BNY has claimed a first, offering US and global investors the opportunity to access an American Depositary Receipt for a Canadian equity.
The unsponsored ADR program was announced last week and involves a leading Canadian supermarket chain, but BNY is expecting to expand its ADR offerings across a wider range of companies and sectors in the months ahead, likely to include energy and natural resources, financials, and industrials and materials.
InvestmentNews asked the firm’s global head of depositary receipts, Chris Kearns, about the market demand or investor behavior trends that led BNY to prioritize Canadian issuers for this new wave of unsponsored ADRs.
“The demand is driven by the size and diversity of Canadian equity markets and the need for some US investors to hold US (rather than Canadian) securities,” he says. “Unsponsored ADRs provide a flexible and cost-effective way for investors to gain exposure to Canadian issuers without the need to hold the Canadian security.”
Kearns explains that asset managers continue to expand distribution of their investment strategies beyond mutual funds and for international equity strategies, DRs offer investors convenient access to a broad range of companies across multiple sectors and regions, reducing the complexity of managing international portfolios and making it an attractive solution for all investor segments, including Institutional, Wealth Management and Retail investors.
The DR structure provides operational simplicity, are compatible with US security investment mandates, scalable exposure to Canada, and consolidated reporting alongside all other US securities with standard pricing and valuations, and simplifying NAV, operations, compliance, and audit processes.
Liquidity is always a concern, so how does this ADR program ensure that investors can pull their money out if they choose to?
“ADR liquidity is primarily driven by underlying local shares, BNY facilitates creation and cancellation of ADRs in response to deposits from brokers, driving liquidity in both the ordinary share and DR markets,” says Kearns. “ADRs benefit from dedicated market maker support and access to US trading networks, offering better execution quality and tighter spreads than typical F-share volumes. Investors also benefit from dual liquidity pools in both the ADR and local share market.”
While Canada is the focus for this latest program, BNY is looking at providing further diversification.
“We’ve had a busy year actively expanding into multiple markets where investor demand exists, but access remains complex particularly in Latin America, Southeast Asia, and Sub-Saharan Africa,” says Kearns. “These regions present opportunity for unsponsored structures like ADRs and GDNs (Global Depositary Notes), which we’re also using to facilitate access to local debt markets. We recently went live for GDNs in both Peru and Nigeria where we have interest from global investors.”
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