BNY Mellon has signed a memorandum of understanding (MOU) with the Shanghai Stock Exchange for the listing of exchange-traded funds (ETFs) based on its BNY Mellon Depositary Receipt (DR) Indices.
Efforts to get ETFs based on foreign indexes listed on the Chinese stock exchanges has been a long-running process due to the technical difficulties of listing ETFs in a highly-regulated market and the obstacles to efficient market making posed by the qualified domestic institutional investor scheme. In recent months, however, the Shanghai Stock Exchange has approved several foreign indexes, such as Barclays Capital's fixed-income indexes, to be used in local ETF products.
“Given that there’s a broad spectrum of newer Chinese companies that have listed offshore exclusively, such as Baidu, Netease and Ctrip – there are now over 70 such companies that have listed in DR form primarily in the US, on the NYSE and Nasdaq. Our indices would include those companies and should an ETF be created on those indices, it would give mainland investors access to investing in those companies. Currently they are unable to invest in the companies directly, because they are neither listed in Shanghai nor Hong Kong,” said Gregory Roath, head of Asia-Pacific for BNY Mellon's depositary receipts business.
There is as yet no firm date for the launch of the ETFs as the MOU is the first step to allowing potential ETF sponsors to create instruments based on the DR indices.
Roath says an ETF product based on the DR indices would enable mainland Chinese investors to trade foreign traded equities in Chinese renminbi on the principal Chinese exchanges.
BNY Mellon also plans to extend this side of the business to other Asian markets. “In Korea, there are a couple of funds that have benchmarked against a couple of our indices already. We continue to talk to other exchanges in the region and potential sponsors of ETFs with respect to launching ETFs based on our indices,” said Roath. “China is growing with respect to its interest in alternative investment products and based on preliminary discussions that we had in the market, we felt there would be potential interest in establishing ETFs based on our indices.”