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China unveils CDR rules in preparation for return of overseas-listed Chinese firms

An investor looks at an electronic screen at a brokerage house in Hangzhou, Zhejiang province, on January 26, 2016. Photo: China Daily

China's securities watchdog has rolled out the much-anticipated trial rules for the issuance and transaction of Chinese depositary receipts in a baby step that will facilitate overseas-listed Chinese firms and valuable unicorn startups to raise funds at the domestic stock market.

Chinese depositary receipt is a financial instrument issued by a custodian bank that allows domestic investors to buy securities of offshore-listed Chinese companies.

The trial rules, which take effect immediately, will "help innovation-focused Chinese companies to list shares by issuing Chinese depositary receipts in the domestic market" under the institutional arrangement aimed at improving the structure and fundraising function of the domestic capital market, according to a statement released on the website of the China Securities Regulatory Commission at midnight Wednesday.

The statement said that the trial rules will support the national strategy, which advocates the return of well-recognized, overseas-listed Chinese innovative companies to the domestic capital market.

"[The trial rules] will be a major step in promoting the supply-side reform and the structural transformation of the economy," said the statement.

In order to prevent risks and protect investors' legal rights, the Commission will set strict threshold requirements for the pilot companies which want to issue Chinese depositary receipts and will strictly control the amount of funds they will raise, added the statement.

On Wednesday, the Commission approved six Chinese mutual funds as strategic investors in the upcoming listings.

Over the year, the Chinese government has called on overseas-listed Chinese companies, especially those big technology giants such as Alibaba Group and Baidu, to launch secondary listings in the domestic stock market in the form of issuing Chinese depositary receipts, amid efforts to promote the internationalization of the domestic capital market and offer more channels for promising Chinese companies and startups.

Last week, domestic media reports said that Chinese smartphone maker Xiaomi would be the first company to issue Chinese depositary receipts on the Shanghai Stock Exchange in July.

Previously, Baidu, Alibaba, Tencent and NetEase were rumored to return to the domestic stock market through the issuance of Chinese depositary receipts.

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