Protection Of The Rights And Interests Of Chinese Depositary Receipt Investors

As a mature financial instrument in the international financial market,depository receipts emerged in 1927.However,China did not officially start the pilot work of Chinese depository receipts until 2018.So far,no enterprises have successfully issued Chinese depository receipts.The development of China's depositary receipts is hampered by many obstacles.However,in recent years,China's economy has continued to develop steadily,the capital market has been continuously opened to the outside world,and the amendment of the Securities Law has officially listed depositary receipts as a type of statutory securities.Therefore,the necessity and feasibility basis for issuing depositary receipts in China still exist.In the process of issuance and transaction of depository receipts,the issuer of overseas basic securities delivers the basic securities to the depository bank in accordance with the deposit agreement signed with the depository bank,and the depository bank deposits them at the depository institution in accordance with the deposit agreement signed with the depository institution,and issues the depository receipts based on these basic securities.Investors can purchase these depositary receipts and carry out transactions.As the transaction structure of the depositary receipts is more complicated,the transaction chain is longer,and the number of participants is more.Therefore,compared with ordinary stock and bond investors,depositary receipt investors are more at an information disadvantage.The newly amended "Securities Law" officially lists depositary receipts as a type of statutory securities,but it does not clearly specify the legal relationship between the parties to the depositary receipts.The ambiguous legal relationship of the depositary receipts also makes it protecting investor rights and interests more difficult.There are a large number of depositary receipt investors with a wide distribution,and the issue of competition between domestic and overseas jurisdictions is faced with multiple judicial relief difficulties.Based on this,the protection of investors' rights and interests in depositary receipts should be given special attention.A stricter information disclosure system for depositary receipts than domestic listed companies should be established,so that investors in depositary receipts can obtain richer and quality information and make better decisions.The "Administrative Measures on the Issuance and Transaction of Depositary Receipts(Trial)" clarifies that the issuers of overseas basic securities,their controlling shareholders,and actual controllers should assume the information disclosure obligations,but the important role of depositary banks and custodian institutions in the issuance of depositary receipts has been ignored,a dual information disclosure system should be established,mainly based on issuers of overseas basic securities,supplemented by depositary banks and custodian institutions.In view of the possible differences in institutional arrangements,corporate governance,and other aspects between overseas basic securities issuers and companies registered in China under the Chinese Company Law,the obligor for information disclosure of depositary receipts shall focus on special arrangements such as differences in voting rights and control structures of agreements.The issuance and trading of depositary receipts involve investors in two securities markets,domestic and overseas.The relevant information should be disclosed in the two securities markets,and the requirements of synchronization and equality should be met,and the investments in the two markets should be treated fairly.The depositary receipt constitutes a trust legal relationship between the parties.The issuer of the overseas basic securities as the trustee will deliver the basic securities as the trust property to the depositary bank,and the depository bank and the custodian institution will conduct management and operation as the trustee.Identifying the legal relationship between the parties to the depositary receipt as a trust legal relationship has two benefits to the protection of investors' rights in the depositary receipt,one is that the depositary stocks should be independent as trust property,and the other is that the depositary banks and custodians as trustees should bear the trustworthy obligations of the trustees.The independence of depositary shares as trust property is mainly reflected in three aspects:First,the depositary receipt-based securities are independent of the depository banks and custodian's own property;Second,the depositary receipt-based securities are independent of the overseas issuer's own property;Third,the depositary receipt-based securities are independent of other property of the holder of the depositary receipt.The fiduciary duties of depositary banks and custodian institutions mainly include the obligation of fidelity and the care of good managers.The fidelity obligation requires that the depositary bank and the custodian institution shall not buy or sell securities,treat investors of the depositary certificate fairly,and require that the depositary bank and the custodian institution be independent of the overseas issuer.The duty of good managers to pay attention is mainly the obligation of supervision,including the obligation of mutual supervision between the depositary bank and the custodian institution,and the supervision of the overseas basic securities issuer by the depositary bank.As one of legal securities,depository receipts can protect their legal rights and interests by filing a civil damages lawsuit when their investors' rights and interests are infringed upon by overseas basic securities issuers and depository institutions.Overseas basic securities issuers and depositary institutions have an obligation to disclose information to investors.When they violate information disclosure obligations and disclose information in violation of regulations,investors can request damages.In addition,the depositary agreement between the issuer of the overseas basic securities,the depositary bank and the investor stipulates the rights and obligations of the parties,as well as the information obligations of the depositary bank and the custodian institution to the investors,which can be used as the basis for depository receipt investors to file civil damages.The "Administrative Measures on the Issuance and Transaction of Depositary Receipts(Trial)" stipulates that the depositary agreement shall stipulate that the jurisdictional court for litigation related to depositary receipts shall be a court with jurisdiction in China.The exclusive jurisdiction of the courts in China eliminates the jurisdiction of overseas courts and better protects the rights and interests of investors in depositary receipts.At the same time,in the field of litigation,in order to fully ensure that the rights and interests of investors can be fully protected,a class action system for depositary receipt investors should be established to enable depositary receipt investors to effectively safeguard their legitimate rights and interests through litigation.There are two ways to build a group litigation system for depositary receipt holders,one is to file a class action on behalf of the CSI Small and Medium Investor Service Center Co.,Ltd.,the other is the litigation brought by the depository receipt holders' meeting.