About three months ago the London-Shanghai Stock Connect program was expanded to now include companies listed on the Shenzhen Stock Exchange, as well as Swiss and German stock exchanges. This expansion of the stock trading link has already had an effect as several Chinese companies are seeking fundraising at SIX through the listing of global depository receipts ("GDRs") (see our blog "Expansion of China's Stock Connect Program").
As no GDRs have been listed on SIX so far, SIX took the emerging interest of Chinese companies for listing GDRs at SIX as an opportunity to assess whether the existing listing and trading rules were in need of reform. As a result, SIX's Regulatory Board announced on 17 May 2022 in its communiqué ("Communiqué") that the existing issuer and trading rules will be amended as of Q3 2022. SIX's intention of the announced amendments is to make the listing and trading of GDRs on SIX more attractive. According to this Communiqué an application for approval of the revised regulations has been submitted to the Swiss Financial Market Supervisory Authority (FINMA).
GDR-specific Revisions of Listing Rules
SIX Exchange Regulation ("SER"), the self-regulatory supervisory body for issuers listed at SIX, seems to be of the view that the current listing rules ("LR") of SER have less stringent obligations in a few areas than those of other financial centres which could prove negative from an investor’s point of view.
Therefore, the following amendments to the LR are planned which concern the conditions for maintaining the listing (but not the listing requirements as such):
- The LR state that issuers whose equity securities are primary listed at SIX must ensure that management transactions are disclosed (no later than the second trading day after the relevant management transaction has been concluded). Issuers of the underlying shares whose GDRs are listed at SIX ("GDR Listed Issuers") are under the current LR, however, exempt from this disclosure obligation (article 100 LR). According to the Communiqué this exemption will be revoked.
- The current LR provide that the GDR Listed Issuers are exempt from the Directive Corporate Governance of SER ("DCG") which otherwise applies to all issuers whose equity securities are primarily listed on SIX. As a consequence, GDR Listed Issuers are currently not subject to the corporate governance related disclosure obligations. SIX's Regulatory Board clarified in the Communiqué that the exemption will remain, however, GDR Listed Issuers will become obliged to declare in both the prospectus and the annual report that they adhere to the corporate governance standards of their domestic market.
- Under the current LR GDR Listed Issuers are exempt from the obligation to publish interim financial statements (article 102 LR). According to the Communiqué this exemption will be revoked and thus, GDR Listed Issuers will have the same interim reporting obligation as the other issuers whose equity securities are listed at SIX.
- Currently, issuers of GDRs - i.e., depositaries which must either be (a) licensed as a bank under the Swiss Banking Act or as a securities firm under the Financial Institutions Act, or (b) be subject to equivalent foreign supervision - are subject to the same reporting obligations during listing as GDR Listed Issuers. With the exception of the obligation to disclose management transactions, these disclosure obligations for depositaries will be revoked.
- Furthermore, article 103 LR will be supplemented and specify in the future that GDR Listed Issuers are, in particular, subject to the ad hoc publicity obligations. This adjustment is a mere specification of this provision.
Trading Rules and Fees
According to the Communiqué a new trading segment will be created for GDRs listed on SIX. This trading segment is to be based on the model for the Mid-/Small-Cap Shares trading segment. Trading will, however, only open at 3 pm (CET). The intention of these shortened trading hours is to ensure compliance with the ongoing ad hoc publicity obligation of issuers in both countries. Furthermore, the reporting deadlines for trades in GDRs will be added to the Reporting Office Rules.
Finally, the fees for listing GDRs as well as the reporting fees will be based on the applicable tariffs for listing of equity securities and will be kept nearly identical to those of the Mid/Small-Cap Shares trading segment.
Outlook
The contemplated amendments solely relate to the conditions for maintaining a listing and the trading rules but have no impact on the requirements to list GDRs on SIX. The contemplated amendments are intended to create regulatory framework conditions comparable to those of other trading venues and most amendments seem first of all to be driven by investor protection considerations. These amendments also make clear SIX's view that a listing of GDRs cannot be considered as either a primary or a secondary listing but is closer to a primary listing of equity securities. Furthermore, it is to be hoped that the shortened trading hours will not diminish the substantial interest that has arisen from Chinese issuers in seeking GDR listings on SIX.
For questions or in-depth advice, please do not hesitate to reach out to our Banking & Finance Team that is supported by our China Desk Team.
Authors: Adrian Doerig; Christian Schneiter
