International Finance
Iriszz
10.InternationalEquityMarkets-Streamlined.pptxInternational Equity Markets
International Finance
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Learning Objectives
Overview global equity markets
Market capitalization
Trading volume
Examine the instruments of the global equity markets
American Depository Receipts
Global Depository Receipts
Global Registered Shares
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…How large are the markets?
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http://www.world-exchanges.org/statistics/monthly-reports
Domestic Market Capitalization (USD Millions)
| Exchange | March 2016 | % Mar 2015 (in USD) | % Mar 2015 (in local cur) |
| Americas | |||
| Barbados Stock Exchange | 3 136.0 | 14.0% | 14.0% |
| Bermuda Stock Exchange | 1 733.6 | 9.1% | 9.1% |
| BM&FBOVESPA | 585 418.6 | -17.0% | -5.9% |
| Bolsa de Comercio de Buenos Aires | 55 644.7 | -26.4% | 22.1% |
| Bolsa de Comercio de Santiago | 207 225.0 | -10.9% | -4.3% |
| Bolsa de Valores de Colombia | 100 921.0 | -17.6% | -4.8% |
| Bolsa de Valores de Lima | NA | - | - |
| Bolsa de Valores de Panama | 13 010.1 | -3.7% | -3.7% |
| Bolsa Mexicana de Valores | 423 195.1 | -10.1% | 1.9% |
| Bolsa Nacional de Valores | NA | - | 4.9% |
| Jamaica Stock Exchange | 6 000.0 | 88.0% | 99.5% |
| Nasdaq - US | 7 048 547.7 | -1.7% | -1.7% |
| NYSE | 18 171 310.0 | -6.9% | -6.9% |
| TMX Group | 1 767 307.0 | -9.8% | -7.3% |
| Total region | 28 383 448.8 | -6.5% |
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| Asia - Pacific | |||
| Australian Securities Exchange | 1 202 511.4 | -8.2% | -8.4% |
| BSE India Limited | 1 432 556.3 | -11.7% | -6.6% |
| Bursa Malaysia | 421 044.6 | -7.7% | -1.9% |
| Chittagong SE | 30 420.4 | - | - |
| Colombo Stock Exchange | 17 815.0 | -17.9% | -10.5% |
| Dhaka Stock Exchange | 31 953.4 | -6.0% | -5.3% |
| Hanoi Stock Exchange | 6 885.9 | 8.1% | 10.3% |
| Hochiminh Stock Exchange | 51 019.1 | 8.1% | 10.3% |
| Hong Kong Exch and Clearing | 3 023 544.2 | -12.3% | -12.3% |
| Indonesia Stock Exchange | NA | - | - |
| Japan Exchange Group | 4 602 098.0 | -4.1% | -10.1% |
| Korea Exchange | 1 282 772.7 | -1.4% | 1.9% |
| National Stock Exchange of India | 1 407 631.9 | -11.3% | -6.2% |
| NZX Limited | 78 770.8 | 8.2% | 17.7% |
| Philippine Stock Exchange | 257 068.3 | -9.1% | -6.5% |
| Port Moresby Stock Exchange | NA | - | - |
| Shanghai Stock Exchange | 3 930 169.4 | -17.8% | -13.0% |
| Shenzhen Stock Exchange | 3 094 782.8 | 2.3% | 8.3% |
| Singapore Exchange | 661 237.5 | -12.3% | -13.6% |
| Stock Exchange of Thailand | 388 892.9 | -12.4% | -5.2% |
| Sydney Stock Exchange | 141.8 | 228.9% | 228.2% |
| Taipei Exchange | 86 490.9 | -4.5% | -1.4% |
| Taiwan Stock Exchange Corp. | 795 865.8 | -10.4% | -7.4% |
| Total region | 21 396 041.3 | -10.3% |
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| Exchange | March 2016 | % Mar 2015 (in USD) | % Mar 2015 (in local cur) |
| Europe - Africa - Middle East | |||
| Abu Dhabi Securities Exchange | 117 186.4 | 3.5% | 3.5% |
| Amman Stock Exchange | 24 675.0 | 1.5% | 1.2% |
| Athens Stock Exchange | 36 611.4 | -9.2% | -13.8% |
| Bahrain Bourse | 17 896.3 | -21.0% | -21.5% |
| Beirut Stock Exchange | 11 554.9 | -5.0% | -5.1% |
| BME Spanish Exchanges | 694 740.0 | -28.0% | -31.6% |
| Borsa Istanbul | 218 213.8 | 16.1% | 26.8% |
| Bourse de Casablanca | 48 661.7 | -6.2% | -9.2% |
| Bourse de Valeurs Mobil. de Tunis | 9 420.5 | 1.9% | 5.2% |
| BRVM | NA | - | 19.8% |
| Bucharest Stock Exchange | 16 069.6 | -18.6% | -21.1% |
| Budapest Stock Exchange | 20 346.4 | 31.1% | 30.3% |
| Cyprus Stock Exchange | 2 780.8 | -16.9% | -21.1% |
| Deutsche Boerse | 1 655 367.4 | -11.2% | -15.7% |
| Dubai Financial Market | 89 181.8 | 3.1% | 3.1% |
| Egyptian Exchange | 46 135.9 | -30.9% | -19.5% |
| Euronext | 3 353 619.2 | -2.2% | -7.2% |
| Irish Stock Exchange | 138 823.6 | -9.1% | -13.7% |
| Johannesburg Stock Exchange | 987 157.1 | 6.1% | 31.6% |
| Kazakhstan Stock Exchange | 34 960.2 | 70.2% | 212.8% |
| Ljubljana Stock Exchange | 6 242.8 | -6.5% | -11.2% |
| London SE Group | 3 637 857.5 | -9.8% | -14.4% |
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| Luxembourg Stock Exchange | 48 557.9 | -20.4% | -24.4% |
| Malta Stock Exchange | 4 591.4 | 24.8% | 18.5% |
| Moscow Exchange | 459 400.8 | -1.8% | 15.0% |
| Namibian Stock Exchange | 1 987.9 | 0.6% | 25.2% |
| NASDAQ OMX Nordic Exchange | 1 257 622.1 | -0.4% | -5.4% |
| Nigerian Stock Exchange | 44 332.7 | -17.7% | -18.8% |
| Oslo Bors | 198 788.0 | -10.8% | -7.6% |
| Palestine Exchange | 3 213.1 | 7.3% | 7.3% |
| Qatar Stock Exchange | 152 323.5 | -12.4% | -12.5% |
| Saudi Stock Exchange (Tadawul) | 383 500.4 | -24.2% | -24.3% |
| SIX Swiss Exchange | 1 416 552.2 | -9.5% | -10.1% |
| Stock Exchange of Mauritius | 7 278.0 | -1.0% | -7.3% |
| Tehran Stock Exchange | 116 586.4 | 11.2% | 19.8% |
| Tel-Aviv Stock Exchange | 228 578.0 | 5.2% | 0.3% |
| Ukrainian Exchange | 4 767.4 | -43.6% | -36.5% |
| Warsaw Stock Exchange | 149 616.4 | -9.6% | -10.4% |
| Wiener Borse | 95 222.8 | -2.1% | -7.1% |
| Zagreb SE | 18 543.1 | 0.7% | -5.4% |
| Total region | 15 758 964.5 | -7.3% | |
| WFE Total | 65 538 454.6 | -8.0% |
| Exchange | March 2016 | % Mar 2015 (in USD) | % Mar 2015 (in local cur) |
| Europe - Africa - Middle East | (Continued) |
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| Source : World Federation of Exchanges members, affiliates, correspondents and non-members | |
| For more details about exchange’s WFE status, please follow the link: http://www.world-exchanges.org/home/index.php/members | |
| Notes: | |
| 1. Asia - Pacific total region excludes National Stock Exchange of India to avoid double counting with BSE India Limited | |
| 2. Excluding investment funds | |
| 3. Including Alternative and SME Markets | |
| _ | |
| Australian Securities Exchange: including investment funds | |
| BME Spanish Exchanges: including investment companies listed (open-end investment companies) that differ from investment funds included in table 1.3 because of their legal status and that cannot be distinguished from other listed companies | |
| Bolsa de Valores de Lima: Includes 26 foreign companies with shares negotiated under a special modality | |
| Borsa Istanbul market capitalization/listed companies figures include investment companies and holdings | |
| Deutsche Börse: excluding the market segment “Freiverkehr” (unofficial regulated market) | |
| Euronext: includes Belgium, England, France, Netherlands and Portugal | |
| Johannesburg Stock Exchange: figures include the market capitalization of all listed companies, but exclude listed warrants, convertibles and investment funds | |
| Korea Exchange: includng Kosdaq market data | |
| NASDAQ OMX Nordic Exchange: OMX includes Copenhagen, Helsinki, Iceland, Stockholm, Tallinn, Riga and Vilnius Stock Exchanges | |
| NSE India: including “Emerge” market data | |
| Singapore Exchange: market capitalization includes domestic listings and a substantial number of foreign listings, defined as companies whose principal place of business is outside of Singapore. Inactive secondary foreign listings are excluded | |
| Stock Exchange of Mauritius: from Aug. 2006, data includes Development & Enterprise Market | |
| TMX Group: includes companies listed on TSX Venture | |
| NA: Not Available |
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http://www.world-exchanges.org/files/file/stats%20and%20charts/2011%20WFE%20Market%20Highlights.pdf
http://www.world-exchanges.org/content/studies-and-report
http://www.world-exchanges.org/home/index.php/research/wfe-research#sr
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….Top 15 Exchanges on Size
| Exchange | August 2014 | |
| 1. | NYSE | 19 278 |
| 2. | NASDAQ OMX | 6 788 |
| 3. | Japan Exch Group - Tokyo | 4 572 |
| 4. | London SE Group | 4 439 |
| 5. | Euronext | 3 647 |
| 6. | Hong Kong Exchanges | 3 353 |
| 7. | Shanghai SE | 2 659 |
| 8. | TMX Group | 2 364 |
| 9. | Deutsche Börse | 1 790 |
| 10. | Shenzhen SE | 1 715 |
| 11. | SIX Swiss Exchange | 1 575 |
| 12. | BSE India | 1 526 |
| 13. | Australian SE | 1 524 |
| 14. | Nat’l Stock Exchange India | 1 493 |
| 15. | Korea Exchange | 1 357 |
| 16. | NASDAQ OMX Nordic Exch | 1,287 |
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Domestic Market Capitalization (USD Billions)
http://www.world-exchanges.org/home/index.php/statistics/monthly-reports
| Exchange | March 2016 | |
| 1. | NYSE | 18,171 |
| 2. | NASDAQ OMX | 7,049 |
| 3. | Japan Exch Group - Tokyo | 4,602 |
| 4. | Shanghai SE | 3,930 |
| 5. | London SE Group | 3,638 |
| 6. | Euronext | 3,354 |
| 7. | Shenzhen SE | 3,095 |
| 8. | Hong Kong Exchanges | 3,024 |
| 9. | TMX Group | 1,767 |
| 10. | Deutsche Börse | 1,655 |
| 11. | BSE India | 1,433 |
| 12. | SIX Swiss Exchange | 1,417 |
| 13. | Nat’l Stock Exchange India | 1,408 |
| 14. | Korea Exchange | 1,282 |
| 15. | NASDAQ OMX Nordic Exch | 1,258 |
| 16. | Australian SE | 1,203 |
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…Top 15 Markets on Trading Volume
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Average Daily Trading Volume (USD Millions)
http://www.world-exchanges.org/statistics/monthly-reports
| Daily Average | |||||
| Exchange | Total | EOB* | ND RT** | % EOB | |
| 1. | NASDAQ OMX | 119 337 | 46 555 | 72 782 | 39% |
| 2. | NYSE | 68 888 | 59 764 | 9 124 | 87% |
| 3. | Japan Exch Group - Tokyo | 24 387 | 22 023 | 2 365 | 90% |
| 4. | Shenzhen SE | 18 511 | 18 471 | 40 | 100% |
| 5. | London SE Group | 18 011 | 10 989 | 7 022 | 61% |
| 6. | Shanghai SE | 14 411 | 14 351 | 60 | 100% |
| 7. | Euronext | 13 106 | 7 661 | 5 445 | 58% |
| 8. | Deutsche Börse | 6 413 | 5 823 | 590 | 91% |
| 9. | Hong Kong Exchanges | 6 290 | 5 847 | 443 | 93% |
| 10. | BME Spanish Exchanges | 5 535 | 4 183 | 1 351 | 76% |
| 11. | Korea Exchange | 5 467 | 5 336 | 131 | 98% |
| 12. | TMX Group | 5 297 | 5 297 | 0 | 100% |
| 13. | Australian SE | 3 765 | 3 224 | 541 | 86% |
| 14. | SIX Swiss Exchange | 3 648 | 3 115 | 533 | 85% |
| 15. | NASDAQ OMX Nordic Exch | 3 380 | 2 867 | 512 | 85% |
http://www.hedgeweek.com/2014/03/24/198979/electronic-order-books-dominate-nasdaq-market
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*Trades effected through the electronic order book (EOB). These trades represent the transfer of ownership effected automatically through the exchange’s electronic order book where orders placed by trading members are usually exposed to all market users and automatically matched according to precise rules set up by the exchange, generally on a price/time priority basis.
**Negotiated deals (ND). This contains trades different from the EOB, confirmed through a system managed (directly or indirectly) by the Exchange, where both seller and buyer agree on the transaction (price and quantity). This system checks automatically if the transaction is compliant with the exchange rules, including most often consistency with EOB price.
**Reported trades (RT). This contains trades reported through a Trade Reporting Facility (TRF) when only one counterparty provides information on the trade and offers dissemination services at the request of the reporting trader. The other counterparty could use this facility if reporting is mandatory.
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How US Investors Invest in Foreign Stocks
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http://www.schwab.com/public/schwab/nn/articles/Going-Global-Trading-Foreign-Stocks-OTC
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American Depositary Receipts (ADRs)
Cross-listed Stocks
Exceptions: Global Registered Shares (GRSs) and Guilder Shares
Ordinary Shares on the US OTC Market
Ordinary Shares on Primary Foreign Market
Generally limited to Canadian stocks
Example: Toyota is available as:
A foreign ordinary common share on the Tokyo Stock Exchange in Japan, where the company is listed
A foreign stock (ordinary common share) in the US OTC market
As an ADR (TM on NYSE)
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http://www.schwab.com/public/schwab/nn/articles/Going-Global-Selecting-ADRs-or-Foreign-Stocks
Which way is best?
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ADRs
ADRs are useful for smaller positions with many having adequate liquidity and typically best for small investors
US OTC
Foreign stocks listed in the US OTC market are an alternative for smaller positions
However,
Costs tend to be higher (wide bid-ask spreads) than ADRs and
Liquidity may not be as strong
Foreign Exchange
Foreign stocks listed in their home market are often the best alternative for orders greater than $5,000:
Traditionally, this direct access has not been generally available
Increased liquidity and lower costs
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Depository Receipts
Depository Receipts
A depository receipt (DR) is a financial security that is traded locally but represents a security (usually equity) issued by a foreign firm (usually publicly-listed in its home market)
One of the most common types of DR is the American depository receipt (ADR), which are certificates traded in the United States and denominated in US dollars
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Depository receipts are negotiable certificates issued by a domestic bank to represent the underlying shares of stock, which are held in trust at a foreign bank
Note: Although the terms are often used interchangeably, a DR refers to the actual physical certificate while a Depositary Share (DS) refers to the actual shares.
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ADRs
Nothing new under the Sun: ADRs have been offering global investment opportunities since 1927
ADRs are sold, registered, and transferred in the US in the same manner as any share of stock
Many ADRs trade on a US national stock exchanges, such as the New York Stock Exchange (NYSE), NASDAQ, or NYSE Amex
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JPMorgan created the first-ever DR in 1927 for Selfridges, a British retailer
Each ADR represents some multiple of the underlying foreign share (allowing for ADR pricing to resemble conventional US share pricing between $20 and $50 per share)
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TelMex’s American Depositary Receipt
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Most Actively Traded ADRs
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| DR ISSUE | Exchange | SYMBOL | 200-DAY AVG VOL | INDUSTRY | COUNTRY |
| Petroleo Brasileiro-Petrobras - Com | NYSE | PBR | 31,912,400 | Oil & Gas Producers | Brazil |
| Vale - Com | NYSE | VALE | 28,175,700 | Indust.Metals&Mining | Brazil |
| Itau Unibanco | NYSE | ITUB | 19,117,800 | Banks | Brazil |
| AMBEV S.A | NYSE | ABEV | 18,002,200 | Beverages | Brazil |
| Alibaba Group Holding Limited | NYSE | BABA | 16,439,100 | General Retailers | China |
| Banco Bradesco | NYSE | BBD | 15,906,100 | Banks | Brazil |
| Cemex | NYSE | CX | 13,955,000 | Construct.&Materials | México |
| Vale - Pref | NYSE | VALE-P | 12,733,300 | Indust.Metals&Mining | Brazil |
| Nokia | NYSE | NOK | 12,459,400 | Tech.Hardwre&Equip | Finland |
| Petroleo Brasileiro-Petrobras - Pref | NYSE | PBR.A | 12,087,900 | Oil & Gas Producers | Brazil |
https://www.adrbnymellon.com/market-analysis/performance-analytics
200-Day Average Volume Ending April 18, 2016
https://www.citiadr.idmanagedsolutions.com/www/front_page.idms
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| DR ISSUE | Exchange | SYMBOL | 200-DAY AVG VOL | INDUSTRY | COUNTRY |
| JD.com | Nasdaq | JD | 11,676,600 | General Retailers | China |
| ArcelorMittal | NYSE | MT | 10,688,800 | Indust.Metals&Mining | Luxembg |
| Vipshop | NYSE | VIPS | 10,616,900 | General Retailers | China |
| Taiwan Semiconductor Manuf | NYSE | TSM | 10,125,700 | Tech.Hardwre&Equip | Taiwan |
| ICICI Bank | NYSE | IBN | 10,050,700 | Banks | India |
| BP | NYSE | BP | 8,369,400 | Oil & Gas Producers | UK |
| SouFun | NYSE | SFUN | 6,400,200 | Media | China |
| Gerdau | NYSE | GGB | 6,351,700 | Indust.Metals&Mining | Brazil |
| Banco Santander | NYSE | SAN | 6,260,300 | Banks | Spain |
| Gold Fields | NYSE | GFI | 6,113,000 | Mining | S Africa |
| CTrip.com International | Nasdaq | CTRP | 5,871,500 | Travel & Leisure | China |
| Teva Pharmaceutical Industries | NYSE | TEVA | 5,531,500 | Pharma. & Biotech. | Israel |
| Royal Dutch Shell - A Shares | NYSE | RDS.A | 4,988,900 | Oil & Gas Producers | UK |
| AngloGold Ashanti | NYSE | AU | 4,550,700 | Mining | S Africa |
| Infosys | NYSE | INFY | 4,438,300 | Software&Comp Svc | India |
Example: Say a gas company in Russia has fulfilled the requirements for a DR listing and now wants to list its publicly-traded shares on the NYSE in the form of an ADR
A US investor instructs a US broker, through an international office or a local brokerage house in Russia, to purchase ordinary shares from the Russian market
The Russian broker delivers the ordinary shares to the custodian bank (a Russian institution)
The custodian bank verifies the receipt of the shares and informs the depository bank (an American institution, say, BNY Mellon)
The depository bank then issues and delivers ADRs to the US broker who, in turn, delivers them to the US investor
US broker converts US dollars received from the US investor into Russian rubles and pays the Russian broker
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Based on a predetermined ADR ratio, each ADR represents one or more Russian local shares
Each ADR is issued in US dollars (converted from the equivalent Russian price of the shares)
The ADRs now represent the local Russian shares and can now be freely traded on the NYSE
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Foreign Country
United States
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ADR Investor
US Broker
Foreign Broker
Custodian Bank
Depository Bank
1. Places order
2. Places order
3. Purchases Shares
4. Deposits Shares
6. Issues & Delivers new ADRs
7. Settlement & Claim to ADRs
5. Confirms Deposit of Shares
Foreign Stock Exchange
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ADRs are created and canceled daily. ADRs can be exchanged for the underlying foreign shares, or vice versa, so arbitrage keeps foreign and US prices of any given share very close after adjusting for transfer costs and liquidity differences in markets
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Example (continued): ADRs may be sold back into the local Russian market
When this happens, a number of ADRs are canceled by the depository bank
The local shares are released from the custodian bank
They are delivered to a Russian broker who sells them in the Russian market for rubles
Rubles are converted into dollars by the US broker and paid to the US investor
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https://www.adr.com/Content/Documents/DR-Mechanics-Flow-Diagram.pdf
Foreign Country
United States
ADR Investor
US Broker
Foreign Broker
Foreign Stock Exchange
Custodian Bank
Depository Bank
1. Places order to Sell in Foreign Market
5. Sells Shares
4. Releases Shares
2. Cancel ADRs
3. Instructions
7.….. Receives $
6.….. Receives FX
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Benefits of ADRs
The ADR investor holds privileges like those granted to shareholders of ordinary shares*
Voting rights: ADR holders may give instructions to the depository bank as to how to vote
Voting rights are not exercised by the depository bank in the absence of specific instructions however
Cash dividends
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* The rights of the ADR holder are stated on the ADR certificate
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ADRs offer the US investor many advantages over trading directly in the underlying stock on the foreign exchange
Convenience
Denominated in dollars
Trade on a US exchange & purchased through a regular broker
Timely dividend distributions*
Withholding taxes are simpler because they’re handled by the depository bank
Trade on US markets
Widespread availability of price information
Lower transaction costs: Normally, trading costs are lower than when buying or selling the underlying shares in their home market
ADR trades settle in three business days (T+3) as do US equities (In contrast, foreign settlement practices vary)
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* Dividends paid by a foreign firm are passed to its custodial bank and then to the depositary bank that issued the ADR. The issuing bank exchanges the foreign currency dividends for US dollars and sends the dollar dividend to the ADR holders
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US laws and regulations apply
Level II, and III ADRs are registered securities and provide protection of ownership rights—Most underlying stocks are bearer securities
Transfer of ownership is facilitated because it is done in the United States in accordance with US laws and procedures
In the event of the death of a shareholder, the estate need not go through probate in a foreign court system
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Types of ADRs
A sponsored ADR is issued with the cooperation of the company whose stock will underlie the ADR (and who will pay the associated costs). These shares carry all the rights of the common share, such as voting rights
To become listed and trade on a US exchange, an ADR must be sponsored by the underlying corporation
An unsponsored ADR is issued by a broker/dealer or depository bank without the involvement of the company whose stock underlies the ADR
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| ADR | ||||
| Existing shares — Secondary market | Offering of shares | |||
| Level I Over the counter & Unsponsored | Level II Exchange listed | Level III Public Offering- US | Rule 144A Private placement | |
| Description | Unlisted program in the U.S. | Listed on a U.S. exchange | Shares offered and listed on a U.S. exchange | Private placement to U.S. qualified Institutional Buyers |
| Trading | OTC | NASDAQ, NYSE | NASDAQ, NYSE | PORTAL |
| Shares used | Existing shares | Existing shares | New shares | New shares |
| Registration and Reporting Requirements | ADRs are registered on Form F-6; same financial information and disclosure as in local market | Full SEC registration and reporting. F-6; 20-F; submit interim and annual reports | Full SEC registration and reporting. F-6; 20—F; submit interim and annual reports | Do not have to conform with SEC regulation |
| Benefits | Simple to execute; lowest cost to enter foreign capital market. | High visibility and access to U.S. investors; status and profile; | All the advantages of Level II, plus capital raising | Quickest, easiest and most cost effective way to raise capital in the US; no SEC registration |
| Drawbacks | Not exchange-traded; may have lower liquidity; cannot be used to raise capital | Full SEC registration and reporting requirements | Full SEC registration and reporting requirements. | Limited to qualified institutional buyers only |
JPM Note: We havealso seen the emergence of local depositary receipt structures including Hong Kong (HDRs)
https://www.adr.com/Site/LoadPDF?CMSID=1687be0559184d5a9c6d74180e939363
Non-US Equities Trading on US Markets
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Source: Karolyi (2006)
Source: Apr 2016 JPM at adr.com except Mar 2016 WFE for Ordinary/GRS
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Sponsored Non-US Equities on US Markets (2016)
Level II and III
394 Level I
850 144A
379 Ordinary Shares/GRS
502
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US Investment in Foreign Equity by Depository Receipt: $837B (Dec 31, 2014)
United Kingdom Switzerland Cayman Islands Brazil France Hong Kong Bermuda Israel Mexico Japan Russia Netherlands Taiwan India Germany China, Mainland Jersey Denmark Belgium Spain Korea, South Ireland Thailand Australia Singapore South Africa Other 166.506 108.971 104.06100000000001 36.19 35.783000000000001 35.085999999999999 32.247 28.483000000000001 28.117999999999999 24.765999999999998 22.619 20.173999999999999 17.989000000000001 17.096 16.63 13.14 12.03 10.654 10.061 9.423 9.2029999999999994 9.0530000000000008 8.9920000000000009 6.7359999999999998 6.0570000000000004 5.4089999999999998 41.576000000000001
Global Depositary Receipts
Global Depository Receipts (GDRs) are like ADRs but trade on one or more foreign markets
Today the overall DR market comprises
More than 3,500 issuers from more than 80 markets have established DR programs
J.P. Morgan estimates total global investment in DRs at approximately $1.1 T at the end of 2014
Global Depositary Receipts (GDRs) typically list in London or Luxembourg (JPMorgan website)
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The Nigerian bank, Guaranty Trust Bank plc (GTBank)
JPMorgan Worldwide Securities Services is the depositary bank
This is the first GDR offering in London for a Nigerian company
http://investor.shareholder.com/jpmorganchase/releasedetail.cfm?ReleaseID=259343
The Indian steel products company: Uttam Galva Steels Limited (“Uttam Galva”)
JPMorgan Chase Bank, N.A. is the depositary bank
This GDR program is the first ever on the Singapore Exchange Securities Trading Limited (SGX)
http://investor.shareholder.com/common/mobile/iphone/releasedetail.cfm?ReleaseID=236376&CompanyID=ONE&mobileid=
The Russian crude oil producer: Bashneft
Deutsche Bank created this unsponsored GDR in 2002
This GDR trades in Frankfurt
https://www.tss.db.com/FileView/Data.aspx?URL=dbdr/publication/DbInternal/999999999_JUL26200235357PM.pdf
| GDR | ADR | ||||
| Offering of shares | Existing shares — Secondary market | Offering of shares | |||
| Regulation S | Level I Over the counter & Unsponsored | Level II Exchange listed | Level III Public Offering- US | Rule 144A Private placement | |
| Description | Shares listed outside the U.S. often in London or Luxembourg | Unlisted program in the U.S. | Listed on a U.S. exchange | Shares offered and listed on a U.S. exchange | Private placement to U.S. qualified Institutional Buyers |
| Trading | Any stock exchange outside of U.S. | OTC | NASDAQ, NYSE | NASDAQ, NYSE | PORTAL |
| Shares used | New Shares | Existing shares | Existing shares | New shares | New shares |
| Registration and Reporting Requirements | In accordance with the rules of the local regulator and exchange | ADRs are registered on Form F-6; same financial information and disclosure as in local market | Full SEC registration and reporting. F-6; 20-F; submit interim and annual reports | Full SEC registration and reporting. F-6; 20—F; submit interim and annual reports | Do not have to conform with SEC regulation |
| Benefits | Access to international capital markets; no U.S. SEC registration | Simple to execute; lowest cost to enter foreign capital market. | High visibility and access to U.S. investors; status and profile; | All the advantages of Level II, plus capital raising | Quickest, easiest and most cost effective way to raise capital in the US; no SEC registration |
| Drawbacks | Generally limited to institutional investors | Not exchange-traded; may have lower liquidity; cannot be used to raise capital | Full SEC registration and reporting requirements | Full SEC registration and reporting requirements. | Limited to qualified institutional buyers only |
U . S . O N L Y
G L O B A L
Note: We havealso seen the emergence of local depositary receipt structures including Hong Kong (HDRs)
https://www.adr.com/Site/LoadPDF?CMSID=1687be0559184d5a9c6d74180e939363
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TOTAL SPONSORED AND UNSPONSORED DR PROGRAMS
(April 2016)
REG S
524 Level II & III
394 Level I
850 Other/144A
398 Unsponsored
1578
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http://www.adrbnymellon.com/files/MS30327.pdf
http://www.adrbnymellon.com/files/MS39131.pdf
Total $ 1,097 B
https://www.adrbnymellon.com/bny-mellon_2016-dr-market-review_electronic_24_03_17.pdf
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https://depositaryreceipts.citi.com/adr/common/file.aspx?idf=3569
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Global Registered Shares
Global Registered Shares
While ADRs are quoted only in US dollars and traded only in the US, Global Registered Shares (GRSs) are ordinary shares that can be traded and transferred on equity exchanges around the globe in a variety of currencies. Also known as Global Shares
GRSs have promising features and offer an alternative to ADRs
Optional: GRSs replace the depository bank’s 5-cent per-share transaction fee for ADRs with a $5 settlement fee—independent of the number of shares traded—charged by a clearing bank
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UBS’s Reasoning on GRSs
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| What is a Global Registered Share (GRS)? |
| A Global Registered Share is a security that can be traded and transferred across applicable borders without the need for conversion. This means that identical shares can be traded on different stock exchanges in different currencies. For example, the same share purchased on the New York Stock Exchange (NYSE) can be sold on virt-x (the pan-European blue chip platform) or vice versa. |
Excerpts from the UBS annual report:
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| Why has UBS elected to list a Global Registered Share rather than American Depository Receipts? |
| UBS is pioneering the Global Registered Share (GRS), which allows for cross-market portability at minimized cost to investors. The concept behind American Depository Receipts (ADRs) is the creation of tailor-made securities for individual unlinked markets, following local regulations. UBS believes that, with the globalization of financial markets, this concept is becoming less valid for securities, which will increasingly be traded in multiple markets. UBS believes that a global fungible security can best track liquidity across the globe. UBS also believes that regulatory structures of different markets will continue to align, reducing the need to have individual securities in each market to comply with different local regulations. |
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| What has happened to UBS ADRs? |
| The UBS ADR program was terminated at the time of the listing of the GRS on the New York Stock Exchange (NYSE) - 16 May 2000. UBS ADR owners had the option to exchange any outstanding ADRs for UBS shares. The exchange ratio is 10 ADRs for 1 GRS. This option was open until May 2001; a cash equivalent is now available. To exchange ADRs, contact the administrator (transfer agent) of UBS’s ADR program. Details are shown on the Contact Information page. |
| Where is the UBS Global Registered Share listed? |
| The UBS GRS is listed on the New York, Zurich and Tokyo Stock Exchanges. |
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Empirical Evidence on GRSs: DaimlerChrysler Experience
The Global Registered Share (GRS) certificate was hailed as a landmark event for stock markets worldwide when it was launched as the trading vehicle for the new DaimlerChrysler AG in November 1998
But the new global share—traded in 21 markets as DCX—did not see the robust activity expected in the United States and most of the other markets (G. Andrew Karolyi, professor of finance at the Fisher College of Business)
In a recent study, Karolyi found that after six months of trading, DCX share prices were weak and trading was highly concentrated in one market
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Before the merger, Daimler Benz AG ordinary shares traded in Frankfurt and its ADRs traded on the NYSE. Similarly, Chrysler stock traded on the NYSE and in Frankfurt
99 percent of the average daily trading of $777 million in Daimler Benz shares occurred in Frankfurt
Chrysler shares experienced the same distribution but with trading valued at only about one-eighth that of Daimler Benz averaging under $100 million in New York
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Following the merger, the average daily value of New York trading of DCX was about $100 million per day whereas Frankfurt trading rose to over $1 billion per day
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| Period | Firm | Market | Daily Trading Volume ($M) |
| Pre-merger | Daimler Benz | Frankfurt | 777 |
| Chrysler | New York | 100 | |
| Post-merger (8/99) | DaimlerChrysler | Frankfurt | 1,000 |
| New York | 100 |
Frankfurt captured almost 95 percent of global trading by August 1999
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"The clustering of trade at the Frankfurt exchange was due to the 'winner market takes all' phenomenon that occurs when traders seek out the lowest cost market" (Karolyi)
His study also shows that the share price of DCX declined 10 percent on a risk-adjusted basis during this period
NOTE: the winner market need NOT be the firm’s home country market: after Nokia cross-listed on the NYSE, the NYSE captured 60 percent of the trading volume (Hedvall et al. (1998))
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What happened to DaimlerChrysler?
In October 2007, the company spun off Chrysler and was renamed Daimler AG
In June 2010, Daimler delisted from the NYSE. The company currently trades only on the Frankfurt and Stuttgart exchanges
In September 2010, Daimler established a sponsored Level I ADR program (which trades over-the-counter (OTC) in the United States)
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Summary
Globally there are over 46,000 exchange listed companies worth about 70 trillion USD
There are several means to invest in equity globally:
Foreign firms may cross-list their ordinary shares but listing by depository receipts is much more common in the US (except for Canadian and Dutch stocks)
Depository Receipts (DRs): negotiable certificates issued by a bank to represent the underlying shares of stock, which are held in trust at a foreign custodian bank
In the US, these DRs are called American Depository Receipts (ADRs)
Global Registered Shares (GRSs) are a relatively recent innovation. GRSs are ordinary shares that trade on multiple global stock exchanges in different currencies. They can be traded in and transferred across borders
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