Observers expects applications to open for Chinese Depository Receipts (CDR’s) in little more than a month’s time, following the release of the draft version of the “CDR Issuance and Transaction Administrative Measures” (存托凭证发行与交易管理办法) on 5 May.
Based on standard procedures the period for solicitation of public opinions on the new administrative measures is expected to last a month, after which point necessary amendments will be made just prior to issuance and promulgation.
The CDR Measures focus on the six following areas:
1. Clarification of legal applicability and basic regulatory rules.
2. Systemic arrangements for the issuance and exchange-based trading of CDR’s and basic conditions and procedures for issuance, as well as principles-based rules for CDR re-financing.
3. Clarification of CDR information disclosure requirements, and the stipulation that the issuer is the responsible entity for information disclosure.
4. The establishment of a CDR depository trust system, and clarification of the required qualifications of depository trust institutions.
5. Clarification of relevant investor protection requirements, stipulation of the principles of equal protection for investors and special protection for investors, as well as provisions concerning CDR suspension, termination and withdrawals.
6. Strengthening of regulatory enforcement, and clarification of the legal responsibilities of relevant entities.
Authorities are also reportedly preparing a set of standardised regulatory documents to accompany and complement the CDR Measures, which will be issued shortly following the promulgation of the Measure.
Depository receipts are a type of security that will enable China’s domestic shareholders to obtain stakes in companies that are listed abroad.
By using depository receipts the securities regulator can apply a distinct set of regulations to foreign companies, instead of needing to make adjustments to existing regulations for firms that are already listed in China.
Beijing hopes that depository receipts will foster the return of some of China’s leading tech giants, who first listed abroad in order to gain access to the more favourable financing conditions of mature markets, and have since transformed into some of the world’s biggest companies.
The State Council previously approved and issued the China Securities Regulatory Commission’s “Several Opinions on Undertaking Trials for Innovative Enterprises Issuing Shares or Depository Receipts Domestically” (关于开展创新企业境内发行股票或存托凭证试点的若干意见) on 30 March, paving the way for the increased use of Chinese depository receipts for equity financing purposes.
The Opinions will allow some tech companies or enterprises in strategic emerging industries to perform listing via the issuance of either shares or depository receipts, with a focus on sectors including big data, cloud computing, artificial intelligence, software, integrated circuits, high-end manufacturing and bio-tech.