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THE 2016 DEPOSITARY RECEIPT
Market Review
MARCH 2017
MESSAGE FROM THE CEO
Dear Clients and Friends
The Depositary Receipt team at BNY Mellon took pride in helping our clients manage the global uncertainty that defined 2016 Low economic growth low or negative interest rates political upheaval and rapid regulatory and technological change were only some of the challenges we faced during the year Despite the turmoil the DR industry enjoyed a solid year proving once again that DRs are an important product for the global financial markets At BNY Mellon we established 32 new sponsored DR programs during the year1 and are proud to work with several leading companies including BMW Banco Santander Novatek and Credit Suisse which are profiled starting on page 4
Our mission at BNY Mellon is simple to improve lives through investing and help our clients reach their full potential In Depositary Receipts we do this by facilitating the investment process and helping issuers raise capital which can foster economic growth job creation and improve living standards all over the world We highlight starting on page 10 three issuers that we helped access the markets or raise the capital that allows them to make a difference in their communities
We know investors are fans of DRs for reasons including cost convenience and liquidity This year we are taking this opportunity to profile three leading institutional investors Lazard Asset Management Dimensional Fund Advisors and Cambiar Investors They all say that DRs are an integral part of their investment practice and they share their views of DRs starting on page 14
Another bright spot was the growth of DR indices in emerging markets such as Brazil and Russia As shown on the heat map on page 21 for the BNY Mellon Classic ADR IndexSM these country indices increased significantly during the year with Brazil up +6905 and Russia up +6102
BNY Mellon is determined to be the highest value provider of investment services globally and is the proud leader of the DR industry with a 57 global market share of sponsored programs and facilities covering 91 of established unsponsored depositary facilities
In 2017 we have several new initiatives on tap We are particularly focused on environmental social and governance issues and investor relations best practices to help our clients navigate the increasingly complex environment I look forward to engaging with you soon
Sincerely
For further information please visit wwwadrbnymelloncom
Christopher Kearns Chief Executive Officer
Depositary Receipts
Section 1 WHY BNY MELLON
Welcome New Clients More issuers have selected BNY Mellon as their depositary bank than all other depositary banks combined Here are a few of the blue-chip issuers that chose BNY Mellon in 2016
BMW GROUP2
In July 2016 Germanyrsquos BMW Group selected BNY Mellon as its depositary bank BMW Groupmdash with its three brands BMW MINI and Rolls-Roycemdash is the worldrsquos leading premium manufacturer of automobiles and motorcycles and also provides premium financial and mobility services As a global company BMW Group operates 31 production and assembly facilities in 14 countries and has a global sales network in more than 140 countries
BMW one of hundreds of unsponsored ADR programs brought to market after the US SEC amended an exemption for foreign issuers in 20083 is one of the latest companies to convert its unsponsored DR program to sponsored which can add value in terms of enhanced visibility liquidity and efficiency from being serviced by a single depositary bank In the last three years 21 unsponsored issuers from a dozen countries have switched to sponsored programs with BNY Mellon4
BMW is one of the most widely recognized brands in the world and we look forward to working closely with BMW Group providing the resources and expertise to help the company take its new sponsored DR program to the next level
BANCO SANTANDER5
Based in Spain Banco Santander is a leading retail and commercial bank with a major presence in Spain Germany Poland Portugal the UK Brazil Mexico Chile Argentina and the US The Banco Santander Group includes four entities including Banco Santander that have listed DRs trading in the US In October 2016 Banco Santander selected BNY Mellon as its successor depositary bank joining its NYSE-listed subsidiaries Banco Santander Brasil and Banco
Santander Chile both of which switched their DR programs to BNY Mellon in 2015 Banco Santander first listed its DRs on the NYSE in July 1987 and now has one of the largest DR programs worldwide with more than 470 million DRs outstanding1
NOVATEK6
Russiarsquos Novatek switched sponsorship of its London Stock Exchange-listed DR program to BNY Mellon in February 2016 Novatekrsquos DR program first established in 2005 grew to represent 2999 of its ordinary share capital or more than 91 million DRs the limit for this DR program under Russian regulations
Novatek is Russiarsquos largest independent gas producer and the second-largest natural gas producer in Russia Founded in 1994 the Company is engaged in the exploration production processing and marketing of natural gas and liquid hydrocarbons The Companyrsquos upstream activities are concentrated in the prolific Yamal-Nenets Autonomous Region the worldrsquos largest natural gas producing area
4 THE DEPOSITARY RECEIPT MARKET REVIEW
Novatek is a leader in its industry we look forward to helping the company enhance its DR program
CREDIT SUISSE7
In November 2016 Credit Suisse selected BNY Mellon as its successor depositary bank for its NYSE-listed DR program Credit Suisse a private bank global wealth manager and investment bank initially listed on the NYSE via DRs in September 2001 It provides advisory services solutions and products to companies institutional clients and high-net-worth private clients globally as well as to retail clients in Switzerland Credit Suisse is headquartered in Zurich with operations in over 50 countries and 48200 employees from over 150 different nations
Global financial services companies are among the best positioned issuers to determine a depositary bankrsquos service quality and Banco Santander and Credit Suissersquos successor appointments of BNY Mellon are a testament to our people our level of service and our commitment to the DR business
THE DEPOSITARY RECEIPT MARKET REVIEW 5
THE ROLE OF DEPOSITARY RECEIPTS IN FINANCIAL MARKETS
Depositary Receipts allow companies and investors to connect across borders playing an important role in the global financial markets
2016 HIGHLIGHTS18
1521B DRs valued at $29T traded
Over $80B raised through 37 DR offerings
68 new sponsored DR programs created
65 new unsponsored DR programs created
3492 total DR programs in existence
1521B$29T
$80B68
653492
6 THE DEPOSITARY RECEIPT MARKET REVIEW
GLOBAL DEPOSITARY RECEIPT LEADERSHIP1
MARKET SHARE OF SPONSORED DR PROGRAMS We are the leader in the DR industry for a reason
Selecting a depositary bank is an important decision Issuers need to feel confident that they are working with an institution that is well-established trustworthy and consistently considers the performance of the DR program as a priority
BNY Mellon
Citibank
Deutsche Bank
JPMorgan
57
11
16
16
54
Asi
a P
acif
ic
21
14
11
59
12
20
9
Eur
ope
Mid
dle
Eas
t amp
Afr
ica
71
9 6
14
Lati
n A
mer
ica
All
Pro
gram
s
THE DEPOSITARY RECEIPT MARKET REVIEW 7
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
MESSAGE FROM THE CEO
Dear Clients and Friends
The Depositary Receipt team at BNY Mellon took pride in helping our clients manage the global uncertainty that defined 2016 Low economic growth low or negative interest rates political upheaval and rapid regulatory and technological change were only some of the challenges we faced during the year Despite the turmoil the DR industry enjoyed a solid year proving once again that DRs are an important product for the global financial markets At BNY Mellon we established 32 new sponsored DR programs during the year1 and are proud to work with several leading companies including BMW Banco Santander Novatek and Credit Suisse which are profiled starting on page 4
Our mission at BNY Mellon is simple to improve lives through investing and help our clients reach their full potential In Depositary Receipts we do this by facilitating the investment process and helping issuers raise capital which can foster economic growth job creation and improve living standards all over the world We highlight starting on page 10 three issuers that we helped access the markets or raise the capital that allows them to make a difference in their communities
We know investors are fans of DRs for reasons including cost convenience and liquidity This year we are taking this opportunity to profile three leading institutional investors Lazard Asset Management Dimensional Fund Advisors and Cambiar Investors They all say that DRs are an integral part of their investment practice and they share their views of DRs starting on page 14
Another bright spot was the growth of DR indices in emerging markets such as Brazil and Russia As shown on the heat map on page 21 for the BNY Mellon Classic ADR IndexSM these country indices increased significantly during the year with Brazil up +6905 and Russia up +6102
BNY Mellon is determined to be the highest value provider of investment services globally and is the proud leader of the DR industry with a 57 global market share of sponsored programs and facilities covering 91 of established unsponsored depositary facilities
In 2017 we have several new initiatives on tap We are particularly focused on environmental social and governance issues and investor relations best practices to help our clients navigate the increasingly complex environment I look forward to engaging with you soon
Sincerely
For further information please visit wwwadrbnymelloncom
Christopher Kearns Chief Executive Officer
Depositary Receipts
Section 1 WHY BNY MELLON
Welcome New Clients More issuers have selected BNY Mellon as their depositary bank than all other depositary banks combined Here are a few of the blue-chip issuers that chose BNY Mellon in 2016
BMW GROUP2
In July 2016 Germanyrsquos BMW Group selected BNY Mellon as its depositary bank BMW Groupmdash with its three brands BMW MINI and Rolls-Roycemdash is the worldrsquos leading premium manufacturer of automobiles and motorcycles and also provides premium financial and mobility services As a global company BMW Group operates 31 production and assembly facilities in 14 countries and has a global sales network in more than 140 countries
BMW one of hundreds of unsponsored ADR programs brought to market after the US SEC amended an exemption for foreign issuers in 20083 is one of the latest companies to convert its unsponsored DR program to sponsored which can add value in terms of enhanced visibility liquidity and efficiency from being serviced by a single depositary bank In the last three years 21 unsponsored issuers from a dozen countries have switched to sponsored programs with BNY Mellon4
BMW is one of the most widely recognized brands in the world and we look forward to working closely with BMW Group providing the resources and expertise to help the company take its new sponsored DR program to the next level
BANCO SANTANDER5
Based in Spain Banco Santander is a leading retail and commercial bank with a major presence in Spain Germany Poland Portugal the UK Brazil Mexico Chile Argentina and the US The Banco Santander Group includes four entities including Banco Santander that have listed DRs trading in the US In October 2016 Banco Santander selected BNY Mellon as its successor depositary bank joining its NYSE-listed subsidiaries Banco Santander Brasil and Banco
Santander Chile both of which switched their DR programs to BNY Mellon in 2015 Banco Santander first listed its DRs on the NYSE in July 1987 and now has one of the largest DR programs worldwide with more than 470 million DRs outstanding1
NOVATEK6
Russiarsquos Novatek switched sponsorship of its London Stock Exchange-listed DR program to BNY Mellon in February 2016 Novatekrsquos DR program first established in 2005 grew to represent 2999 of its ordinary share capital or more than 91 million DRs the limit for this DR program under Russian regulations
Novatek is Russiarsquos largest independent gas producer and the second-largest natural gas producer in Russia Founded in 1994 the Company is engaged in the exploration production processing and marketing of natural gas and liquid hydrocarbons The Companyrsquos upstream activities are concentrated in the prolific Yamal-Nenets Autonomous Region the worldrsquos largest natural gas producing area
4 THE DEPOSITARY RECEIPT MARKET REVIEW
Novatek is a leader in its industry we look forward to helping the company enhance its DR program
CREDIT SUISSE7
In November 2016 Credit Suisse selected BNY Mellon as its successor depositary bank for its NYSE-listed DR program Credit Suisse a private bank global wealth manager and investment bank initially listed on the NYSE via DRs in September 2001 It provides advisory services solutions and products to companies institutional clients and high-net-worth private clients globally as well as to retail clients in Switzerland Credit Suisse is headquartered in Zurich with operations in over 50 countries and 48200 employees from over 150 different nations
Global financial services companies are among the best positioned issuers to determine a depositary bankrsquos service quality and Banco Santander and Credit Suissersquos successor appointments of BNY Mellon are a testament to our people our level of service and our commitment to the DR business
THE DEPOSITARY RECEIPT MARKET REVIEW 5
THE ROLE OF DEPOSITARY RECEIPTS IN FINANCIAL MARKETS
Depositary Receipts allow companies and investors to connect across borders playing an important role in the global financial markets
2016 HIGHLIGHTS18
1521B DRs valued at $29T traded
Over $80B raised through 37 DR offerings
68 new sponsored DR programs created
65 new unsponsored DR programs created
3492 total DR programs in existence
1521B$29T
$80B68
653492
6 THE DEPOSITARY RECEIPT MARKET REVIEW
GLOBAL DEPOSITARY RECEIPT LEADERSHIP1
MARKET SHARE OF SPONSORED DR PROGRAMS We are the leader in the DR industry for a reason
Selecting a depositary bank is an important decision Issuers need to feel confident that they are working with an institution that is well-established trustworthy and consistently considers the performance of the DR program as a priority
BNY Mellon
Citibank
Deutsche Bank
JPMorgan
57
11
16
16
54
Asi
a P
acif
ic
21
14
11
59
12
20
9
Eur
ope
Mid
dle
Eas
t amp
Afr
ica
71
9 6
14
Lati
n A
mer
ica
All
Pro
gram
s
THE DEPOSITARY RECEIPT MARKET REVIEW 7
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
Section 1 WHY BNY MELLON
Welcome New Clients More issuers have selected BNY Mellon as their depositary bank than all other depositary banks combined Here are a few of the blue-chip issuers that chose BNY Mellon in 2016
BMW GROUP2
In July 2016 Germanyrsquos BMW Group selected BNY Mellon as its depositary bank BMW Groupmdash with its three brands BMW MINI and Rolls-Roycemdash is the worldrsquos leading premium manufacturer of automobiles and motorcycles and also provides premium financial and mobility services As a global company BMW Group operates 31 production and assembly facilities in 14 countries and has a global sales network in more than 140 countries
BMW one of hundreds of unsponsored ADR programs brought to market after the US SEC amended an exemption for foreign issuers in 20083 is one of the latest companies to convert its unsponsored DR program to sponsored which can add value in terms of enhanced visibility liquidity and efficiency from being serviced by a single depositary bank In the last three years 21 unsponsored issuers from a dozen countries have switched to sponsored programs with BNY Mellon4
BMW is one of the most widely recognized brands in the world and we look forward to working closely with BMW Group providing the resources and expertise to help the company take its new sponsored DR program to the next level
BANCO SANTANDER5
Based in Spain Banco Santander is a leading retail and commercial bank with a major presence in Spain Germany Poland Portugal the UK Brazil Mexico Chile Argentina and the US The Banco Santander Group includes four entities including Banco Santander that have listed DRs trading in the US In October 2016 Banco Santander selected BNY Mellon as its successor depositary bank joining its NYSE-listed subsidiaries Banco Santander Brasil and Banco
Santander Chile both of which switched their DR programs to BNY Mellon in 2015 Banco Santander first listed its DRs on the NYSE in July 1987 and now has one of the largest DR programs worldwide with more than 470 million DRs outstanding1
NOVATEK6
Russiarsquos Novatek switched sponsorship of its London Stock Exchange-listed DR program to BNY Mellon in February 2016 Novatekrsquos DR program first established in 2005 grew to represent 2999 of its ordinary share capital or more than 91 million DRs the limit for this DR program under Russian regulations
Novatek is Russiarsquos largest independent gas producer and the second-largest natural gas producer in Russia Founded in 1994 the Company is engaged in the exploration production processing and marketing of natural gas and liquid hydrocarbons The Companyrsquos upstream activities are concentrated in the prolific Yamal-Nenets Autonomous Region the worldrsquos largest natural gas producing area
4 THE DEPOSITARY RECEIPT MARKET REVIEW
Novatek is a leader in its industry we look forward to helping the company enhance its DR program
CREDIT SUISSE7
In November 2016 Credit Suisse selected BNY Mellon as its successor depositary bank for its NYSE-listed DR program Credit Suisse a private bank global wealth manager and investment bank initially listed on the NYSE via DRs in September 2001 It provides advisory services solutions and products to companies institutional clients and high-net-worth private clients globally as well as to retail clients in Switzerland Credit Suisse is headquartered in Zurich with operations in over 50 countries and 48200 employees from over 150 different nations
Global financial services companies are among the best positioned issuers to determine a depositary bankrsquos service quality and Banco Santander and Credit Suissersquos successor appointments of BNY Mellon are a testament to our people our level of service and our commitment to the DR business
THE DEPOSITARY RECEIPT MARKET REVIEW 5
THE ROLE OF DEPOSITARY RECEIPTS IN FINANCIAL MARKETS
Depositary Receipts allow companies and investors to connect across borders playing an important role in the global financial markets
2016 HIGHLIGHTS18
1521B DRs valued at $29T traded
Over $80B raised through 37 DR offerings
68 new sponsored DR programs created
65 new unsponsored DR programs created
3492 total DR programs in existence
1521B$29T
$80B68
653492
6 THE DEPOSITARY RECEIPT MARKET REVIEW
GLOBAL DEPOSITARY RECEIPT LEADERSHIP1
MARKET SHARE OF SPONSORED DR PROGRAMS We are the leader in the DR industry for a reason
Selecting a depositary bank is an important decision Issuers need to feel confident that they are working with an institution that is well-established trustworthy and consistently considers the performance of the DR program as a priority
BNY Mellon
Citibank
Deutsche Bank
JPMorgan
57
11
16
16
54
Asi
a P
acif
ic
21
14
11
59
12
20
9
Eur
ope
Mid
dle
Eas
t amp
Afr
ica
71
9 6
14
Lati
n A
mer
ica
All
Pro
gram
s
THE DEPOSITARY RECEIPT MARKET REVIEW 7
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
Welcome New Clients More issuers have selected BNY Mellon as their depositary bank than all other depositary banks combined Here are a few of the blue-chip issuers that chose BNY Mellon in 2016
BMW GROUP2
In July 2016 Germanyrsquos BMW Group selected BNY Mellon as its depositary bank BMW Groupmdash with its three brands BMW MINI and Rolls-Roycemdash is the worldrsquos leading premium manufacturer of automobiles and motorcycles and also provides premium financial and mobility services As a global company BMW Group operates 31 production and assembly facilities in 14 countries and has a global sales network in more than 140 countries
BMW one of hundreds of unsponsored ADR programs brought to market after the US SEC amended an exemption for foreign issuers in 20083 is one of the latest companies to convert its unsponsored DR program to sponsored which can add value in terms of enhanced visibility liquidity and efficiency from being serviced by a single depositary bank In the last three years 21 unsponsored issuers from a dozen countries have switched to sponsored programs with BNY Mellon4
BMW is one of the most widely recognized brands in the world and we look forward to working closely with BMW Group providing the resources and expertise to help the company take its new sponsored DR program to the next level
BANCO SANTANDER5
Based in Spain Banco Santander is a leading retail and commercial bank with a major presence in Spain Germany Poland Portugal the UK Brazil Mexico Chile Argentina and the US The Banco Santander Group includes four entities including Banco Santander that have listed DRs trading in the US In October 2016 Banco Santander selected BNY Mellon as its successor depositary bank joining its NYSE-listed subsidiaries Banco Santander Brasil and Banco
Santander Chile both of which switched their DR programs to BNY Mellon in 2015 Banco Santander first listed its DRs on the NYSE in July 1987 and now has one of the largest DR programs worldwide with more than 470 million DRs outstanding1
NOVATEK6
Russiarsquos Novatek switched sponsorship of its London Stock Exchange-listed DR program to BNY Mellon in February 2016 Novatekrsquos DR program first established in 2005 grew to represent 2999 of its ordinary share capital or more than 91 million DRs the limit for this DR program under Russian regulations
Novatek is Russiarsquos largest independent gas producer and the second-largest natural gas producer in Russia Founded in 1994 the Company is engaged in the exploration production processing and marketing of natural gas and liquid hydrocarbons The Companyrsquos upstream activities are concentrated in the prolific Yamal-Nenets Autonomous Region the worldrsquos largest natural gas producing area
4 THE DEPOSITARY RECEIPT MARKET REVIEW
Novatek is a leader in its industry we look forward to helping the company enhance its DR program
CREDIT SUISSE7
In November 2016 Credit Suisse selected BNY Mellon as its successor depositary bank for its NYSE-listed DR program Credit Suisse a private bank global wealth manager and investment bank initially listed on the NYSE via DRs in September 2001 It provides advisory services solutions and products to companies institutional clients and high-net-worth private clients globally as well as to retail clients in Switzerland Credit Suisse is headquartered in Zurich with operations in over 50 countries and 48200 employees from over 150 different nations
Global financial services companies are among the best positioned issuers to determine a depositary bankrsquos service quality and Banco Santander and Credit Suissersquos successor appointments of BNY Mellon are a testament to our people our level of service and our commitment to the DR business
THE DEPOSITARY RECEIPT MARKET REVIEW 5
THE ROLE OF DEPOSITARY RECEIPTS IN FINANCIAL MARKETS
Depositary Receipts allow companies and investors to connect across borders playing an important role in the global financial markets
2016 HIGHLIGHTS18
1521B DRs valued at $29T traded
Over $80B raised through 37 DR offerings
68 new sponsored DR programs created
65 new unsponsored DR programs created
3492 total DR programs in existence
1521B$29T
$80B68
653492
6 THE DEPOSITARY RECEIPT MARKET REVIEW
GLOBAL DEPOSITARY RECEIPT LEADERSHIP1
MARKET SHARE OF SPONSORED DR PROGRAMS We are the leader in the DR industry for a reason
Selecting a depositary bank is an important decision Issuers need to feel confident that they are working with an institution that is well-established trustworthy and consistently considers the performance of the DR program as a priority
BNY Mellon
Citibank
Deutsche Bank
JPMorgan
57
11
16
16
54
Asi
a P
acif
ic
21
14
11
59
12
20
9
Eur
ope
Mid
dle
Eas
t amp
Afr
ica
71
9 6
14
Lati
n A
mer
ica
All
Pro
gram
s
THE DEPOSITARY RECEIPT MARKET REVIEW 7
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
Novatek is a leader in its industry we look forward to helping the company enhance its DR program
CREDIT SUISSE7
In November 2016 Credit Suisse selected BNY Mellon as its successor depositary bank for its NYSE-listed DR program Credit Suisse a private bank global wealth manager and investment bank initially listed on the NYSE via DRs in September 2001 It provides advisory services solutions and products to companies institutional clients and high-net-worth private clients globally as well as to retail clients in Switzerland Credit Suisse is headquartered in Zurich with operations in over 50 countries and 48200 employees from over 150 different nations
Global financial services companies are among the best positioned issuers to determine a depositary bankrsquos service quality and Banco Santander and Credit Suissersquos successor appointments of BNY Mellon are a testament to our people our level of service and our commitment to the DR business
THE DEPOSITARY RECEIPT MARKET REVIEW 5
THE ROLE OF DEPOSITARY RECEIPTS IN FINANCIAL MARKETS
Depositary Receipts allow companies and investors to connect across borders playing an important role in the global financial markets
2016 HIGHLIGHTS18
1521B DRs valued at $29T traded
Over $80B raised through 37 DR offerings
68 new sponsored DR programs created
65 new unsponsored DR programs created
3492 total DR programs in existence
1521B$29T
$80B68
653492
6 THE DEPOSITARY RECEIPT MARKET REVIEW
GLOBAL DEPOSITARY RECEIPT LEADERSHIP1
MARKET SHARE OF SPONSORED DR PROGRAMS We are the leader in the DR industry for a reason
Selecting a depositary bank is an important decision Issuers need to feel confident that they are working with an institution that is well-established trustworthy and consistently considers the performance of the DR program as a priority
BNY Mellon
Citibank
Deutsche Bank
JPMorgan
57
11
16
16
54
Asi
a P
acif
ic
21
14
11
59
12
20
9
Eur
ope
Mid
dle
Eas
t amp
Afr
ica
71
9 6
14
Lati
n A
mer
ica
All
Pro
gram
s
THE DEPOSITARY RECEIPT MARKET REVIEW 7
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
THE ROLE OF DEPOSITARY RECEIPTS IN FINANCIAL MARKETS
Depositary Receipts allow companies and investors to connect across borders playing an important role in the global financial markets
2016 HIGHLIGHTS18
1521B DRs valued at $29T traded
Over $80B raised through 37 DR offerings
68 new sponsored DR programs created
65 new unsponsored DR programs created
3492 total DR programs in existence
1521B$29T
$80B68
653492
6 THE DEPOSITARY RECEIPT MARKET REVIEW
GLOBAL DEPOSITARY RECEIPT LEADERSHIP1
MARKET SHARE OF SPONSORED DR PROGRAMS We are the leader in the DR industry for a reason
Selecting a depositary bank is an important decision Issuers need to feel confident that they are working with an institution that is well-established trustworthy and consistently considers the performance of the DR program as a priority
BNY Mellon
Citibank
Deutsche Bank
JPMorgan
57
11
16
16
54
Asi
a P
acif
ic
21
14
11
59
12
20
9
Eur
ope
Mid
dle
Eas
t amp
Afr
ica
71
9 6
14
Lati
n A
mer
ica
All
Pro
gram
s
THE DEPOSITARY RECEIPT MARKET REVIEW 7
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
GLOBAL DEPOSITARY RECEIPT LEADERSHIP1
MARKET SHARE OF SPONSORED DR PROGRAMS We are the leader in the DR industry for a reason
Selecting a depositary bank is an important decision Issuers need to feel confident that they are working with an institution that is well-established trustworthy and consistently considers the performance of the DR program as a priority
BNY Mellon
Citibank
Deutsche Bank
JPMorgan
57
11
16
16
54
Asi
a P
acif
ic
21
14
11
59
12
20
9
Eur
ope
Mid
dle
Eas
t amp
Afr
ica
71
9 6
14
Lati
n A
mer
ica
All
Pro
gram
s
THE DEPOSITARY RECEIPT MARKET REVIEW 7
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
MOST ACTIVELY TRADED DR PROGRAMS8
TOP 10
DR TRADING DR TRADING VOLUME VALUE
COMPANY COUNTRY (BILLIONS) (BILLIONS) EXCHANGE DEPOSITARY
Vale (Com + Pref) Brazil 1103 $ 5235 NYSE Citibank
Petrobras (Com + Pref) Brazil 996 $ 7011 NYSE BNY Mellon
Ambev Brazil 418 $ 2210 NYSE BNY Mellon
ArcelorMittal Luxembourg 414 $ 2369 NYSE Citibank
Gazprom Russia 381 $ 1743 LSEOTC BNY Mellon
Itauacute Unibanco Brazil 399 $ 3656 NYSE BNY Mellon
Alibaba China 373 $ 31716 NYSE Citibank
Nokia Finland 341 $ 1923 NYSE Citibank
Banco Bradesco (Com + Pref) Brazil 341 $ 2576 NYSE BNY Mellon
Cemex Meacutexico 315 $ 2199 NYSE Citibank
8 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING
Section 2
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
IMPROVING LIVES THROUGH INVESTING9
BNY Mellon is the investments company for the world and we are an important engine for the global financial markets We safeguard $299 trillion dollars We manage $16 trillion dollars for investors And we process more than one trillion dollars of transactions every day
We have an extraordinary client base that includes the worldrsquos largest financial institutions
investment managers countries corporations of all kinds foundations universities and individual
investors of all sizes Clients trust us with their financial assets because they know we are one
of the safest financial institutions in the world They rely on us for the investments solutions and
technology that connect them to opportunities in 100 markets across 35 countries
And through that work we help investors pursue their goals and financial dreams For more than
230 years our extraordinary people have driven change in the financial markets And our expertise
in all phases of investing has helped our clients find opportunities for growth and progress around
the world
Our Depositary Receipt business is a critical component of BNY Mellonrsquos overall strategy In DRs we help connect more than 1000 issuers from 63 countries to global investors1 Many of our issuer clients are integral parts of their local economies and as we help them connect with international capital markets their growth may help support the growth of the communities where they operate We are proud to highlight a few of our clients who raised capital via DRs in 2016
GRUPO SUPERVIELLE10
Bringing innovative financial services products to more than two million individuals small- and medium-sized companies and larger corporations in Argentina
With origins dating back to 1887 Supervielle offers retail and corporate banking treasury consumer finance insurance asset management and other products and services in Argentina to a broad customer base including individuals small- and medium-sized companies and medium- to large-sized corporations
In December 2015 newly-elected Argentine President Mauricio Macri began lifting capital controls that had been introduced in 2009 after a decade of high volatility This provided an opportune time for Supervielle to explore foreign investment to support and expand its business and which may expand access to capital for its wide range of customers from individuals to corporations
In May 2016 Supervielle raised $280 million via a NYSE-listed DR program in the countryrsquos first initial public offering in DR form in more than 10 years1
ldquoWe saw enormous interestrdquo Controlling shareholder Julio Patricio Supervielle said in an interview with El Financiero Bloomberg TVrsquos Karla Palomo ldquoThe Argentina story is fantastic The recent regulatory changes have awakened the interest from investors and wersquove also seen growing interest in our companyrdquo11
10 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
NANO DIMENSION12
Revolutionizing electronic manufacturing and medical research with 3D Printing
Nano Dimension founded in 2012 in Israel is focused on the research and development of advanced 3D printed electronics such as a 3D printer for multilayer printed circuit boards and the development of nanotechnology-based conductive and dielectric inks
Nano Dimension launched a 3D printer in 2016 that combines inkjet 3D printing and advanced nanotechnology in one product with a successful beta distribution to a select group of companies Nano Dimensionrsquos technology also spans into the medical industry In May 2016 the company announced a successful lab-tested proof of concept 3D Bioprinter for stem cells The trial was conducted in collaboration with Accellta Ltd a company focusing on stem cell suspension technologies Nano Dimension and Accelltarsquos combined work has the potential to significantly boost 3D printingrsquos significant role in medical research
As a young company Nano Dimension climbed the ladder of Depositary Receipt accomplishments establishing a Level I DR program in June 2015 upgrading to a Level II NASDAQ listing in March 2016 and then raising capital via a Level III DR offering on NASDAQ in September 2016 Nano Dimensionrsquos
step-by-step DR program establishment was a key component in its plan to increase awareness and expand its presence in the US market1
COVESTRO13
Providing sustainable products that benefit society and lessen impacts on the environment
Covestro a spinoff of the Bayer Group is a leading German material science company with the vision ldquoto make the world a brighter placerdquo It manufactures high-tech polymer materials that serve as substitutes for materials such as glass and steel decreasing the weight of automobiles which in turn reduces fuel consumption Its insulation systems protect buildings against the heat and cold reducing energy consumption The companyrsquos entertainment electronics products support functionality and safety
On December 1 2016 Covestro established its Level I sponsored DR program making it the 21st company in the last 3 years to convert its unsponsored DRs to a sponsored DR program with BNY Mellon4
ldquoThe US is a crucial strategic market for Covestro both operationally as well as in terms of our investor base With the conversion to a sponsored Level I ADR program we aim to facilitate access to the stock for global investors and further broaden our
shareholder base in the long termrdquo said Frank H Lutz CFO of Covestro ldquoIt also enables us to roll out our Employee Share Program Covestment for our US colleaguesrdquo14
ldquoGermany continues to be an important market for US investorsrdquo said Christopher M Kearns CEO of BNY Mellonrsquos Depositary Receipts business ldquoWe look forward to working closely with Covestro and providing the resources and market expertise to help the company take its new sponsored DR to the next levelrdquo14
THE DEPOSITARY RECEIPT MARKET REVIEW 11
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
DR INVESTOR PROFILES
Section 3
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
TOP 20 DR HOLDERS AS OF DECEMBER 31 201615
Capital World Investors (US) 2164
INSTITUTION NAME PORTOLIO (DREQUITY)
EQUITY AUM ($ BILLION)
DR AUM ($ BILLION)
DOMINANT ORIENTATION CITY
56632 382 Active Los Angeles
Baillie Gifford 1643 11360 1446 Active Edinburgh
Fidelity Management amp Research 1976 80231 246 Active Boston
T Rowe Price 1417 53740 264 Active Baltimore
BlackRock 1467 143188 102 Passive San Francisco
Fisher Investments 1335 5837 2287 Active San Francisco
Dodge amp Cox 1411 15813 892 Active San Francisco
Lazard Asset Management 1116 8027 1390 Active New York
Boston Active 2611153 Wellington Management 44201
Capital Research Global Investors (US) 1069 42546 251 Active Los Angeles
Dimensional Fund Advisors 1110 30924 359 Passive Austin
OppenheimerFunds 952 13935 683 Active New York
The Vanguard Group 1040 213006 049 Passive Malvern
State Street Global Advisors 843 83162 101 Passive Boston
BlackRock Investment Management (UK) 872 30009 291 Active London
Harding Loevner 779 2632 2958 Active NYC Metro
Aberdeen Asset Managers 829 9935 834 Active London
Arrowstreet Capital 671 3893 1725 Passive Boston
Franklin Advisers 743 10020 742 Active San Francisco
Primecap Management 622 10313 603 Active Pasadena
THE DEPOSITARY RECEIPT MARKET REVIEW 13
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
Firm Strategies AUM by Investment Mandate
Global Equity 102
International Equity 238
Emerging Markets Equity 225
European Equity 24
Asia-Pacific Equity 44
US Equity 118
Fixed Income 139
Real Assets 52
Multi Asset 24
BalancedGTAA 20
Alternatives 14
ldquoLazard Asset Management invests several billions of dollars on behalf of its clients in global and emerging markets equity portfolios made up exclusively of depositary receipts The firm invests in depositary receipts for a number of reasons more specifically they are a very efficient way for retail investors to have a separately managed portfolio Depositary receipts can also complement investments in locally-listed securities offering multiple locations for liquidity as well as extending trading periods throughout the dayrdquo
mdash James Donald Head of Emerging Markets Lazard Asset Management
DR INVESTOR PROFILE LAZARD16
COMPANY OVERVIEW
Lazard Ltd headquartered in New York is a financial advisory and asset management firm operating in 42 cities across 27 countries (including Hong Kong Tokyo Singapore Sydney) with 2523 employees
INVESTMENT PHILOSOPHY Lazard offers products across a broad spectrum of asset classes designed for different client types Its traditional and alternative investment services cover listed equity and fixed income investments in a wide range of global regional and country specific strategies
Lazard Asset Management Global AUM (billions)
$179 as of December 31 2016
DR AUM (billions)
$111615
14 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
ldquordquo
ldquoAt Dimensional we take into DR INVESTOR PROFILE DIMENSIONAL17
account all the costs involved COMPANY OVERVIEW when investing in securities
DRs can be cost-effective Dimensionalrsquos primary business is investment management founded in 1981 it is headquartered in alternatives when investing in Austin Texas It conducts portfolio management activities and trading on 4 continents with 12 offices foreign companies In particular in 8 countries and more than 1000 employees investors can benefit from cost INVESTMENT PHILOSOPHY savings in the form of lower Dimensionalrsquos investment philosophy has been shaped by decades of research with the belief that security commissions ticket charges prices reflect all publicly available information as intense competition among market participants drives prices toward fair value Dimensional uses the information in market prices combined with fundamental custody and currency trading data to systematically identify differences in expected returns among securities costs In addition for investors
who do not have local custodial Dimensional seeks to add value by building portfolios that target higher expected returns in a cost-effective manner By integrating a dynamic market-driven process with a flexible trading strategy accounts outside the US DRs Dimensional seeks to manage the tradeoffs that it believes matter for performancemdashbalancing competing can provide access to securities premiums diversification and costs
of foreign companies that they might not be able to purchase
Dimensional Investment directlyrdquo Strategies mdash Joseph Chi US Equities 36 Co-Head Portfolio Management
Chairman Investment Committee Non-US Developed Equities 19 Member Investment Research Committee
Emerging Markets Equities 13 Dimensional Fund Advisors
Fixed Income 21
Global Equities 6
Other 6
Dimensional Global AUM (billions)
$460 as of December 31 2016
DR AUM (billions)
$11115
THE DEPOSITARY RECEIPT MARKET REVIEW 15
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
rdquo
DR INVESTOR PROFILE CAMBIAR INVESTORS18
COMPANY OVERVIEW
INVESTMENT PHILOSOPHY Cambiar Investors employs a relative value discipline In their opinion value investing is a straightforward proposition buy business assets cheaply be patient and wait for the stock to reflect the inherent value But the value of business assets is not static It can change over time depreciating or appreciating significantly as technology and markets evolve Indeed uncertainty about the value of
sectors and major geographies
ldquoTodayrsquos extensive ADR universe has enabled Cambiar to purchase a wide range of high quality foreign companies for clients who are best suited to invest through a separately managed account vehicle Over the last ten years ADRs have proliferated to cover a broad range of international stocks across all
ldquobusiness assets is often the manner in which many stock market ldquovaluesrdquo present themselves Cambiarrsquos discipline seeks to invest in value opportunities where they also see appreciating business assets By embedding a tailwind to stock selections they believe the odds of a favorable outcome improve
Cambiar Assets Under Supervision
Large Cap Value 139
SMID Value 09
Small Cap Value 106
International ADR 525
International Equity ORD 197
International Small Cap 01
Global Equity 15
Global Ultra Focus 08
Other 01
Cambiar Investors Global AUM (billions)
$171 as of December 31 2016
DR AUM (billions)
$9015
As the ADR pool broadened to encompass more companies we have been able to increase the overlap between our ADR and ORD portfolios to nearly 100 The ability to invest in ADRs has not only contributed to the growth of our high-net-worth retail channel but also to our strong distribution in the institutional community where it is not uncommon for clients to opt for an ADR portfolio While ordinary shares are preferable in select cases many clients feel more comfortable with dollar denominated ADRs that trade during US market hours and offer streamlined recordkeepingrdquo
mdash Cambiar Investors
16 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
BRINGING DR INVESTORS TOGETHER WITH DR ISSUERS
2nd Annual Global ADR Conference New York
Senior Portfolio Manager amp Director of Equity Research South Texas Money Management Ltd
ldquoThe BNY MellonJefferies ADR conference was an unprecedented access event for ADR investors ADR executives are naturally more difficult for American investors to contact and to have so many high quality meetings in the same place at the same time is extremely value-added I will certainly be marking my calendar for next yearrsquos eventrdquo
For the second consecutive year BNY Mellon and Jefferies combined forces to organize the Global and
domestic funds with a history of investing in DRs along with international global and emerging market funds decision makers from across North America from funds with ADR strategies and portfolio managers of US International ADR Conference in New York City The event held in November 2016 attracted investment
ldquo mdash Christian Ledoux CFA
ldquoAs an ADR-focused investor the BNY MellonJefferies conference was a great opportunity to meet with a diverse group of global issuers including both current holdings and watchlist companies We appreciated the invitation as we are often overlooked by the international equity sales teams by being headquartered outside of the traditional money center cities We had two days of great meetings and look forward to attending in 2017rdquo
2016Conference Statistics
231 Investors (representing 118 firms)
58 Companies
711 Meetings
THE DEPOSITARY RECEIPT MARKET REVIEW 17
mdash Matt Sinkovitz Director Gratry amp Co rdquo
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
2016 YEAR IN REVIEW
Section 4
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
YEAR IN REVIEW1
1521B DRs valued at $29T traded
68 new sponsored programs established compared to 58 in 2015
3492 total DR programs in existence
Most Actively Traded Depositary Receipt Sectors
TOP 10 IN 2016 BY VALUE (BILLIONS) TOP 10 IN 2016 BY VOLUME (BILLIONS OF DRs)
2016 2015 CHANGE VS 2015
$6130
$3546
$2969
$2529
$2319
$1611
$1162
$1150
$1015
$827
Metals amp Mining
Banks
Oil Gas amp Consumable Fuels
Internet Software amp Services
Internet amp Direct Marketing Retail
Pharmaceuticals
Semiconductors amp Semiconductor Equipment
Beverages
Wireless Telecommunication Services
Communications Equipment
279
263
230
96
68
66
54
52
51
48
$7198
$3704
$3071
$2103
$2408
$2034
$1035
$1594
NA
$950
-15
-4
-3
20
-4
-21
12
-28
NA
-13
2016 2015 CHANGE VS 2015
222
283
259
12
76
53
79
48
49
66
26
-7
-11
-20
-10
24
-32
9
3
-28
Internet Software amp Services
Oil Gas amp Consumable Fuels
Pharmaceuticals
Metals amp Mining
Banks
Internet amp Direct Marketing Retail
Beverages
Semiconductors
Biotechnology
Wireless Telecommunication Services
Value = number of DRs traded multiplied by DR price at trade Volume = number of DRs traded during 2016
THE DEPOSITARY RECEIPT MARKET REVIEW 19
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
SPOTLIGHT INDEX GROWTH IN 201619
Emerging Market Equities Markets Tick Upward Following Political Turmoil
BNY Mellon country indices for Emerging Markets out-perform major market indices in 2016
Emerging markets led by those in South America topped the BNY Mellon DR country index charts in 2016 Brazil (+6905) Argentina (+1924) and Chile (+1998) saw the highest percentage increases compared to the same period last year DR indices for Russia (+6102) South Africa (+2053) and Taiwan (+2294) also posted double-digit gains
All six of these countriesrsquo indices outperformed major market indices at the end of the year As of December 30 2016 the SampP 500 was up +1196 the Dow Jones Industrial Average had gained +1650 while the MSCI EAFE Index was up +108 Companies contributing to the higher DR country index gains included Brazilrsquos Banco Bradesco (+1095) Petrobras (+1351) and Itauacute Unibanco (+843) Argentinarsquos Nortel Inversora (+832) and Pampa Energia (+694) Chilersquos Cencosud (+42) and Enel Americas (+302) and South Africarsquos AngloGold Ashanti (+48)
BNY Mellon Depositary Receipts is in its 20th year of building and maintaining the most comprehensive family of DR indices tracking all depositary receipts trading on the NYSE NYSE MKT NASDAQ LSE and OTC Markets BNY Mellon DR Indices include specific strategies regions countries sectors and themes Currently there are more than 130 indices covering all DRs from issuers in over 69 countries The indices are market capitalization-weighted and calculated on a continuous basis throughout the US trading day The BNY Mellon DR Indices also serve as a benchmark or a referenced index in exchange-traded funds (ETFs) as well as other investment funds such as separately managed accounts (SMAs)
20 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
Total Return by Country BNY MELLON CLASSIC ADR INDEX19
shy50 +50
Argentina 1924 Australia 1062 Austria 879 Belgium -1036 Brazil 6905 Chile 1998 China 403 Colombia 3474 Denmark -1729 Egypt -1334 Finland -464 France 405 Germany 334 Greece -1047 Hong Kong -14 Hungary 2401 India -241 Indonesia 2763 Ireland 509 Israel -3353 Italy -208 Japan 212 Malaysia 026 Mexico -942 Netherlands 443 New Zealand 3407 Norway 1871 Peru 12399 Philippines -205 Portugal 348 Russia 6102 Singapore 456 South Africa 2053 South Korea 1773 Spain -146 Sweden -003 Switzerland -512 Taiwan 2294 Thailand 2042 Turkey -847 UK 123
THE DEPOSITARY RECEIPT MARKET REVIEW 21
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
68 In 2016 68 new sponsored programs were established compared with 58 in 2015
3492 There are now 3492 programs in existence 1876 are sponsored
57 BNY Mellon has a 57 market share of all sponsored programs
91 BNY Mellon has a facility established for 91 of the unsponsored facilities
DEPOSITARY RECEIPT PROGRAMS8
2016 Total Sponsored DR Programs
346390 OtherUnlisted US OTC
US-Listed
LSELuSE
430 810
Top Five Sectors All Unsponsored Programs
135 104 91 75 70
General Financial Construction Real Estate General Retailers Services Materials Investment Industrials
amp Services
22 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
INSTITUTIONAL DEPOSITARY RECEIPT OWNERSHIP15
Region Number of
Institutional Holders DR Value Held
(USD mm) YoY DR Value Change
(USD mm)
Asia Pacific 461 4876682 115609
Europe 1398 17303459 652316
Latin America 136 444623 22816
Middle East amp Africa 140 457004 -16223
North America 2835 60740295 2398538
Total 4970 $83822062 $3173057
THE DEPOSITARY RECEIPT MARKET REVIEW 23
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
TRENDS IN CORPORATE GOVERNANCE
SIGNIFICANT RISE IN CORPORATE GOVERNANCE AND STEWARDSHIP CODES20
As global SRIESG assets under management continue to increase the US Sustainable Investment Forum (US SIF) reported an increase of 33 to $872 trillion 2014 ndash 2016 Reflecting the increase in assets allocated to strategies that incorporate environmental social and governance (ESG) criteria there has been increasing pressure on issuers to demonstrate a commitment to best-practice governance principles as well as on investors to actively monitor and engage with the companies in which they invest Accordingly over the past few years regulators and associations in many countries have increasingly issued new or revised corporate governance codes andor stewardship codes Since 2014 no fewer than 25 countries have revised or initiated new governance or stewardship codes accounting for approximately 30 of the total countries (95) that currently have one or both types of codes
BNY Mellon Depositary Receipts continues to be a leader in contributing to the discussion and communication of developments in important governance issues In 2016 BNY Mellon Depositary Receipts conducted investor perception studies on the Japan Governance and Stewardship Codes and Russian Corporate Governance Code A white paper on the Japan study21 was published and quoted in several international business publications in July 2016 Findings from the Russia study were also presented at the BNY Mellon Annual Depositary Receipt Issuersrsquo Forum in Moscow in December 2016
24 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
US REGULATION PROPOSED FOR PROXY ADVISORY FIRMS
Proxy advisory firms provide asset managers and ndash mandated procedures will be implemented to asset owners voting recommendations for proposals address complaints before recommendations requiring approval from shareholders For many can be issued investors and asset owners proxy advisory firms also ndash all proxy advisors will be required to register vote their holdings at shareholder meetings Proxy with the SEC and provide regular public reports advisors have long been criticized for among other on their methodology issues alleged outsized influence on the outcome of shareholder meetings conflicts of interests lack of The specific impact of the regulation is unclear competition lack of transparency in their research though potential outcomes include methodologies and the quality and accuracy of their research and recommendations Since 2010 several regulators and associations including those in the US Canada France and the European Union have considered whether regulation of the industry is required
ndash Extraterritorial implications non-US issuers with SEC-registered securities may be included in regulation
ndash SEC-registered investment firms with non-US holdings may also be covered
ndash Non-US investment management firms with
This may soon change as in 2016 the ldquoUS Corporate US operations may also be affected
Governance Reform and Transparency Act of 2016rdquo22
was submitted and approved by a bi-partisan vote of 41-18 by the Financial Services Committee of the US House of Representatives The bill includes the following features
US regulations while not specifically aimed at foreign issuers often have an impact on these companies BNY Mellon Depositary Receipts as we did previously during the SEC Proxy Plumbing Concept Release23 and SEC Proposed Rule Change
ndash corporate issuers will have statutory authority to Amending NYSE Rules 451 and 46524 (Proxy Fees) review proxy advisory reports prior to publication will monitor and respond accordingly to ensure that
ndash proxy advisory firms must employ an the rules applying to foreign issuers are considered ombudsman to receive complaints ldquofrom the during the regulation review period subjectsrdquo of the recommendations
THE DEPOSITARY RECEIPT MARKET REVIEW 25
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
2016 CONFERENCES
1ST QUARTER 2ND QUARTER
201 2ESG Client Roundtable Satildeo Paolo January
Annual Depositary Receipt Issuersrsquo Forum Moscow February
9th Annual Depositary Receipt Issuersrsquo Conference Asia Pacific Okinawa June 20163RD QUARTER 4TH QUARTER
3 4Corporate Access Client Roundtable Mexico City July
ESG Client Roundtable Tokyo July
BNY Mellon DR Capital Markets amp Investor Relations Seminar LondonParis September
6th DR Issuersrsquo Conference Latin America Rio de Janeiro September
DR Issuersrsquo Client Council Riviera Maya Mexico September
Annual South African Issuersrsquo Seminar Johannesburg October
2nd Annual Global ADR Conference New York November
Brexit Forum London December
Annual Depositary Receipt Issuersrsquo Forum Moscow December
26 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
2016REGIONAL REVIEW
Section 5
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
109
$90
EUROPE MIDDLE EAST amp AFRICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$2903 Pharmaceuticals
$1093 Metals amp Mining
$1051 Banks
$1001 Biotechnology
$2614 Oil Gas amp Consumable Fuels
28 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$12839
4210
1482
1220 1131
915
751
561
2570 United Kingdom
660
147
142
51 49
47
37
154
35
United Kingdom
Netherlands Russia
Luxembourg Russia
Switzerland South Africa
Israel Netherlands
France Switzerland
Belgium Finland
Other Other
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS) VOLUME
$418
341 Royal Dutch Shell Shire
Teva BP AB InBev Pharmaceuticals
Royal Dutch Shell
BP
Teva
Lukoil
Novartis
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$1010
VALUE
5020
$88 $66 $54
281 279 220
17 20 45
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
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Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
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Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
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Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
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MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
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SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
ASIA PACIFIC8
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$1172
8256
742
682
672 546
818 China
368
197
28
50
37
34
22 China
India India
Japan Taiwan
Taiwan Japan
Australia Australia
Other Other
TOP FIVE DR PROGRAMS BY VALUE TOP FIVE DR PROGRAMS BY
$315 $13037 75
VALUE TRADED (BILLIONS) VOLUME DR MARKET CAP1 (BILLIONS)
$924 Alibaba
452 Baidu
Taiwan Semiconductor Alibaba Baidu
$79 $57 $5031 30 12
308 Manufacturing
233 JDcom
CTripcom JDcom NetEase CTripcom 168
$6037 Internet Software amp Services
$795 Metals amp Mining
$455 Banks
$726 Semiconductors
$1610 Internet amp Direct Marketing
TOP SECTORS BY DR VALUE TRADED (BILLIONS)
THE DEPOSITARY RECEIPT MARKET REVIEW 29
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
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Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
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Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
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Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
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Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
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FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
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MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
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CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
LATIN AMERICA8TOP SECTORS BY DR VALUE TRADED (BILLIONS)
$821 Oil Gas amp Consumable Fuels
$640 Metals amp Mining
$381 Beverages
$223 Construction Materials
$813 Banks
30 THE DEPOSITARY RECEIPT MARKET REVIEW
VALUE TRADED (BILLIONS) VOLUME TRADED (BILLIONS)
$375
2646 751
14 212
674
486
408
16
55 Brazil Brazil
Mexico Mexico
Argentina Argentina
OtherOther
TOP FIVE DR PROGRAMS BY DR MARKET CAP1 (BILLIONS)
$118
103 Petrobras Vale 96
Itauacute Unibanco Banco Bradesco Ambev
Petrobras
Vale
Itauacute Unibanco
FEMSA
Grupo Televisa
TOP FIVE DR PROGRAMS BY VALUE TRADED (BILLIONS)
$70$52
VALUE
VOLUME
10 11
$37 $26 $2240 34 42
85 73
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
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Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
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Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
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Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
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MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
2017 OUTLOOK
Section 6
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
FINANCIAL MARKETS IN 201725
The impact of event risk in the 2016 financial markets looks likely to continue with the incoming Trump administration upcoming
European elections a strong US dollar and a decline in
Chinarsquos FX reserves Simon Derrick BNY Mellonrsquos Chief Currency Strategist examines some issues to watch in 2017
If 2016 proved anything it was that event risk seemed to be back for the financial markets 2017 looks to be just as lively Here are some thoughts on a few issues we suspect may be on the radar
The Incoming Administration and USD Strength A few recurrent themes have emerged in President-elect Trumprsquos pre-and post-election comments and in comments from certain key appointees While it is impossible to say whether or not any of these themes will result in tangible policy shifts such comments should not be dismissed or ignored These themes are
1 Infrastructure spending amp tax cuts appear to be top agenda items12
2 The broad direction of comments from president-elect Trump Steven Mnuchin amp David Malpass indicate a desire to extend the maturities on US government debt345
3 One of the most consistent themes over the past 12 months has been President-elect Trump calling China a currency manipulator That hasnrsquot changed since the election678
4 The incoming administration seems lukewarm towards the Fed910
The collective impact of these key themes (particularly 1 amp 2) has been a sharp steepening of the yield curve in
Key Points
THE INCOMING ADMINISTRATION AND US DOLLAR STRENGTH Early indications from President-elect Trump and his key appointees suggest a policy mix that could sustain USD bullishness While a steepening of the US yield curve isnrsquot automatically USD bullish what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end
THE IMPACT ON CHINA A strong US dollar could provide China with significant policy challenges in 2017 While it certainly doesnrsquot follow that we are about to see a repeat of the type of market volatility that emerged at the end of 2015 and the beginning of 2016 the scale of the declines in Chinarsquos FX
the US (similar in pace to the early stages of the ldquotaper tantrumrdquo in the summer of 2013) over the past month While a steepening of the US yield curve isnrsquot automatically USD bullish (as can be seen by comparing shifts in the 10-year2-year yield gap over the past quarter of a century with the performance of the USD index) what most certainly has been supportive of a stronger USD has been the widening out of key international yield gaps at the longer end As of December 7 the yield gap between 10-year US and the equivalent benchmark German government paper had widened out by close to 35 bp since the election taking it to 2025 bp almost the widest the gap has been in at least a quarter of a century Similarly the USUK spread had moved back out to where it was in late August (just below 100 bp) levels previously seen in 2000 While other moves may have been to less dramatic levels when looked at in historical terms (the USJapan spread is only back to where it was in 2010) the absolute moves have been sharp (the USJapan spread moved out by 47 bp)
Excerpted from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo mdash Simon Derrick
reserves raises a couple of interesting points that could prove important in 2017 If Chinarsquos FX reserves continue to decline in value both as a result of active intervention in the local market and changes in asset values (with bond price moves being singled out by the regulator) and if US yields continue to rise along with the USD then it could well be that the trend towards reduced holdings of US Treasury securities continues in 2017
US CURRENCY POLICY Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era
The Impact on China A rising USD has in turn fed through into mounting pressure on the CNY (the spread between spot USDCNY and the 1 year NDF on December 7 stood at roughly the same levels that it did in late November of last year) These pressures began to re-emerge in October as the likelihood of a December rate hike by the Federal Reserve began to filter through The first sign of this was the publication on November 7 of the October FX reserve numbers by the Peoplersquos Bank of China (ldquoPBOCrdquo) These numbers showed that reserves fell in value by USD 457 bn in October taking them down to USD 3121 tn the lowest since March 2011 This stood in contrast to the more modest swings seen in the USD value of Chinarsquos FX reserves over the previous seven months (ranging between USD 27 bn down in May and USD 13 bn up in June) While the argument could be made that this decline was connected to valuation effects (the USD index was up 31 mm in October) it is meaningful that the decline seen was significantly larger than that seen in May (USD 279 bn) when the USD index rallied by a similar amount
By late November a number of reports by Reuters indicated that state-owned Chinese banks had been actively selling
32 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
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Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
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BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
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Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
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34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
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HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
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THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
USDs in the onshore spot market11 Moreover the mood music out of China began to change On Friday November 26 the WSJ published a story12 saying that the State Council would soon announce a series of measures that would subject many overseas deals to stricter regulatory oversight This was followed the next day by a story in Caixin that the PBOC was considering including cross-border CNY business into its assessment of macro-prudential risks in the countryrsquos financial system The magazine then quoted an unnamed banker as saying this would force banks to ldquodo more incoming CNY business and less CNY outflow activitiesrdquo13
Confirmation that pressures had been mounting over the past month came with the publication of Chinarsquos FX reserve data for November The data showed a decline in the USD value of USD 6905 bn over the course of the month While not quite at the level of November 2015rsquos USD 872 bn decline it was still the most significant drop since January of 2016 (USD 9946 bn) and the eighth largest monthly decline ever Indeed such was the scale of the drop that the State Administration of Foreign Exchange posted a notice on its website saying that the PBOC had to provide capital from its foreign exchange reserves to the market in order to maintain a supply and demand balance in foreign exchange reserves It also noted that fluctuations in asset values and the depreciation of a range of currencies against the USD in the wake of the US election also contributed to the decline (Reuters) To put this into context though it is worth noting that the month-on-month rise in the USD index (316) was not much more than that seen in October (312) or May (301) and slightly less than that seen in November of last year (339) as the market prepared for the December rate hike by the Fed
US Currency Policy Irrespective of what China may or may not do the issue of USD strength could become a domestic political issue in 2017 should it persist This would certainly not be the first time that this has occurred in the modern era Probably the most notable event to come out of such pressures in the past was the signing of the Plaza Accord on September 22 1985 by the Ministers of Finance and Central Bank Governors of France Germany Japan the United Kingdom and the United States In it they agreed that ldquohellipexchange rates should play a role in adjusting external imbalances In order to do this exchange rates should better reflect fundamental economic
conditions than has been the case ldquoThey indicated at the time that policy actions must be implemented and reinforced in order to improve fundamentals further and that in view of present and prospective changes some further orderly appreciation of the main non-USD currencies against the USD was desirablerdquo24
Although it is debatable whether or not the weakness of the JPY against the USD in the run up to the accord was truly due to a deliberate attempt by Japan to manipulate its currency lower (1979 to 1987 was after all the era of the Volker Fed) this had not prevented an increasingly vocal lobby group in the US from asking for protection against foreign competition25
By 1985 the political pressure had grown sufficiently for Congress to begin thinking about trade restrictions In the face of this the White House was pressured into negotiating the accord despite its own free-market instincts (presumably seeing it as the lesser of two evils)
This was not the end of attempts by the US to get the USD to weaken against the JPY Most notably the very early months of President Clintonrsquos first term in office saw what looked a lot like an explicit attempt to take the JPY higher Rumours had already circulated on election night in November 1992 that the new administration would target the exchange rate However investors then chose to ignore these early hints about the direction of policy under the new administration keeping the USD gently bid through until mid-January 1993 The campaign itself kicked off in earnest on February 19 1993 when Treasury Secretary Lloyd Bentsen (at an event at the National Press Club in Washington) emphatically called for a stronger yen26
Two months later President Clinton was asked (following a meeting with Prime Minister Kiichi Miyazawa) why he expected trade relations with Japan to improve and the trade deficit to narrow He noted ldquothere are three or four things working today which may give us more results Number one the appreciation of the Japanese yenrdquo27
Whether or not the Clinton administration was targeting a stronger JPY was in retrospect irrelevant What did matter was that investors believed it was (between February and August of 1993 the USD fell by around 20 against the JPY)
Why does this matter now Since early November the USD has staged one of its most aggressive rallies against the JPY since the spring of 1995 While the rise in US yields since the presidential election has likely been the most significant factor in driving this move it must be noted that the Bank of Japan (ldquoBOJrdquo) policy has played its part as well thanks to the introduction of ldquoQQE with yield curve controlrdquo28
The first practical example of this policy framework at work came in mid-November when the BOJ stepped into the market by offering to buy unlimited amounts of 5-year JGB notes at -4bp and 2-year paper at -9bp There was little ambiguity as to why they had done this as Governor Haruhiko told the upper house financial affairs committee later the same day ldquoMoves in Treasuries do have an impact on Japanese bond yields That does not mean we have to automatically accept gains in Japanese bond yields every time Treasury yields riserdquo29
While that move was in line with the framework outlined in their September meeting it was noticeable that it came after a very brief period during which key yield gaps had actually narrowed while the USD had dipped back down to JPY 10851 This perhaps suggested that the authorities were keen to avoid the recent USD rally stalling If so then they certainly succeeded
With this in mind it is also worth recalling president-elect Donald Trumprsquos previous comments on the issue of currency manipulation In particular while there has been plenty of focus on what he has had to say about Chinese policy it should be noted that he has also discussed Japanese policy Speaking in North Charleston at the start of the year30 he stated ldquoJapan the same thing They are devaluing mdash itrsquos so impossible for mdash you look at Caterpillar Tractor and whatrsquos happening with Caterpillar and Kamatsu (ph) Kamatsu (ph) is a tractor company in Japan Friends of mine are ordering Kamatsu (ph) tractors now because theyrsquove de-valued the yen to such an extent that you canrsquot buy a Caterpillar tractor And wersquore letting them get away with it and we canrsquot let them get away with itrdquo
Should the USD make substantial gains from here (particularly against the JPY) it will be interesting to see how president-elect Trump responds given his previous comment
THE DEPOSITARY RECEIPT MARKET REVIEW 33
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
BNY MELLON DEPOSITARY RECEIPT CONTACTS
New York
Christopher Kearns CEO Depositary Receipts +1 212 298 1240 christopherkearnsbnymelloncom
Juliana Dager +1 212 815 3626 julianadagerbnymelloncom
Robert Goad +1 212 815 8257 robertgoadbnymelloncom
Anthony Moro +1 212 815 5838 anthonymorobnymelloncom
Edgar Piedra +1 212 815 2296 edgarpiedrabnymelloncom
Mahmoud Salem +1 212 815 2248 mahmoudsalembnymelloncom
David Stueber +1 212 815 2981 davidstueberbnymelloncom
Veronica Westberg +1 212 815 2358 veronicawestbergbnymelloncom
Latin America
BUENOS AIRES Mariel Garcia Sturzenegger +54 11 4348 2509 marielgarciabnymelloncom
MEXICO CITY Paulina Trueba +52 55 1100 1155 paulinatruebabnymelloncom
SAtildeO PAULO Claudia Biolchini +55 11 3050 8391 claudiabiolchinibnymelloncom
Europe
LONDON James T Green +44 20 7163 7117 jamestgreenbnymelloncom
Graham Marshall +44 20 7163 7512 grahammarshallbnymelloncom
FRANKFURT Tobias Beitel +49 69 12014 1234 tobiasbeitelbnymelloncom
MADRID Cesar Valcarcel +34 91 177 5126 cesarvalcarcelbnymelloncom
MILAN Adriana Pierelli +39 02 8790 9823 adrianapierellibnymelloncom
MOSCOW Irina Baichorova +7 495 967 3110 irinabaichorovabnymelloncom
PARIS Benjamin Brisedou +33 1 70 71 10 13 benjaminbrisedoubnymelloncom
34 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
Middle East amp Africa
ABU DUBAIDUBAI Rajai Ayyash +971 2 626 3008 rajaiayyashbnymelloncom
BEIRUT Bana Akkad Azhari +961 1 988 788 banaakkadbnymelloncom
CAIRO Hana Moharam +1 20 23 53 1 1400 hanamoharambnymelloncom
ISTANBUL Cihat Takunyaci +90 212 381 7514 cihattakunyacibnymelloncom
JOHANNESBURG Jacquelynne Anderson +27 112 177164 jacquelynneandersonbnymelloncom
Asia Pacific
HONG KONG Neil Atkinson +852 2840 9875 neilatkinsonbnymelloncom
Francis Giglio +852 2840 9821 francisgigliobnymelloncom
BANGKOK Artit Srinkapaibulaya +662 250 9482 artitsrinkapaibulayabnymelloncom
BEIJING Alex Cai +86 10 8800 7581 alexcaibnymelloncom
JAKARTA Mirasari Djunaidi +62 21 2550 2001 mirasaridjunaidibnymelloncom
KUALA LUMPUR Alvin Kwan +603 2725 9888 alvinkwanbnymelloncom
MANILA Teri Floro +632 451 9501 teriflorobnymelloncom
MELBOURNE Anthony Sprenger +61 3 9640 3907 anthonysprengerbnymelloncom
MUMBAI Rajat Kumar Sud +91 22 3028 2311 rajatsudbnymelloncom
SEOUL Kyu Sung Chai +82 2 6137 0035 kyusungchaibnymelloncom
SHANGHAI Robert Kung +86 21 3866 1000 robertkungbnymelloncom
SINGAPORE Gregory Roath +65 6432 0220 gregoryroathbnymelloncom
TAIPEI Serena Lin +886 2 2775 0749 serenalinbnymelloncom
TOKYO Masanori Inaba +81 3 6756 4328 masanoriinababnymelloncom
THE DEPOSITARY RECEIPT MARKET REVIEW 35
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
5
10
15
20
25
SOURCES 1 BNY Mellon and other depositary bank websites as of December 31 2016
2 ldquoCompany Overviewrdquo BMW httpswwwbmwgroupcomencompanyhtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
3 US SEC Exemption from Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private issuers httpswwwsecgovrules final200834-58465pdf (accessed February 27 2017)
4 BNY Mellon and other depositary bank websites as of December 31 2016 programs converted from November 18 2012 through December 31 2016
ldquoAbout the Grouprdquo Santander httpwwwsantandercomcsgsSatelliteCFWCSancomQP01en_GBCorporateAbout-The-Grouphtml (accessed February 28 2017) Material in this section is from this source unless otherwise noted
6 ldquoInvestor Relations GDRrdquo Novatek httpwwwnovatekrueninvestorssharesGDR (accessed February 16 2017) Material in this section is from this source unless otherwise noted
7 ldquoAbout Usrdquo Credit Suisse wwwcredit-suissecomusenabout-ushtml (accessed February 27 2017) Material in this section is from this source unless otherwise noted
8 Bloomberg (accessed January 27 2017)
9 ldquoAt A Glancerdquo BNY Mellon httpswwwbnymelloncomataglance (February 16 2017)
ldquoOur Companyrdquo Supervielle wwwgruposuperviellecomEnglishOur-CompanyAbout-Usdefaultaspx (accessed February 27 2017) Material in this section is from this source unless otherwise noted
11 Carolina Millan ldquoArgentinarsquos Supervielle Ends Countryrsquos Two-Year IPO Droughtrdquo Bloomberg May 19 2016 httpswwwbloombergcomnews articles2016-05-19supervielle-raises-281-million-in-first-argentine-ipo-since-14 (accessed February 16 2017)
12 ldquoAbout Nano Dimensionrdquo Nano Dimension wwwnano-dicomabout-nano-dimension (accessed February 16 2017)
13 ldquoOverviewrdquo Covestro wwwcovestrocomencompanyoverview (accessed February 27 2017)
14 ldquoBNY Mellon Selected by Covestro AG for its Sponsored Depositary Receipt Programrdquo BNY Mellon press release January 10 2017 httpswwwbnymellon com usennewsroomnewspress-releasesbny-mellon-selected-by-covestro-ag-for-its-sponsored-depositary-receipt-program-01-10-2017shynewsid-129844jsp (accessed February 16 2017)
Ipreo information from public filings through December 31 2016
16 ldquoAssets under Managementrdquo Lazard as of December 31 2016 httpwwwlazardnetcomaum (accessed February 16 2017) Material in this section is from this source unless otherwise noted
17 ldquoAn Introduction to Dimensional Fund Advisorsrdquo Dimensional Fund Advisors as of December 31 2016 provided and used with permission Material in this section is from this source unless otherwise noted
18 ldquoOur Strategiesrdquo Cambiar Investors as of December 31 2016 httpwwwcambiarcominstitutional (accessed February 16 2017) Material in this section is from this source unless otherwise noted
19 BNY Mellon Classic ADR Index httpswwwadrbnymelloncomindicesclassic-adr-indexoverview (accessed February 16 2017)
US SIF Foundation 2016 Report on US Sustainable Responsible and Impact Investing Trends published November 14 2016 httpwwwussiforgfilesSIF_ Trends_16_Executive_Summary(1)pdf (accessed February 16 2017)
21 ldquoInvestor Sentiment on Japanese Reformrdquo BNY Mellon httpswwwadrbnymelloncomusennews-and-publicationsdr-issuersasset_upload_ file69918_197379pdf (accessed February 26 2017)
22 HR5311 Corporate Governance Reform and Transparency Act of 2016 Congress of the United States introduced May 24 2016httpswwwcongressgov bill114th-congresshouse-bill5311 (accessed February 16 2017)
23 US SEC Concept Release on the US Proxy System July 14 2010 wwwsecgovrulesconcept201034-62495pdf (accessed February 28 2017)
24 SEC Proposed Rule Change Amending NYSE 451 and 465 October 18 2013 wwwsecgovrulessronyse201334-70720pdf (accessed February 28 2017)
Excerpt from ldquoFinancial Markets in 2017 US dollar strength Chinese financial policy European political uncertaintyrdquo httpswwwbnymelloncomemea enour-thinkingfinancial-markets-in-2017jsp (accessed February 27 2017) This information was released prior to January 20 2017 See page 37 of this brochure for full publication and disclaimer
36 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
The full BNY Mellon Financial Markets 2017 publication can be found at the following address httpswwwbnymelloncomemeaenour-thinkingfinancial-markets-in-2017jsp
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole andor its various subsidiaries generally This material and any products and services may be issued or provided under various brand names in various countries by duly authorized and regulated subsidiaries affiliates and joint ventures of BNY Mellon which may include any of the following The Bank of New York Mellon at 225 Liberty St NY NY USA 10286 a banking corporation organized pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square London E14 5AL UK registered in England and Wales with numbers FC005522 and BR000818 The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV a Belgian public limited liability company with company number 0806743159 whose registered office is at 46 Rue Montoyerstraat B-1000 Brussels Belgium authorized and regulated as a significant credit institution by the European Central Bank (ECB) under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules and a subsidiary of The Bank of New York Mellon The Bank of New York Mellon SANV operates in England through its branch at 160 Queen Victoria Street London EC4V 4LA UK registered in England and Wales with numbers FC029379 and BR014361 The Bank of New York Mellon SANV (London Branch) is authorized by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request The Bank of New York Mellon SANV operating in Ireland through its branch at 4th Floor Hanover Building Windmill Lane Dublin 2 Ireland trading as The Bank of New York Mellon SANV Dublin Branch is authorised by the ECB and is registered with the Companies Registration Office in Ireland No 907126 amp with VAT No IE 9578054E The Bank of New York Mellon Singapore Branch subject to regulation by the Monetary Authority of Singapore The Bank of New York Mellon Hong Kong Branch subject to regulation by the Hong Kong Monetary Authority and the Securities amp Futures Commission of Hong Kong If this material is distributed in Japan it is distributed by The Bank of New York Mellon Securities Company Japan Ltd as intermediary for The Bank of New York Mellon If this material is distributed in or from the Dubai International Financial Centre (ldquoDIFCrdquo) it is communicated by The Bank of New York Mellon DIFC Branch regulated by the DFSA and located at DIFC The Exchange Building 5 North Level 6 Room 601 PO Box 506723 Dubai UAE on behalf of The Bank of New York Mellon which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it Not all products and services are offered in all countries
The information contained in this material is intended for use by wholesaleprofessional clients or the equivalent only and is not intended for use by retail clients If distributed in the UK this material is a financial promotion
This material which may be considered advertising is for general information purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter This material does not constitute a recommendation by BNY Mellon of any kind Use of our products and services is subject to various regulations and regulatory oversight You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material or agreeing to use any of the referenced products or services and make your own independent assessment (based on such advice) as to whether the referenced products or services are appropriate or suitable for you This material may not be comprehensive or up to date and there is no undertaking as to the accuracy timeliness completeness or fitness for a particular purpose of information given BNY Mellon will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material
This material may not be distributed or used for the purpose of providing any referenced products or services or making any offers or solicitations in any jurisdiction or in any circumstances in which such products services offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements
The products and services described herein may contain or include certain ldquoforecastrdquo statements that may reflect possible future events based on current expectations Forecast statements are neither historical facts nor assurances of future performance Forecast statements typically include and are not limited to words such as ldquoanticipaterdquo ldquobelieverdquoldquoestimaterdquoldquoexpectrdquoldquofuturerdquoldquointendrdquoldquolikelyrdquoldquomayrdquoldquoplanrdquoldquoprojectrdquoldquoshouldrdquoldquowillrdquo or other similar terminology and should NOT be relied upon as accurate indications of future performance or events Because forecast statements relate to the future they are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict iFlowreg is a registered trademark of The Bank of New York Mellon Corporation under the laws of the United States of America and other countries
This document is intended for private circulation Persons accessing or reading this material are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction
All references to dollars are in US dollars unless specified otherwise
This material may not be reproduced or disseminated in any form without the prior written permission of BNY Mellon Trademarks logos and other intellectual property marks belong to their respective owners
The Bank of New York Mellon member FDIC
copy 2016 The Bank of New York Mellon Corporation All rights reserved THE DEPOSITARY RECEIPT MARKET REVIEW 37
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW
bnymelloncom
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle Whether providing financial services for institutions corporations or individual investors BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets As of December 31 2016 BNY Mellon had $299 trillion in assets under custody andor administration and $16 trillion in assets under management BNY Mellon can act as a single point of contact for clients looking to create trade hold manage service distribute or restructure investments BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE BK) Additional information is available on wwwbnymelloncom Follow us on Twitter BNYMellon or visit our newsroom at www bnymelloncomnewsroom for the latest company news
This document which may be considered advertising is for general information and reference purposes only and is not intended to provide legal tax accounting investment financial or other professional advice on any matter and is not to be used as such BNY Mellon does not warrant or guarantee the accuracy or completeness of nor undertake to update or amend the information or data contained herein We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data We provide no advice nor recommendation or endorsement with respect to any company or securities Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities
This document is not intended for distribution to or use by any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation Similarly this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized or where there would be by virtue of such distribution new or additional registration requirements Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients If distributed in the UK or EMEA this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law
The Bank of New York Mellon DIFC Branch (the ldquoAuthorised Firmrdquo) is communicating these materials on behalf of The Bank of New York Mellon The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation This material is intended for Professional Clients only and no other person should act upon it The Authorised Firm is regulated by the Dubai Financial Services Authority
Depositary Receipts NOT FDIC STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK STATE OR FEDERAL AGENCY GUARANTEE
Trademarks and logos belong to their respective owners
copy2017 The Bank of New York Mellon Corporation All rights reserved
38 THE DEPOSITARY RECEIPT MARKET REVIEW