BNY Mellon wants depository receipt (DR) regulations eased

Global depository banks are increasingly pitching for relaxations in depository receipt (DR) regulations as they see strong demand for the product among their global clients.

BNY Mellon on Wednesday made it clear that India needs to review its DR guidelines in order to remain a top investment destination.

A DR is a negotiable financial instrument issued by a bank that represents a fixed number of foreign company’s shares, making it easier for investors to gain exposure to foreign companies.

“We are often asked, especially by US investors, to establish ADR programmes for Indian companies, but are restricted from doing so by the current regulations,” said Gregory Roath, head of depositary receipts - Asia Pacific, BNY Mellon.

BNY Mellon believes introducing ‘level 1’ or the over-the-counter (OTC) non-capital-raising ADR programmes for Indian companies could be the answer. The bank recently took up the matter with officials of the finance ministry, Sebi, and the RBI.

The level 1 American DR is most basic type of OTC ADR with no requirement for foreign company to get its ADR listed on the exchange and does not involve the issuance of shares. Also, they have the least regulatory requirements from the US market regulator.

“It will be a great thing if allowed by the Indian regulator. Also, there is great interest for un-sponsored programmes wherein the depository does not need foreign companies’ or issuer’s permission to create such instruments,” said vice-president, depository receipts, at a foreign bank, not willing to be named.

BNY Mellon feels that allowing OTC DRs will go a long way in reducing usage of  Participatory Notes (P-Notes) by investors not registered with Sebi.

@nitinpshri