10 May 2018
As the popularity of margin loans and other equity derivative transactions secured by US-listed American Depositary Receipts (ADRs) in Asia continues to grow, the shareholding and security structure for these transactions has come into focus. Partners from Latham & Watkins’ Capital Markets Practice and Financial Institutions Group and Citibank’s Depository Receipt Services team recently addressed the evolving landscape for security structures and associated enforcement issues at a seminar in Hong Kong. In particular, new enhancements in the security structure such as the Structural Safekeeping Account (SSA) may offer market participants greater efficiencies by allowing the security to be taken directly over the ordinary shares that back-up the US-listed American Depository Receipts (ADRs).
“Off the back of a very strong US IPO market in 2017, which has continued into this year, we are seeing the growing popularity of US margin loans and US equity derivative products,” said Witold Balaban, Global Co-Chair of Latham & Watkins’ Capital Markets Practice and Financial Institutions Group. “In 2018, we expect to see a strong uptick in both the volume and size of these transactions.”
Added Balaban: “At the time when issuers in Asia are doing their IPOs, it is important for these companies to structure their depositary programs and their shareholding structures in a way that will allow their founders to avail themselves of these products in the future.”
Latham & Watkins Hong Kong-based partner Posit Laohaphan said: “Our structured equity practice is at the cutting edge of trends in equity derivative products. In the context of loans and derivatives that are secured by US listed securities, we are leading efforts to create enhanced structures for these products provide a more efficient, streamlined, and cost effective process for enforcement.”
For more insights from the seminar, please view the following videos: