BNY Mellon said it has seen a six-fold increase in the number of unsponsored depository receipt (DR) programs following an SEC rule change, which exempted certain non-U.S. companies from SEC reporting requirements under the Securities Exchange Act, in October 2008.
Unsponsored DRs are issued directly by a depository bank rather than by a bank on behalf of an issuer, as is the case with a sponsored DR. Unsponsored DRs trade over-the-counter, while sponsored DRs can trade OTC or on a major stock exchange.
Companies are exempt from reporting information relating to these instruments if, among other things, key information could be found in English on their websites. Submitting hard-copy exemption requests to the SEC is no longer required. The rule revision, simplifying the formation and trading of over-the-counter DRs, with a combined market capital estimated at $12 billion of non-U.S. publicly-traded companies, has resulted in more than 1,000 new unsponsored DRs from 35 countries coming to market, said BNY Mellon.
BNY Mellon has set up programs for 92% of the unsponsored DRs created since late 2008. The service provider said the new DRs are in response to investor demand for access to companies in key sectors and countries, such as mining operations in China, manufacturers in Japan, and forestry firms in Finland. Rising interest in non-U.S. equities has driven up the number of all DR programs, sponsored and unsponsored, to more than 3,400 a 6.2% jump over the past year, it added.
“With investors seeking greater diversification, we’re not surprised by the growth in interest and creation of unsponsored DRs that have helped global companies raise visibility in the U.S. marketplace,” said Michael Cole-Fontayn, CEO of BNY Mellon’s Depositary Receipts business. “Also, more than 240 unsponsored DRs are now being used in the BNY Mellon family of DR indices.
“Investment firms are launching a range of new ETFs tied to these indices to address the surging demand for lower cost, more transparent investment vehicles,” Cole-Fontayn added.
Through industry efforts to expand the unsponsored DR universe, investors can now use DRs to trade:- 100% of Hong Kong’s Hang Seng Index- 39 of 40 constituents in France’s CAC (98%)- 29 of 30 component equities in Germany’s DAX (97%)- Nearly 90% of both the Tokyo 100 and FTSE 100 indices.
Unsponsored DRs also have improved investor ability to access global industry sectors. For example, using DRs alone, U.S. investors can now hold:- 80% of MSCI All World ex-U.S. Consumer Staples index constituents- 76% of MSCI All World ex-U.S. Consumer Discretionary index- 74% of MSCI All World ex-U.S. Materials Sector- 67% of MSCI All World ex-U.S. Energy Sector index.
“Being able to better replicate major indices and quickly respond to investor requests for new unsponsored programs has heightened the popularity and viability of all DR programs,” said Michael Finck, head of global service delivery for BNY Mellon’s DR group.
(JDC)