Skip to main content

Now, Sebi Wants to Clamp Down on Unsponsored DRs

By
REGULATOR NOT COMFORTABLE as DRs are transferable and identity of overseas holders is not certain
After curbs on participatory notes, India's capital market regulator is proposing a clamp down on unsponsored depositary receipts (DRs). An unsponsored DR is one which is not backed by the issuer company , but run by global custodians of shares (unlike a sponsored DR, which is backed by the company). A custodian buys shares from investors (and not the company) in the local market, creates a pool and facilitates trading of these shares abroad.
The Securities and Exchange Board of India (Sebi) is learnt to have told the government that it is not comfortable with allowing this instrument as DRs are transferable and the identity of the overseas holder will not be known.
“If you are uncomfortable with PNs (participatory notes) then this (un-sponsored DRs) is PN to the power of N,“ said a regulatory official familiar with the development.
In 2014, following the recommendations of the M S Sahoo committee, the government announc ed t he D e posit ory Receipts Scheme, which allowed the creation of unsponsored DR pro g rammes.Lawyers say concerns over par ticipatory notes and depository notes are the same: transparency .
“Indian regulators are concerned about the lack of information on the ultimate holders of such DRs. Information on the beneficial ownership of foreign securities has been a focus area in India as can be seen in the changes over time to the P-Notes regime,“ said Sandip Bhagat, partner at law firm S&R Associates. Following the government nod, BNY Mellon filed with the US SEC to create un-sponsored DR programmes of certain listed Indian companies.
“BNY Mellon and other depositary banks have been in regular and continuous dialogue with the finance ministry and Sebi, since the new scheme was announced in late 2014. We are eagerly anticipating the start in the near term,“ said a spokesperson for BNY Mellon.
A member of the MS Sahoo committee on DRs said there is no need for concern among Indian regulators over unsponsored DR issuances.
“The Indian regulators were well represented in the MS Sahoo committee that recommended enabling these instruments. The foreign investor in a foreign instrument is not a subject matter of protection by an Indian regulator, “ said Somasekhar Sundaresan, partner, J.Sagar Associates, who was part of the committee.
For companies, however, the bigger cause of concern is about their exposure to risks in the US market such as class action suit or additional compliance with the SEC.
The first DR programme for an Indian corporate, Reliance Industries, was established 20 years ago. Since 1992, over 330 Indian corporates have created DR programmes, 13 of which are listed on the New York Stock Exchange or NASDAQ and 24 are listed on the London Stock Exchange. The remainder have used the Luxembourg Stock Exchange or Singapore Stock Exchange to raise capital, according to a BNY Mellon report.
The Economic Times New Delhi,10th June 2016

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more