BNY Mellon has launched its China ”Next Generation' American depositary receipt (ADR) Index comprising 30 constituent companies with average market capitalisation of US$1.7 billion.
Also known as the ”Xia Yi Dai' ADR Index, it comprises Chinese growth companies from sectors such as the Internet, alternative energy and media with primary listing in the form of depositary receipts traded on a US exchange. The constituent companies include Baidu, CTrip, Trina, Solar and VisionChina Media; market capitalisations range from just under US$300 million to more than $11 billion.
Cheryl Workman, head of the depositary receipts index group at BNY Mellon, notes that there is no underlying instrument backing these securities in the local markets of China and Hong Kong, and that the China Xia Yi Dai ADR Index, along with all BNY Mellon DR Indices, has been approved for use in exchange traded funds (ETFs) traded on the Shanghai Stock Exchange. “The index provides exposure to a select group of growth companies that do not trade in China or Hong Kong. ETFs based on this index would give Chinese investors a means to participate in this growing market segment that would otherwise be unavailable.”
Last month, BNY Mellon announced that it has signed a memorandum of understanding with the Shanghai Stock Exchange for the listing of exchange-traded funds based on its BNY Mellon Depositary Receipt (DR) Indices. The BNY Mellon China Xia Yi Dai ADR Index is accessible on Bloomberg and Reuters at ”BKXYD'.
Separately, BNY Mellon expects a large number of Taiwanese companies to explore establishing unrestricted Level I ADR programs over the next 18 months, thus offering direct access to Taiwanese issuers through ADRs for the first time.
A new structure will allow Taiwanese issuers with existing global depositary receipt (GDR) facilities to establish an ADR Level I program without the need to submit an application to the Financial Supervisory Commission, Taiwan's financial regulator. This will provide more investment opportunities for US investors to diversify their portfolios and will benefit Taiwanese issuers by broadening their shareholder base in the US without stringent requirements associated with listing on a US stock exchange.
“There has always been demand from US investors to invest in Taiwan ADRs, but under the existing GDR structure, investment was limited only to qualified institutional buyers or investors outside of the US,” said Gregory Roath, head of Asia-Pacific for BNY Mellon's depositary receipts business, adding that the company has been working to bridge the gap and took the initiative to discuss the structure with the regulator.