The ASX is reportedly reviving an two-year-old proposal that will allow investors to trade foreign-listed companies like Apple and Google on the local exchange, to stop money going offshore.
In late 2011, the ASX proposed to offer domestic investors exposure to foreign equities by introducing unsponsored depositary receipts (UDRs) that could be traded, cleared and settled in the same way as existing Australian securities.
UDRs were to be issued by depositories – for example, investment banks – which would hold an equivalent number of underlying securities overseas, so that one UDR would represent one share in the foreign-listed company.
However, the foreign-listed company need not be involved in the issuing of UDRs in Australia (hence the term “unsponsored”). A similar product – unsponsored American Depositary Receipts – is available in the US for shares otherwise traded in Europe and elsewhere.
Unlike contracts for difference (CFDs) offered by retail trading platforms, UDR holders were to have the same rights as shareholders of the underlying company, with the ability to cancel a UDR and hold the foreign-traded share directly.
From the ASX’s joint consultation paper with S&P in March 2012:
The Australian Securities Exchange has identified considerable interest in ASX providing investors with exposure to international equities.
Consequently, ASX is proposing to broaden the range of international equities available on ASX by quoting UDRs (unsponsored depositary receipts).
UDRs are conceptually similar to Chess Depositary Interests (CDIs), and will allow investors in the Australian market to obtain an equitable interest in international securities through a security that is traded, cleared and settled on the ASX market.
The number of offshore securities over which the UDR s would be quoted via the proposed ASX program will be determined in consultation with the market, with well-known global companies listed on major exchanges expected to be the UDRs most likely in demand.
ASIC rejected the proposal in late 2012 over concerns that the scheme could confuse investors, but the AFR reports that ASX boss Elmer Funke Kupper was considering putting forward a fresh, more targeted proposal.
“Last time, it was a very broad proposal and we overshot the target a bit,” Funke Kupper told the Fin, suggesting that the new proposal limit UDRs to institutional investors to address ASIC’s concerns.
“I’d like to have an international board where we quote the top 100 companies … I think we can make this an institutional-only market.”
There’s more on the Fin.