Research On The Obligation Of Depositaries Of Chinese Depositary Receipts

As a financial instrument for cross-border investment and financing,depositary receipts have developed strongly and occupy an important position in the international securities market because of its low cost and convenience of issuance and transaction.Under the current situation of low openness and internationalization of China’s capital market,depositary receipts have unique advantages in accelerating the opening of China’s capital market and improving international competitiveness,as well as attracting high-quality red chip enterprises to return to the domestic capital market.The Measures for the Administration of Offering and Trading of Depositary Receipts(for Trial Implementation)issued by China Securities Regulatory Commission in June2018 provides an institutional basis for the implementation of Chinese depositary receipts(CDR).However,the positioning of the depositary is unclear,and there are problems in the allocation of the obligations of the depositary.It is difficult to prevent the possible abuse of rights by the depositary,which will lead to a series of market risks and the failure of the protection of the rights and interests of investors.In view of this problem,this paper starts with the analysis of the legal nature of depositary receipts and the relevant legal relations of depositary,defines the legal status of depositary,finds out the defects and possible problems in the current norms of depositary’s obligations in China,and finally puts forward the path of improvement and perfection on the proper Choice of depositary’s obligations.The first part is the introduction of the foreign and domestic practical development of depositary receipts and the analysis of the legal nature of depositary receipts.In the international practice of depositary receipts,American Depositary Receipts developed the earliest,with rich experience in the issuance of depositary receipts and a perfect and refined regulatory system.Therefore,American depositary receipts are far superior to other countries in the issuance quantity and the quality of overseas companies.The depositary receipt system in Europe,Singapore,India,Hong Kong and Taiwan region has also been launched for many years,but it has not formed a scale due to various reasons.China’s depositary receipt system was officially introduced in 2018,and various supporting laws and regulations were issued one after another.After that,the Shanghai-London Stock Connect was opened and further expanded to a wider range of domestic and foreign stock exchanges.The depositary receipt system will play an important role in the process of deepening the opening-up of China’s capital market.In the study of depositary receipts system,it is necessary to explore the legal nature of depositary receipts.Depositary receipts conform to the basic characteristics of securities and belong to a type of securities,which has no doubt in academia and practice.However,there are still great differences on the basic legal relationship in the academic circles,including the theory of trust relationship and the theory of principal-agent relationship.After in-depth analysis,the author finds that these two theories are unreasonable and it should be regarded as a new type of legal relationship.In order to more accurately define the legal status of the depositary,this paper analyzes the relationship between the depositary and the overseas underlying securities issuer,the depositary receipt holders and the custodian,and holds that the depositary is in an important position as a bridge and hub between overseas enterprises and domestic investors.The content of the second part is the norms and deficiencies of the obligations of the depositary in CDR.Through the interpretation of the provisions of the Measures for the Administration of Offering and Trading of Depositary Receipts(for Trial Implementation),this paper combs the legal framework of the norms of the obligations of the depositary in CDR.It can be seen that the norms of the obligations of the depositary in CDR are composed of the mandatory provisions of the regulatory authorities and the agreements of the parties in the depositary agreement.Although the depositary needs to bear certain obligations and responsibilities in form,in fact,these provisions can not regulate the common illegal acts of the depositary.The common self-interest behaviors of the depositary abusing its rights include taking advantage of the convenience of exercising the voting right on behalf of the depositary receipt holders to exercise the voting right according to the wishes of the management of the overseas company rather than the instructions of the depositary receipt holders,so as to help the management of the overseas company maintain a certain control right;Carry out dividend arbitrage through the pre issuance of depositary receipts and make false Securities for improper short selling.Generally speaking,China’s current system of depositary’s obligations is actually unable to regulate these self-interest behaviors,and the depositaries are almost in a state of no obligation and no responsibility.The depositary is not required to perform the obligation of information disclosure,and will not take the initiative to correct or supervise the false statements and other acts of overseas issuers.The reasons for this choice in the Measures for the Administration of Offering and Trading of Depositary Receipts(for Trial Implementation)are,on the one hand,that at the beginning of the implementation of depositary receipts,they served red chip enterprises and did not give full consideration to the situation that the underlying securities issuer is an ordinary overseas enterprise.On the other hand,they are affected by the "theory of no responsibility of depositary" in American law,but the practice of American depositary receipts has proved that there are many problems in the American model.China’s securities regulatory environment is different from that of the United States.At present,China is still a separate regulatory system,and the extraterritorial jurisdiction of securities law is also weak.Blindly learning from the American model is not in line with China’s national conditions,which is not conducive to improving the international attraction of China’s capital market,nor can it provide an institutional basis for the introduction of unsponsored depositary receipts in the future.The third part puts forward the direction of improvement and perfection in view of the defects in the obligations of the depositary of CDR.First of all,we should clarify the status of the depositary’s depositary receipt issuer,which will help to allocate the obligations and responsibilities of all parties.At present,China’s laws regard the depositary in the sponsored depositary receipts as the nominal issuer,and in fact,it is almost completely free of obligations and responsibilities,which is inconsistent with the legal reason and the reality of the securities market.Based on the basic characteristics of general securities issuers and combined with the analysis of the particularity of depositary receipts,the depositary should be regarded as the issuer of depositary receipts and bear the obligations and responsibilities of some issuers.As for unsponsored depositary receipts,because there is no participation of the overseas underlying securities issuer,the depositary should bear the obligations and responsibilities of the issuer.In terms of specific obligations,the depositary shall perform the issuance and registration obligations of intermediary information and interest related information of depositary receipts,the information disclosure obligations of intermediary information,deposit agreement and custody agreement,and the diligence duty of supervising the of overseas companies.It shall register at the time of pre issuance of depositary receipts and take safeguard measures to prevent the risk of pre issuance.