The Role of the Depositary Bank

6 Issuer Services time ordinary shares in the local market for deposit into the DR facility. Relaxed restrictions may benefit issuers through: • Increased opportunity for immediate issuance of DRs; • Enhanced liquidity over time as the ability to issue and cancel the company’s DRs potentially enhances trading activity. The associated advantages include higher investor demand and higher valuation; • Decreased risk resulting from lower share price volatility — due to larger pool of a company’s stock — changes in supply and demand yield smaller price changes; and • Broadened opportunity for non-U.S. investment in the local market. A DR premium is the differential between the ordinary share price in the local currency and the price of the DR. Historically, in limited two- way markets, when the U.S. market outperforms the non-U.S. market, the premium grows. When the local market outperforms the U.S. market, the premium typically shrinks. The DR Ratio A primary step in establishing a DR program is to determine the ratio of underlying shares to depositary receipts (DRs). The share-to-DR ratio may be established as a one-to-one or as a multiple or fraction of the underlying shares. This ratio can influence the price-trading range. In setting the ratio, the issuer should consider: • Industry peers — securities of companies in the issuer’s industry will often trade in a certain price range and the issuer may want to conform to industry norms in the market where the DR will be listed; • Exchange options — each exchange has average price ranges for the shares listed and, generally speaking, issuers may want to conform to that range; and • Investor appeal — U.S. Institutional and retail investors are more likely to buy shares that they perceive to be well-priced and fairly valued. While many DR programs are established with a 1:1 ratio (one underlying share equals one DR), DR programs have been known to have ratios as high as 100,000:1 and as low as 1:100. The depositary will work with issuers to determine the most appropriate ratio at the inception of the DR program. In addition, the ratio can be adjusted at a future date, for example, to address changes in market conditions. Depositary Receipts compared with a Direct Listing Generally, depositary receipts provide issuers with more benefits and flexibility than direct listings of ordinary shares. Issuers can leverage the economies of scale and local market expertise of the depositary bank to maximize their strategic objectives in cross-border listings. Specifically, DRs provide the following advantages over directly listing ordinary shares: • Flexibility —— Use of the Deposit Agreement to facilitate local regulatory requirements —— DRs are easily fungible with ordinary shares, while listing a class of ordinary shares does not offer the same level of seamless fungibility