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NSE to introduce Nigerian Depository Receipts

By BusinessNews Staff on July 31, 2014

The Nigerian Stock Exchange is planning to introduce Nigerian Depository Receipts (NDRs) as part of its efforts to satisfy the investment needs of investors in the Nigerian capital market.

Depository Receipts (DRs) are negotiable securities that generally represent a company’s publicly traded equity or debt. The DRs are listed on stock exchanges and usually behave exactly like regular stocks as their prices fluctuate depending on demand and supply, and depending on the fundamentals of the underlying security.

The NSE noted that the introduction of NDRs is part of repositioning of itself to be the preferred capital market of choice in the African sub region.

Hence, it is 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. DRs may be sponsored or unsponsored and each type has specific characteristics and requirements related to it. Each receipt amounts to a claim on a predefined number of shares of the underlying security.

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

The NSE explained that the NDRs will provide access to foreign securities trading in other markets. The NSE will commence with unsponsored NDRs.
However, preparatory to the introduction of the NDRs, the NSE is exposing the draft rules to other market stakeholders for their comments before final approval by the Securities and Exchange Commission (SEC).

According to the Head, Legal and Regulation Division, NSE, Tinu Awe, the draft rules set out to 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.

In addition, 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.

They also contain 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. The Rules address obligations to be satisfied regarding the underlying security and the depository.

Awe said the invitation of stakeholders to participate in the rule making process of the NSE is to create public awareness and solicit the public’s feedback on the draft rules and to improve the draft rules where necessary and thereby have a robust, well written set of rules.

“We are involving as many stakeholders as possible in this rule making process in order to achieve the aforementioned goals. Please be assured that your comments will be considered in arriving at the final text of the rules,” she said.

[This Day]

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