What Are GDRs?
Global Depository Receipts (or GDRs) are tradable securities that are issued by a bank and represent shares in foreign equity securities that are segregated and deposited in the home country. They enable the (indirect) exercise of the membership and asset rights of the deposited equity securities. The listing of GDRs on SIX Swiss Exchange has been possible since 2007. The regulatory framework for GDRs has been reviewed and amended and the revised regulatory framework for GDRs entered into force on 25 July 2022.
China-Switzerland Stock Connect (GDRs Model)
SIX has been working with the relevant Chinese authorities and the Shanghai and the Shenzhen stock exchanges to establish an attractive “Stock Connect” system that enables Chinese companies to access the Swiss capital market (and vice versa). The below illustration provides a simplified overview of the GDRs model between China and Switzerland:
High-Level Overview of the GDRs Model
Main Cornerstones of GDRs on SIX Swiss Exchange
- Companies listing GDRs are subject to similar transparency requirements as other primary listed equity securities such as ad hoc publicity obligations, financial reporting and disclosure of management transactions, yet GDRs are not deemed to be mainly listed in the sense of the Financial Market Infrastructure Ordinance (FinMIO) (see Listing Rules (“LR”)).
- As far as the accepted accounting standards in respect to Chinese GDRs are concerned, the Accounting Standard of the People’s Republic of China for Business Enterprises (Accounting Standards for Business Enterprises, “ASBE”) is accepted by SIX Swiss Exchange.
Maintenance listing requirements of GDRs are in substance comparable to the requirements for primary listed equity securities. In particular, the following requirements need to be taken into consideration:
- Ad hoc publicity: The issuer of the underlying shares must simultaneously disclose the ad hoc information in Switzerland in the case of price-sensitive facts in the market of the underlying shares being made public.
- Corporate Governance: The Swiss Law and the SIX Corporate Governance disclosure obligations are not applicable to GDRs issuers. However, a GDRs issuer must declare in both the listing and offering prospectus and the annual report(s) that it adheres to its home market corporate governance disclosure obligations.
- Management Transaction Reporting: The issuer of the underlying shares must disclose management transactions in both the underlying shares as well as the GDRs (similar to the requirements in China).
Benefits for GDRs Issuers on SIX Swiss Exchange:
- Access to an (additional) capital market with an international investor base that is used to invest in companies being operational globally.
- Strong and diverse peer groups with large, global companies.
- Fast and efficient listing process with balanced listing requirements and market-oriented regulations.
- Economic, legal and social stability of Switzerland and the Swiss financial center.
Benefits for GDRs Investors on SIX Swiss Exchange:
- (Direct) access to new investment universe (Chinese companies).
- New opportunities with different risk/return profiles.
- New diversification possibilities (industries, region, currency).
- SIX transparency and regulatory oversight.
- Trading, clearing and settlement in European time zone.
Trading, Clearing and Settlement
- In order to adhere to some specific requirements in the trading of GDRs, a separate trading segment has been established. The clearing and settlement of GDRs are the same as any other equity security listed on SIX Swiss Exchange.
- Shorter trading hours apply to GDRs as follow (CET):
- Opening auction at 3.00 p.m.
- Continuous trading until 5.20 p.m.
- Closing auction and “TAL” (Trading-at-Last) until 5.40 p.m.
Benefits of Shorter Trading Hours:
- Pooling of secondary market liquidity helps to optimize price discovery and the execution of trades.
- Allows Chinese GDR issuers to publish price-relevant (ad hoc) publications outside trading hours in both countries.
GDRs Re-Issuances and Cancellations via Conversion Brokers
A conversion of A-shares into GDRs (re-issuance) or vice versa GDRs into A-shares (cancellation) must always flow through the accounts of a so-called Conversion Broker. This setup is based on rules issued by the China Securities Regulatory Commission (CSRC). For a more detailed description, please refer to the detailed conversion guides from the respective Conversion Brokers.
Currently, CICC (UK) and CLSA (UK) are set up to provide conversion services:
- Contact CICC (UK): GDR@CICCUK.COM
- Contact CLSA (UK): firstname.lastname@example.org & email@example.com
Institutions able to provide conversion broker services will be added to the list once available. Please contact Adam Sherlock, Head Equity Sales Europe at SIX Swiss Exchange, if you are interested to provide conversion broker services: firstname.lastname@example.org
Based on Chinese regulations, the minimum holding period for Chinese GDRs is at least 120 days (this means any cancellation can be executed only 120 days after the first listing date).