CSRC proposed provisions on the supervision and administration of depository receipts under the stock connect scheme between Shanghai Stock Exchange, or SSE, and London Stock Exchange, or LSE, (for trial implementation). The aim of these measures is to regulate the issuance, trading, cross-border conversion, information disclosure, and other activities in relation to depository receipts. CSRC drafted the provisions on the basis of the administrative measures of offering and trading of depository receipts (for trial implementation; the Administrative Measures, CSRC Order No. 143). The public consultation ends on September 15, 2018 and the provisions shall take effect as of the date of release.
Shanghai-London Stock Connect is a market connect scheme between the SSE and the LSE, allowing listed companies of the two markets to cross-list depository receipts. The draft provisions contain 30 articles on the following aspects:
- Establishing the review and approval regime for Chinese Depository Receipt (CDR) issuance under the Shanghai-London Stock Connect. CDR issuance under the Shanghai-London Stock Connect shall comply with the applicable regulatory requirements for public offering of CDRs specified in the Administrative Measures. The draft provisions specify the required application documents, review and approval procedure, sponsors, due diligence, accounting and auditing requirements, and amount cap on CDRs in proposed issuance, among others.
- Setting up the cross-border conversion mechanism for CDRs. On the basis of the Administrative Measures, the provisions specify the two types of cross-border conversions (namely creation and redemption), set forth the eligibility criteria and registration requirements for Chinese Mainland securities companies to engage in such business, and put forward the code of conduct for cross-border conversion institutions regarding assets custody and overseas investments.
- Clarifying continuing regulatory and supervisory requirements for CDRs. The continued regulation and supervision of CDRs is in line with the applicable provisions on overseas listed red-chip companies, as stipulated in the implementing measures for ongoing supervision of innovative enterprises following listing of domestically offered stocks or depository receipts (for trial implementation).
- Setting up regulatory framework for Global Depository Receipt (GDR) issuance by domestic listed companies. Domestic GDR issuers are subject to regulations applicable to overseas listing. Given that GDRs are convertible with tradable A-shares in the Chinese Mainland market, the draft provision balances between preventing regulatory arbitrage and upholding commercial viability and puts in place defined terms on GDR issuance conditions, offering price, lock-up period for redemption, and requirements on foreign securities companies and depository banks.
- Reinforcing enforcement activities against misconduct, with clearly defined legal responsibilities. On the basis of the Administrative Measures, the draft provisions specify the regulatory requirements on cross-border conversion institutions and specify the legal responsibilities of all relevant market participants within the framework of the Securities Law.
Comment Due Date: September 15, 2018
Effective Date: Release Date of Final Provisions
Keywords: Asia Pacific, China, Securities, Depository Receipts, CDRs, GDRs, Administrative Measures, CSRC
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