June 15, 2018

CSRC and CBIRC jointly issued provisions on matters related to "Commercial Banks Serving as Trial Custodians," along with other regulatory documents governing the Chinese Depository Receipts (CDRs). The provisions are intended to support innovative companies in issuing stocks or depository receipts and further improve the relevant supporting systems for pilot work. The accompanying measures include "Measures for the Administration of Securities Issuance and Underwriting," "Implementation Measures for the Continued Supervision after the Listing of Domestically Issued Shares or Depository Receipts of Innovative Enterprises (Trial Implementation)," and "The Guidelines on the Content and Format of the Document Depository Agreement (Trial); these measures shall be implemented as of the date of promulgation.

The following are the key highlights of the new rules:

  • The provisions on matters relevant to the role of commercial banks as Depository Trust depositors clearly define the qualification conditions, approval procedures, and ongoing supervision requirements of commercial banks as depositories.
  • The revised administrative measures include the depository receipts in the scope of application, specify that the calculation of the market value subscription includes depository receipts, and allow enterprises with an issue size of less than 20 million shares to determine the issuance price through inquiry and improve the callback mechanism.
  • Implementation measures cover corporate governance, information disclosure, acquisition of shares and changes in equity, assets reorganization of regulatory requirements and incentive, cash dividends of information disclosure, and other aspects to make the necessary arrangements while considering the innovative pilot enterprises and the special nature of domestic listed companies. The general regulatory requirements also reflect the principles of classification and supervision for different types of innovative companies.
  • The guidelines on the content and format of the depository agreement aim to protect the legitimate rights and interests of holders of depository receipts. They mainly regulate the formulation of depository agreements and define the rights and obligations of the underlying issuers, holders of depository receipts, and depositories.

In the next step, to ensure the steady progress of the pilot work, entities, such as the Shanghai-Shenzhen Exchange and China Clearing, will also gradually introduce supporting rules for the provision of standardized guidelines for pilot innovative enterprises and related parties. CDRs permit Chinese investors to obtain equity stakes in enterprises listed on the overseas exchanges.

 

Related Link (in Chinese): Notification

Effective Date: June 15, 2018

Keywords: Asia Pacific, China, Banking, Securities, Depository Receipts, CSRC, CBIRC

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