Capital Markets

A Rare Global Share Sighting

So why did Deutsche Bank issue global registered shares on the NYSE, rather than ADRs? Good question.
Ian RowleyNovember 12, 2001

When Deutsche Bank listed on the New York Stock Exchange (NYSE) in October, the German bank could have followed in the footsteps of hundreds of companies before it. The bank could have simply issued American depositary receipts (ADRs) — the standard practice for cross-border companies listing in the United States since 1927.

Instead, management at Deutsche Bank opted to use global registered shares (GRS). A GRS is similar to an ordinary share except that investors can trade it on lots of stock exchanges around the world in many currencies. ADRs, by contrast, are dollar-denominated certificates traded in the United States, which give the owner claim over a number of shares in a company listed elsewhere. The shares underpinning an ADR are deposited in a U.S. custodian bank.

Although global registered shares first appeared on the finance scene in 1998, GRS issues have been few and far between. In fact, prior to October, only three companies — DaimlerChrysler, UBS, and Swiss chemical specialist Celanese — had ever issued global registered shares.

Despite the rarity of such issues, Deutsche Bank CFO Clemens Börsig says his decision to use global shares was never in doubt. “We’re fully aware that ADRs are in the majority in New York,” he says. “But we believe that the global share is the way forward.”

Possibly. Global shares do carry lower trading costs. And, as the world’s markets edge closer to 24-hour trading, global shares will become increasingly convenient, as stockmarkets and clearing and settlement systems consolidate.

Still, few securities experts expect a rush of GRS issues. Far from it. They say that the high cost of setting up global share programs more than offsets the benefits. What’s more, some bankers believe the traditional preference of U.S.-based investors for ADRs — along with the problems of balancing local market regulations with U.S. rules — will deter many finance managers from rushing out and issuing global shares.

Chris Sturdy, for one, isn’t convinced global shares will catch on. A managing director at the Bank of New York (which provides clearance, settlement, and custody for ADR programs), Sturdy says it’s unclear whether the global trading system can handle the widespread trading of global shares. “There are questions over its efficiency,” he claims, noting that, despite consolidation in the securities industry, share trading is influenced by legal systems, regulatory bodies and tax regimes that are organized at a national — rather than international — level. “Until that changes, it’s difficult to see global shares working effectively,” he notes.

Sturdy adds that ADRs also offer companies superior trading liquidity. “Ninety-nine percent of companies coming to the U.S. want access to the broadest range of U.S. investors,” he says. “But all the evidence shows that moving from an ADR to a global share removes liquidity.”

If It Ain’t Broke…

It also removes issuers from the mainstream. So far this year, eight European companies have listed in New York using ADRs. Only Deutsche Bank has launched a global share. And of those corporations whose management did consider global shares — Siemens, BASF, and Novartis — all ultimately chose ADRs.

Nonetheless, backers of global shares counter that it’s only a question of time before more businesses replace their ADRs with a single global security. For one thing, they say the benefits of global shares have been undersold. For example, Deutsche Bank’s Börsig says he’s confident more companies will choose global shares as investors learn how cheap they are to trade.

According to the NYSE, dealing fees levied on ADRs tend to cost investors between 3 and 5 cents per share traded. By comparison, the cost for global shares is a flat $5 per trade — no matter how many shares change hands. “It’s often underestimated just how much more cost-efficient global shares are for investors [than ADRs],” Börsig says. “That’s why the incumbent ADR banks in New York don’t like them.”

On top of that, the legal and technical difficulties that have limited the number of countries where companies can issue global shares are slowly disappearing. Before a global share can be launched, operators of the home country’s clearing and settlement systems must work closely with U.S. counterpart — as happened in Germany in 1998. Such cooperation enables local exchange authorities to harmonize their listing requirements with that of the SEC.

“Because markets are national, we have to put a structure in place country by country, which takes time,” says Georges Ugeux, group vice president of the NYSE’s international division. “But next year we expect to begin talking to companies in France, the U.K., Netherlands, Finland, Spain, and Italy.”

Deutsche Bank’s Börsig also dismisses suggestions that global shares are illiquid. “Many U.S. institutions can only invest in companies that are SEC-registered,” he says. “However, when they begin trading the shares, they tend to go where there’s most liquidity, whether that’s New York or, in our case, Frankfurt.”

For more coverage of finance on the continent, visit CFO Europe (www.cfoeurope.com).

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