers.—If an exchange in a foreign country has more than one
tier or market level on which stock may be separately listed or traded, each such tier shall be
treated as a separate exchange.
(d) Stock in certain PFICs.—
(1) General rule.—Except as provided in paragraph (d)(2) of
this section, a foreign corporation is a corporation described in section 1296(e)(1)(B), and
paragraph (a)(2) of this section, if the foreign corporation offers for sale or has outstanding stock
of which it is the issuer and which is redeemable at its net asset value and if the foreign
corporation satisfies the following conditions with respect to the class of shares held by the
electing taxpayer—
(i) At all times during the calendar year, the foreign corporation has more than one
hundred shareholders with respect to the class, other than shareholders who are related under
section 267(b);
(ii) At all times during the calendar year, the class of shares of the foreign
corporation is readily available for purchase by the general public at its net asset value and the
foreign corporation does not require a minimum initial investment of greater than $10,000 (U.S.);
(iii) At all times during the calendar year, quotations for the class of shares of the
foreign corporation are determined and published no less frequently than on a weekly basis in a
widely-available permanent medium not controlled by the issuer of the shares, such as a newspa-
per of general circulation or a trade publication;
(iv) No less frequently than annually, independent auditors prepare financial state-
ments of the foreign corporation that include balance sheets (statements of assets, liabilities, and
net assets) and statements of income and expenses, and those statements are made available to
the public;
(v) The foreign corporation is supervised or regulated as an investment company by
a foreign government or an agency or instrumentality thereof that has broad inspection and
enforcement authority and effective oversight over investment companies;
(vi) At all times during the calendar year, the foreign corporation has no senior
securities authorized or outstanding, including any debt other than in de minimis amounts;
(vii) Ninety percent or more of the gross income of the foreign corporation for its
taxable year is passive income, as defined in section 1297(a)(1) and the regulations thereunder;
and
(viii) The average percentage of assets held by the foreign corporation during its
taxable year which produce passive income or which are held for the production of passive
income, as defined in section 1297(a)(2) and the regulations thereunder, is at least 90 percent.
(2) Anti-abuse rule.—If a foreign corporation undertakes any actions that have as one of
their principal purposes the manipulation of the net asset value of a class of its shares, for the
calendar year in which the manipulation occurs, the shares are not marketable stock for purposes
of paragraph (d)(1) of this section.
(e) [Reserved]
(f) Special rules for regulated investment companies (RICs).—
(1) General rule.—In the case of
any RIC that is offering for sale, or has outstanding, any stock of which it is the issuer and which is
redeemable at net asset value, if the RIC owns directly or indirectly, as defined in section 1298(a),
stock in any passive foreign investment company, that stock will be treated as marketable stock
owned by that RIC for purposes of section 1296. Except as provided in paragraph (f)(2) of this
section, in the case of any other RIC that publishes net asset valuations at least annually, if the RIC
owns directly or indirectly, as defined in section 1298(a), stock in any passive foreign investment
company, that stock will be treated as marketable stock owned by that RIC for purposes of section
1296.
(2) [Reserved]
(g) Effective date.—This section applies to shareholders whose taxable year ends on or after
January 25, 2000 for stock in a foreign corporation whose taxable year ends with or within the
shareholder’s taxable year. In addition, shareholders may elect to apply these regulations to any
taxable year beginning after December 31, 1997, for stock in a foreign corporation whose taxable
year ends with or within the shareholder’s taxable year. [Reg. § 1.1296-2.]
[T.D. 8867, 1-25-2000. Redesignated and amended by T.D. 9123, 4-30-2004.]