Financial Authorities Issue Regulations on Pricing of Chinese Depository Receipts

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China’s financial authorities have issued a raft of new regulatory documents governing Chinese Depository Receipts (CDR’s).

On 15 June the China Securities Regulatory Commission issued the amended version of the “Securities Issuance and Underwriting Administrative Measures” (证券发行与承销管理办法) in tandem with several complementary directives governing CDR’s that came into effect immediately.

The accompanying regulations include the “Innovative Enterprise Domestic Share or Certificate of Deposit Issuance Post-listing Ongoing Regulation Implementation Measures (Provisional)” (创新企业境内发行股票或存托凭证上市后持续监管实施办法(试行)), the “Depository Receipt Agreement Contents and Formatting Guidelines (Provisional)” (存托凭证存托协议内容与格式指引(试行)), and the “Regulations in Relation to Matters Concerning Commercial Banks Serving as Trial Custodians for Depository Receipts” (关于商业银行担任存托凭证试点存托人有关事项规定).

The “Regulations in Relation to Matters Concerning Commercial Banks Serving as Trial Custodians” outlines qualifications for commercial banks serving as custodians, as well as examination and approval procedures and ongoing monitoring and regulatory requirements.

The amended Administrative Measures stipulate that enterprises may employ offline price inquiries from investors to determine the issuance price, as well as other lawful, feasible methods including direct pricing via independent consultations between issuers and underwriters.

If public offerings involve less than 20 million shares and do not involve plans for the transfer of old shares, issuers may price offerings by means of direct pricing.

Issuers and underwriters are required to disclose pricing methods in the prospectus and issuance announcement.

The “Innovative Enterprise Implementation Measures” contain stipulations in relation to corporate governance, information disclosures, subscriptions, equity changes, asset restructuring, stock incentives and cash dividend disclosures, as well as outlines different sets of regulatory principals for different categories of innovative enterprise.

The “Agreement Contents and Formatting Guidelines” outlines standards for the formulation of CDR agreements, as well as clarifies jural relations between underlying securities issuers, CDR holders and custodians, with a view to protecting the lawful rights and interests of CDR holders

CDR’s are a new financial instrument that permit Chinese investors to obtain equity stakes in enterprises listed on overseas exchanges.

Beijing hopes that CDR’s will facilitate the return to the A-share market of Chinese tech giants that first listed on bourses abroad, as part of efforts to improve domestic capital markets and the tech sector.

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