nasdaq 102- just to clear things up

Phil from Prima has sent me, as promised, an email he got directly from Bank of New York Mellon regarding the details of a Nasdaq listing. Hopefully this can clear things up once and for all.

First interesting thing- Phil seems to be a hired gun. His email signature shows him being with a company called The CFO. Seems Prima is using them to help with compliance?

Second intersting thing- the truth about 'Nasdaq 101' seems to be a combo of what Phil from Prima and philbar have been saying. I will list the actual text from the BNYM site below but to summarize the point that I have been at pains to try and clear up for everyone:

- Phil (from Prima) was right that it is a "demand determined facility". US investors will start buying when trading begins on the Nasdaq through their broker.
- buyers who then wish to sell can sell to one another in the 'intra-trading' market (like any other share is on the Nasdaq) or they can have the DR cancelled (i.e. sold) back to the ASX.
- it seems most of the buying and selling will be back and forth between the Nasdaq and the ASX until enough DRs have been bought by US investors (typically 3-6% of PRR's total) to create a liquid intra-market on the Nasdaq.

So, BNYM will NOT be buying 3-6% of PRR's shares in ADVANCE of the listing on the Nasdaq.

HOWEVER, just to confuse things a little, at some point when trading heats up the broker can hold an inventory of shares if the want to. My read on things though is that this inventory will not be bought BEFORE the listing.

In essence, when we start trading on the Nasdaq it will be just liked it is now on the ASX except US investors can buy them too. After they buy enough of them they can start trading them amongst themselves.

AT THAT POINT there will be AT LEAST 3-6% fewer PRR shares in the hands of Aussie investors.

That is my summary. Hope it helps.

Here is the fine print from the BNYM website:

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Issuance

Depositary Receipts are issued or created when investors decide to invest in a non-U.S. company and contact their brokers to make a purchase. These brokers, through their international offices or through a local broker in the company's home market, purchase the underlying ordinary shares and request that the shares be delivered to the depositary bank's custodian in that country. The broker who initiated the transaction will convert the U.S. dollars received from the investor into the corresponding foreign currency and pay the local broker for the shares purchased. On the same day that the shares are delivered to the custodian bank, the custodian notifies the depositary bank. After notification, Depositary Receipts are issued and delivered to the initiating broker, who then delivers the Depositary Receipts evidencing the shares to the investor. Your broker can also obtain Depositary Receipts by purchasing existing Depositary Receipts, which is not a new issuance.


Transfer - (Intra-Market Trading)

Once Depositary Receipts are issued, they are tradable in the United States, and like other U.S. securities, they can be freely sold to other investors. Depositary Receipts may be sold to subsequent U.S. investors by simply transferring them from the existing Depositary Receipt holder (seller) to another Depositary Receipt holder (buyer); this is known as an intra-market transaction. An intra-market transaction is settled in the same manner as any other U.S. security purchase: in U.S. dollars on the third business day after the trade date and typically through The Depository Trust Company (DTC). Intra-market trading accounts for approximately 95 percent of all Depositary Receipt trading in the market today. Accordingly, the most important role of a depositary bank is that of Stock Transfer Agent and Registrar. It is therefore critical that the depositary bank maintain sophisticated stock transfer systems and operating capabilities.


Cancellation

When investors want to sell their Depositary Receipts, they notify their broker. The broker can either sell the Depositary Receipts in the U.S. market through an intra-market transaction or sell the shares outside of the U.S., typically into the home market through a cross-border transaction. In cross-border transactions, brokers, either through their international offices or through a local broker in the company's home market, will sell the shares back into the home market. To settle the trade, the U.S. broker will surrender the Depositary Receipt to the depositary bank with instructions to deliver the shares to the buyer in the home market. The depositary bank will cancel the Depositary Receipt and instruct the custodian to release the underlying shares and deliver them to the local broker who purchased the shares. The broker will arrange for the foreign currency to be converted into U.S. dollars for payment to the Depositary Receipt holder.


Trading - (Pricing)

Once Depositary Receipts are issued and there are an adequate number of Depositary Receipts outstanding in the U.S. market (usually three percent to six percent of the company's shares in Depositary Receipt form), a true intra-market trading market emerges. Until this market develops, the majority of Depositary Receipt purchases result in Depositary Receipt issuances upon the deposit of shares. When executing a Depositary Receipt trade, brokers seek to obtain the best price by comparing the Depositary Receipt price in U.S. dollars to the dollar equivalent price of the actual shares in the home market. Brokers will buy or sell in the market that offers them the best price, and they can do so in three ways: by issuing a new Depositary Receipt, transferring an existing Depositary Receipt or canceling a Depositary Receipt. For example, if the price of the actual shares in the home market is $12.28 per share after allowing for foreign currency translation, and the Depositary Receipt is selling for $12.30, the broker will buy shares and issue Depositary Receipts until the price of the ordinary shares increases to $12.30, at which time the broker will simply buy and sell the existing Depositary Receipts that are outstanding in the market. The broker may also be holding an inventory of ordinary shares, in which case the local trading price is irrelevant.

The continuous buying and selling of Depositary Receipts in either market tends to keep the price differential between the local and U.S. markets to a minimum. As a result, about 95 percent of Depositary Receipt trading is done in the form of intra-market trading and does not involve the issuance or cancellation of a Depositary Receipt.

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