1. HONG KONG DEPOSITARY RECEIPTS (HDRs)
Seminar on 17 September 2008
At Hong Kong Securities Institute
By : Matthew Harrison, Research & Corporate Development, HKEX
Bonnie Chan, Listing, HKEx

2. AGENDA Page Nature of DRs 3 2. Global DR landscape 7 Why HDRs? 14
Hong Kong Depositary Receipts (HDRs)
AGENDA Page
Nature of DRs 3
2. Global DR landscape 7
Why HDRs? 14
HDR framework 16
HDR operations 25
Appendix
Further details on HDR operations

3. Issuance of DRs Issuance of shares
Hong Kong Depositary Receipts (HDRs)
1. Nature of depositary receipts
DRs are receipts issued by a depositary representing underlying shares of a corporation which have been deposited with the depositary or its nominated custodian.
Issuance of DRs
Issuance of shares
DR holders
Shareholders
Corporation
Depositary
DRs
Shares

4. Issuance of DRs Issuance of shares
Hong Kong Depositary Receipts (HDRs)
1. Nature of depositary receipts
Issuance of shares : governed by local statute and corporation’s M&A.
Issuance of DRs : governed by deposit agreement.
Issuance of DRs
Issuance of shares
DR holders
Deposit agreement
Shareholders
DRs
Statute / M&A
Shares
Depositary
Shares
Statute / M&A
Shares
Issuing company

5. Hong Kong Depositary Receipts (HDRs)
1. Nature of depositary receipts
Why DRs?
For issuers
Local regulations may discourage overseas issuance of shares or overseas share register.
Share size – DRs can be sized to fit host market practice.
For investors
Convenience – no need for local registration, compliance with foreign investor regulations, currency translation, etc.

6. DR product characteristics
Hong Kong Depositary Receipts (HDRs)
1. Nature of depositary receipts
DR product characteristics
Mature product – 1st DRs issued in 1927 by JP Morgan on UK retailer Selfridges.
Usually on shares, but may also be on other securities such as bonds, ETFs (HDRs only on shares.)
Most share-related DRs now sponsored by issuer. (HDRs must be.)
Deposit agreement – concluded by issuer and depositary
– defines investor rights
– bridges local and host market practice
Legal character – contract, but similar to trust or custody arrangement
DR ratio – can be adjusted relatively easily (by board resolution and amendment of deposit agreement)
Depositary receipts – (strictly,) confirmations of entitlement to depositary shares

7. 2. Global DR landscape ADRs – “American depositary receipts”
Hong Kong Depositary Receipts (HDRs)
2. Global DR landscape
ADRs – “American depositary receipts”
– Used almost universally by foreign companies listing in US
– Regulation follows that applicable to securities generally
– Level І : non-listed
ІІ : listed without public capital-raising
ІІІ : listed with public capital-raising
GDRs – “Global depositary receipts”
– Usually – a US leg (ADRs) settled in DTC
– a European leg under Reg S settled in ICSD and traded on London’s IOB
– Used by many foreign companies listing in London or Luxembourg
– Concessionary regulation – viewed as professional product and listed under European minimum regulation
“Local DRs” – DRs listed under regimes of specific markets – Singapore, Sweden, Taiwan, etc.
– Regulation may be concessionary
ICSD = International Central Securities Depository IOB = International Order Book

8. Hong Kong Depositary Receipts (HDRs)
2. Global DR landscape
Global DR highlights
20931 sponsored DR programmes in issue (June 2008).
Indian-sponsored issues the most numerous, followed by Russia, UK, Brazil, Australia, Taiwan, China, Hong Kong.
Estimated value: US$1.8 trillion at March 2008, up 35% Year on Year.
London and NYSE vie in DR capital raised.
Over US$2.4 trillion traded YTD June 2008, up 85% on prior YTD.
NYSE leads in DR trading value, followed by Nasdaq, London.
DRs represent about 4% of world listed equity market
1 Statistics from Bank of New York Mellon (BoNY) The Depositary Receipt Markets 2008 Mid-Year Review.

9. Recent trend of GDR issuance
Hong Kong Depositary Receipts (HDRs)
2. Global DR landscape
New sponsored DRs
Recent trend of GDR issuance
Source: BoNY

10. GDR capital-raising has grown
Hong Kong Depositary Receipts (HDRs)
2. Global DR landscape
Annual DR capital raising
Primary and follow-on offerings ($bn)
GDR capital-raising has grown
Source: BoNY

11. London and NYSE dominate in capital-raising
Hong Kong Depositary Receipts (HDRs)
2. Global DR landscape
DR capital raising (US$9,159 million)
By exchange, 1H 2008 ($million)
London and NYSE dominate in capital-raising
Source: BoNY

12. Hong Kong Depositary Receipts (HDRs)
2. Global DR landscape
Annual DR trading
U.S.-listed
DR trading is still growing strongly, despite general decline in world equity markets
Source: BoNY

13. NYSE dominates trading
Hong Kong Depositary Receipts (HDRs)
2. Global DR landscape
Global DR trading value (total US$2,460 billion)
By exchange or market, 1H 2008 ($bn)
NYSE dominates trading
Source: BoNY

14. 3. Why HDRs? HKEx’s Strategic Plan: list more overseas companies.
Hong Kong Depositary Receipts (HDRs)
3. Why HDRs?
HKEx’s Strategic Plan: list more overseas companies.
Roadshows / marketing trips to Russia, Vietnam, Kazakhstan, India, Mongolia, etc.
Feedback: HKEx Listing Rules mandating shares and Hong Kong share register considered a barrier.
Solution: HDR framework

15. Nature of HDR framework
Hong Kong Depositary Receipts (HDRs)
3. Why HDRs?
Nature of HDR framework
No policy change vis-à-vis existing regime
– HDR listing requirements equivalent to those for shares
Not a concessionary regime (ie. unlike London’s). More like US-style Level ІІІ approach, ie. as for shares.
Essentially: instrumental facility for listing in DR form rather than share form.
No market consultation needed  HDR framework introduced relatively quickly.
Available to all issuers which meet listing requirements.
Rule amendments apply spirit of existing rules to two-tier DR structure.

16. 4. HDR framework Key features
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Key features
HDR framework applies only to Main Board.
New Chapter 19B, Appendices 1E and 1F; minor amendments to existing rules.
Existing Listing Rules (IPO procedures and continuing listing requirements) and CCASS Rules apply to HDRs except where specifically modified (Rule 19B.01).
SFO, Takeovers Code and prospectus provisions of Companies Ordinance apply to HDRs.
Trading, clearing and settlement procedures: same as for shares
Applicable Exchange fees and charges: same as for shares
Stamp duty: same as for shares (0.1% per side).

17. Existing regime for listing overseas companies applies to HDRs
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Existing regime for listing overseas companies applies to HDRs
Remains unchanged and applies equally to overseas issuers listing:
– via HDRs; and
– via ordinary shares
Set out in Chapter 19, supplemented by Joint Policy Statement Regarding the Listing of Overseas Companies issued by SEHK and SFC on 7 March 2007.
Joint Policy Statement is intended to:
– clarify Listing Rules governing listing of overseas companies
– provide roadmap to overseas companies incorporated outside the Recognised Jurisdictions (i.e. Bermuda, Cayman Islands and PRC)
– state factors (not determinative) affecting eligibility for listing

18. Highlights of new Chapter 19B of Main Board Listing Rules
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Highlights of new Chapter 19B of Main Board Listing Rules
Issuer:
– Includes a company whose shares are represented by HDRs that are listed or are the subject of an application for listing but not including the depositary (Chapter 1)
– HDR issuer does not have to be already listed overseas.
– Issuer cannot list shares and HDRs on the Exchange at the same time (Rule 19B.06).
– Must appoint approved share registrar to maintain HDR holder register, only (Rule 19B.13)
HDRs:
– may be issued in respect of newly issued shares and/or shares placed with depositary by existing shareholders (Rule 19B.06)
– must be freely transferable (Rule 19B.09(a))
– securities which HDRs represent must be fully paid and free from liens or restrictions (Rule 19B.09(b))

19. Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Depositary :
– must be duly incorporated and in conformity with its constitutional document (Rule 19B.14)
– must be suitably authorised and regulated financial institution acceptable to Exchange – includes overseas operators (Rule 19B.15)
– have adequate experience in issuing and managing DR programmes in Hong Kong or overseas (Rule 19B.15)
– issues HDRs as agent of issuer (Rule 19B.05)
– holds shares to which HDRs relate on trust (or equivalent arrangements) for sole benefit of HDR holders (Rule19B.16)

20. Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Deposit Agreement (Rule 19B.16)
– Vetted by the Listing Division – shareholder protection features in Joint Policy Statement dated 7 March 2007 should be complied with
– Entered into between issuer and depositary and binding on HDR holders
– Stipulates rights, duties and obligations of depositary, issuer, HDR holders, custodian; and stipulates depositary fee structure
– Sets out procedures for replacement or removal of depositary and/or custodian
– Sets out procedures for amendment of deposit agreement – material changes affecting HDR holders’ rights must have HDR holders’ prior approval
– Governing law – of Hong Kong or foreign jurisdiction generally used in international practice. Must not exclude Hong Kong jurisdiction for dispute resolution

21. Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Public Float Requirement
– Public float requirement applies to whole class of shares represented by HDRs provided fungible with HDRs (Rule 19B.08)
– Illustration:
Company A has:
Ordinary shares
Depositary Receipts (HDRs) (Note 1) 100
Note 1: Each HDR represent one ordinary share of Company A
Question:
If 200 ordinary shares and 50 HDRs are held by public, does Company A meet public float requirement under Rule 8.08?

22. Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Public Float Requirement – Illustration (cont’d)
Issued ordinary shares 200
Ordinary shares upon full conversion of HDRs (50 x 1) 50
Shares held by the public (B)
Total issued share capital 1,000 (A)
% held by the public % (B)/(A)
Conclusion:
Company A is able to meet public float requirement of 25% under Rule 8.08

23. Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Highlights of new Chapter 19B of Main Board Listing Rules (cont’d)
Number of HDRs sought for listing (Rule 19B.07) :
– Issuer may seek to list HDRs up to any prescribed amount of share capital which HDRs represent. (Rule 8.19 does not apply)
– Headroom provision
– No further application for listing of HDRs is required for creation and cancellation of listed HDRs resulting from conversion of shares into HDRs or vice versa if sufficient headroom.
– No further application for listing of HDRs is required merely because issuer issues further shares. (Rule 8.20 does not apply)

24. Effective date and way forward
Hong Kong Depositary Receipts (HDRs)
4. HDR framework
Effective date and way forward
Effective date of HDR framework: 1st July 2008
FAQs and further information about HDRs on HKEx website
Revised Guidance for New Listing Applications (Main Board) has been updated.
Further enhancement of listing regime for overseas companies is under consideration.

25. 5. HDR operations Structure of share- / HDR ownership
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
Structure of share- / HDR ownership
HDR initial listing
HDR creation and cancellation
Corporate action processing
Cash dividend
Scrip dividend
HKSCC Nominees service – voting
Benefit entitlements
Common fees and charges of depositary

26. Local register of members (ROM)
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(1) Structure of share- / HDR ownership
Structure of overseas listed company ownership
Local register of members (ROM)
Local
CSD nominee
Other
intermediaries /
nominees
Custodian
Depositary
Local
participants
DRs
Individual/
corporate
shareholders
Individual/
corporate
shareholders
Individual/
corporate
shareholders
DR holders
: Registered shareholders
: Beneficial owners
CSD
: Central securities depository

27. (1) Structure of share- / HDR ownership (cont’d)
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(1) Structure of share- / HDR ownership (cont’d)
Structure of HDR ownership in Hong Kong market
: Registered shareholders
: Beneficial owners
Overseas issuer: local ROM
HKSCC
Nominees
Other intermediaries/
nominees
Depositary
Investor
participant
HDR holders
GCP/DCP/custodian participants
Individual/
corporate
HDR ROM
[See preceding slide]

28. (1) Structure of share- / HDR ownership (cont’d)
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(1) Structure of share- / HDR ownership (cont’d)
Implications
Depositary and its custodian added to chain.
– Information flow may take longer
Two-tier structure: to maintain regulatory equivalence
– Usually look through to issuer/shares
– In a few areas, look to depositary/HDR level
A few new concepts, e.g. “headroom”.

29. Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(2) HDR initial listing
Listing can be by introduction – i.e. no capital raised in Hong Kong
Issuer must apply for headroom
IPO can be of HDRs,
– on new shares (i.e. newly issued by issuer)
– on existing shares (i.e. sold by major shareholder)
IPO process is same as for shares
– Public offering required (if sizeable issue)
– Yellow form, white form, etc.
– Scrip created if white form used

30.  Instruct broker to buy HDR, either
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(3) HDR creation and cancellation
HDR creation
SEHK
HK investor
Local
Market
HK Market
Depositary Bank (DB)
HK broker
CCASS
*Share Registrar
Buy HDR
T-day
T+2 day
Notification of share receipt
To create HDR 
 Instruct broker to buy HDR, either
Purchase in HK or
Purchase underlying shares in local market and convert to HDR
* Roles of registration and custody of HDRs
Notify broker to collect HDR certificate
Purchase underlying share
Custodian
appointed by DB
Custodian of
local broker
Underlying shares
Local stock
Exchange/CSD
Settlement day
Local broker

31.  Instruct broker to sell HDR, either
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(3) HDR creation and cancellation (cont’d)
HDR cancellation
SEHK
HK investor
Local
Market
HK Market
Depositary Bank (DB)
HK broker
CCASS
* Share Registrar
Sell HDR
T-day
T+2 day
Notification of HDR receipt & cancellation 
 Instruct broker to sell HDR, either
Sell in HK or
Convert HDR to underlying shares and sell in local market
* Roles of register and custody of HDR
Deliver HDR certificate
Transmission of net cash proceeds
Withdrawal of HDR certificate
Custodian
appointed by DB
Custodian of
local broker
Underlying shares
Instruction to release underlying share
Local stock
Exchange/CSD
Settlement day
Local broker

32. (3) HDR issuance and cancellation (cont’d)
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(3) HDR issuance and cancellation (cont’d)
Highlights
Arbitrage between HDRs in Hong Kong and shares in local market (if not restricted) can take place.
HDR creation: no need to apply for listing – unless headroom exceeded.
HDR cancellation: no need to apply for withdrawal of listing – provided some HDRs remain listed.

33. (4) Corporate action processing
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(4) Corporate action processing
HKSCC
CCASS
Participant
Local
Market
HK Market
Custodian of
underlying shares
Depositary
Share Registrar
Issuer
Investor
HDR Holder
Corporate communication
Instruction
(1) Issuer provides corporate action details to local custodian
(2) Local custodian gives information to depositary
(3) Depositary via its appointed share registrar (SR) in HK distributes information to HDR holders
(4) CCASS receives notification from SR then distributes information to CCASS participants
(5) CCASS will collect instruction from CCASS participants and submit to SR
(6) Depositary receives instructions from HDR holders via SR and submits them to Issuer through local custodian

34. HDRs (anticipated) H shares (current)
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(5) Cash dividend
Communications flow
1. Issuer announcement
local currency amount per share
local payment date
2. Depositary notice
approximate HK$ amount per HDR
approximate HDR payment date
3. Depositary notice
actual HK$ amount per HDR
actual HDR payment date
Issuer announcement of RMB amount per share
(2) Registrar notification of HK$ amount per share
HDRs (anticipated)
H shares (current)

35. Similar to flow for cash dividend
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(6) Scrip dividend
Communications flow
1. Issuer announcement
share ratio
local payment date
2. Depositary notice
HDR ratio
approximate HDR payment date
3. Depositary notice
actual HDR payment date
Similar to flow for cash dividend

36. HKSCC Nominees Limited
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(7) HKSCC nominees service – voting
Upon receipt of notice of meeting, depositary fixes record date and notifies HDR holders via SR.
Beneficial owners submit instructions through CCASS Participants to HKSCC for votes to be cast on their behalf, or request to be appointed as corporate representative to attend and vote at shareholders’ meeting.
HKSCC collects instructions and passes on to depositary, who relays to local custodian for action
Share Registrar (SR)
appointed by Depositary
HKSCC Nominees Limited
Non-Investor
Participants
Investor
Beneficial Owners
Corporate Representative instruction &/or voting instruction
Corporate Representative instruction &/or voting instruction
Proxy form or Corporate Representative Appointment letter
Voting

37. HKSCC Nominees Limited
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(8) Benefit entitlements / corporate actions (NOT REQUIRING exercise of discretion)
Share Registrar (SR)
appointed by Depositary
Non-Investor
Participants
Investor
Beneficial owners
Dividend payment / Issue of Bonus shares
Dividend / Bonus shares
HKSCC Nominees Limited
Examples: dividend payment, issue of bonus shares.
Upon receipt of payment (net of any fees, expenses, tax withheld and depositary’s own fee) in either HKD or USD / bonus shares in respect of HKSCC Nominees’s shareholding at record date, HKSCC will credit payment/ bonus shares to CCASS participants’ bank account (net of CCASS dividend collection fee) / stock account respectively.

38. Non-Investor Participants Investor Participants HKSCC Nominees Limited
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(8) Benefit entitlements / corporate actions (cont’d) (REQUIRING exercise of discretion)
Share Registrar (SR)
appointed by Depositary
Non-Investor Participants
Investor Participants
Beneficial Owners
Subscription / Take-over offer
Subscription, Take-over instruction
Expenses, shares,
Form of Acceptance
Entitlement / shares
HKSCC Nominees Limited
Examples: open offer, take-over offer, subscription
HKSCC will collect instructions from CCASS Participants and take action on their behalf or to facilitate the taking of actions by Participants directly.
Rights issues
– Pre-emptive rights must be passed on to DR holder
– This will entail obtaining authorisation of the rights prospectus (ie. by Exchange)

39. (9) Common fees & charges of depositary (based on ADR experience)
Hong Kong Depositary Receipts (HDRs)
5. HDR operations
(9) Common fees & charges of depositary (based on ADR experience)
Charges are made to the investor (via his broker or custodian)
– Issuance fee
– Cancellation fee
– Cash distribution fee
– Stock distribution / rights exercise fee
– Other distribution fee
– Annual depositary service fee
Notes: 1. The above is for reference only; the depositaries’ charges for HDRs have not yet been published.
2. It should be noted that CCASS’s normal charges will apply to HDRs in any event.

40. New certificate (HKSCC) Nominee
Appendix
Hong Kong Depositary Receipts (HDRs)
FURTHER DETAILS ON HDR OPERATIONS
Deposit of HDR Certificate
CCASS Depository
HDR certificate +
Stock Deposit Form
Participants must ensure that they have full authority to deposit such HDR certificate into CCASS.
2. Inspect all the documents submitted.
3. Input the deposit details to CCASS.
10:00 a.m. to 3:45 p.m. Monday to Friday
4. Immediately credit to Participant’s stock account.
Instrument of
Transfer
5. Certificates will be delivered to the share registrar for re-registration in name of HKSCC Nominees. This process will take 10 business days.
6. After 10 business days
New certificate (HKSCC) Nominee １.
Share Registrar (SR) appointed by depositary

41. FURTHER DETAILS ON HDR OPERATIONS (cont’d)
Appendix
Hong Kong Depositary Receipts (HDRs)
FURTHER DETAILS ON HDR OPERATIONS (cont’d)
Withdrawal of HDR Certificate
Participants input withdrawal order (W/O) via CCASS.
Once a W/O is accepted by the system, the Participant's specified stock account will be debited by the system with the withdrawal quantity of shares.
HKSCC staff retrieves the certificates of the withdrawn stock from the vault.
The authorized representative of the Participant with the duly signed Stock Collection Authorization Form collects the Certificates from the counter.
HKSCC staff signs the Instrument of Transfer.
Stock Withdrawal Receipt, Certificates and Instrument of Transfer pass to counter of CCASS Depository.
10:00 a.m. to 3:45 p.m. Monday to Friday
CCASS Depository 2. 3. 4. 5. 6.
10:00 a.m. to 5:00 p.m. Monday to Friday 1.

42. FURTHER DETAILS ON HDR OPERATIONS (cont’d)
Appendix
Hong Kong Depositary Receipts (HDRs)
FURTHER DETAILS ON HDR OPERATIONS (cont’d)
Ways to receive corporate communication through HKSCC Nominees Ltd.
Share Registrar (SR)
appointed by Depositary
Sends out corporate communication
Investor Participants
They may submit a standing instruction to receive corporate communication directly from depositary.
Registered Holders
Beneficial owners
They may request through CCASS Participants to receive corporate communication directly from depositary.
HKSCC will provide a list of the names and addresses of recipients to the depositary via registrar.
CCASS Participants
inform HKSCC of the name & address of the recipients.
Depositary receipts registered in
investors’own name
Depositary receipts registered in name of HKSCC Nominees Ltd.

43. HKSCC CCASS participants Beneficial owners Appendix
Hong Kong Depositary Receipts (HDRs)
FURTHER DETAILS ON HDR OPERATIONS (cont’d)
Corporate action processing
CCASS participants
Beneficial owners
Corporate communication/ Entitlement
Entitlement
Process among HKSCC, CCASS participants & beneficial owners
Instructions
Consolidated instruction representing those submitted by CCASS participants
Corporate announcement / entitlement
Process between SR and the beneficial owners
HKSCC
Share Registrar (SR)
appointed by Depositary