NSE to introduce Nigerian Depository Receipts

The Nigerian Stock Exchange (NSE) has prepared rules for the listing of Nigerian Depository Receipts.

In a notification to dealing members about the development, the Exchange said the draft rules sought to set out the structure for listing and trading NDRs in the Nigerian Capital Market.

The Exchange, in the notice by its Head, Legal and Regulation Division, Tinuade Awe, explained that it was introducing Nigerian Depository Receipts to provide access to foreign securities trading in other markets.

According to it, depository receipts are negotiable securities that generally represent a company's publicly traded equity or debt. DRs may be sponsored or unsponsored and each type has specific characteristics and requirements related to it.

It said, 'These receipts are listed on stock exchanges and usually behave exactly like regular stocks, e.g. their prices fluctuate depending on demand and supply, and depending on the fundamentals of the underlying security.

'Each receipt amounts to a claim on a predefined number of shares of the underlying security.'

It explained that a depository stores the shares on behalf of the receipt holders, noting that DRs trade, settle and clear in the same manner as securities local to the market on which they trade.

'The DR investor holds privileges like those granted to shareholders of ordinary shares, such as voting rights and dividends,' it added.

Summarising the rules, the Exchange said they set out the general eligibility, disclosure and continuing obligations and requirements that apply to DRs; and then set out in subsequent parts, specific provisions in relation to sponsored and unsponsored DR issues.

It also said, 'The rules contain provisions relating to the key players involved in a DR listing and the elements of a DR transaction, the issuer, the underlying entity, the depository, the securities, the depository receipts as well as the Deposit Agreement/Terms and Conditions.'

It added that they detailed listing requirements for the sponsored DRs as well as the unsponsored DRs, contents for the depository agreement for a sponsored DR; as well as the terms and conditions for an unsponsored DR.

Also, the rules address obligations to be met regarding the underlying security and the depository.

The Exchange intends to commence its NDR listing programme with unsponsored DRs.

While noting that the draft rules were subject to the approval of the Securities and Exchange Commission, the NSE called on dealing members to review the rules and send in their comments.

'Your participation is required by way of reviewing the draft NDR Rules and providing your comments thereon,' it said.

It explained that the participation of the dealing members was vital for the purpose of creating public awareness and soliciting the public's feedback on the draft rules and improving the rules where necessary.

In order to have robust rules for NDRs, the Exchange said it was involving as many stakeholders as possible.

Dealing members are expected to send in their comments not later than August 15, 2014.

According to the Exchange, it is, in positioning itself to be the preferred capital market of choice in the African sub-region, introducing a variety of tradable instruments to satisfy the investment needs of individual and institutional investors looking to diversify their portfolios, reduce risk and invest internationally in the most efficient manner possible.