Taiwan’s Financial Supervisory Commission’s (FSC) amendment of its regulations to allow over-the-counter (OTC) non-capital-raising depositary receipt (DR) programmes could make investing in Taiwanese companies more accessible for global investors and may encourage increased foreign investment into the country, says BNY Mellon.  

 

The amendment of the ‘Regulations Governing the Offering and Issuance of Overseas Securities by Issuers’ allow Taiwanese listed companies to establish sponsored level I non-capital-raising DR programmes. This new scheme will provide global investors with more convenient access to Taiwanese companies and will benefit these companies by broadening their shareholder base internationally without the costs associated with listing on an overseas stock exchange. Qualified issuers already listed on the Taiwan Stock Exchange (TWSE) and GreTai Securities Markets will not have increased reporting requirements in order to trade on the US OTC markets.

 

“Taiwan has long been a popular destination for international investors, known as FINIs in Taiwan,” observes Neil Atkinson, head of Asia-Pacific for BNY Mellon’s depositary receipts business.  “We are often asked, particularly by US investors, to establish DR programmes for Taiwanese companies but have been restricted from doing so by regulation.”

 

Atkinson adds: “The FSC’s ground-breaking announcement to introduce new rules around level 1 DRs is timely as research suggests there is growing demand from Taiwanese companies to be able to increase their international ownership, and global investor sentiment toward Taiwan is buoyant. Accordingly, we may see more Taiwanese companies using DRs in 2015.”

 

For investors, DRs are an attractive route to entry in a market because they offer a combination of convenience, simplicity and flexibility when compared to direct investment in a foreign market and satisfy investors’ home market bias. Permitting the establishment of non-capital raising Level 1 DR programs allows for greater access by Taiwanese companies through DRs to potentially meet some of the demand not satisfied through routes previously available.

 

In permitting OTC non-capital-raising DRs, Taiwan would join more than 60 countries worldwide whose companies have created opportunities for secondary market DR investors.

 

DRs play an essential role in cross-border trading and are a preferred instrument both for companies listing their shares on global markets and for many investors seeking international portfolio diversification. DRs can broaden the range of investors who invest globally, and can enhance the visibility of an issuer's securities.

 

Since the 1920s, investors, companies, and traders have used DRs to meet their needs. According to BNY Mellon data as of  June30  2014, there are more than 3,700 DR programmes available to investors, representing issuers from more than 70 countries. Nearly 4,600 institutions invest over US$820 billion in DRs globally.