Corporate Finance : New Indexes Track London-listed Gdrs




The Bank of New York Mellon introduced 31 new global depositary receipt indexes, including a master index of all GDRs traded on the London Stock Exchange.

The bank, which acts as depositary for more than 1,300 sponsored depositary receipt programs for companies based in 64 countries, says its new indexes enable investors to track the overall GDR market and to benchmark specific holdings.

The bank also unveiled a broader composite index, known as the DR Index, which combines the new GDR Index with the 10-year-old Bank of New York Mellon ADR Index, comprising American depositary receipts traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. The ADR index has 56 subindexes.

The bank also launched 14 new DR indexes for additional regions and countries, joining its existing DR indexes for Russia and frontier markets.

“These indexes bring GDR investors a refined tool for effectively assessing their holdings and serve as a complementary addition to our ADR index family,” says Michael Cole-Fontayn, London-based chief executive of The Bank of New York Mellon’s depositary receipt division.

The new GDR subindexes cover six regions and 23 countries. The Bank of New York Mellon now offers more than 100 DR indexes, which are calculated on a continuous basis throughout the trading day.

Separately, The Bank of New York Mellon established more than 200 new unsponsored ADR programs for companies from around the world. The new ADRs resulted from a rule change by the Securities and Exchange Commission that is expected to foster a greatly expanded market for over-the-counter ADRs.

Michelin, BMW, El Al Airlines and Nippon Oil are among the well-known foreign companies that US investors are now able to hold in their portfolios as dollar-denominated securities.

“Recognizing that US investors continue to embrace global diversification, we are bringing much-desired DR supply to the US market,” Cole-Fontayn says. “US investors are increasingly generating demand for DRs as a simple, streamlined means for exposure to companies outside the US,” he says.

In October the SEC implemented a change to Rule 12g3-2(b) under the Securities Exchange Act of 1934, which has resulted in a significant rise in the number of OTC ADRs on the market. Certain non-US companies are now automatically exempt from SEC reporting requirements, provided that certain information is accessible in English on their websites. These companies are no longer required to submit hard-copy requests for exemptions to the SEC.

Other depositary banks, including J.P. Morgan, Citi and Deutsche Bank, also have established numerous unsponsored ADR facilities in recent weeks. Some of these include ADRs for the same companies selected by The Bank of New York Mellon.

Prior to the SEC rule change, foreign issuers could only claim the registration exemption no later than 120 days after the end of a fiscal year in which they had fewer than 300 US shareholders. Exempt foreign issuers now must be listed on an overseas market that regulates and oversees the trading of their securities and requires disclosure of adequate information to investors.

A depositary bank can make the determination that a foreign issuer meets the exemption requirements for the purpose of establishing an unsponsored ADR program. The bank is not required to ask for an issuer’s permission to set up such a program, although banks typically do obtain such consent.

The SEC noted that since the adoption of its rules under Section 12(g) four decades ago, the globalization of securities markets, advances in technology and increased use of ADR facilities by foreign companies have significantly increased the number of companies that engage in cross-border activities and the interest of US investors in the securities of foreign companies.




Gordon Platt