The New York Stock Exchange on the Joy of Depositary Receipts
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The New York Stock Exchange (NYSE: NYX) discusses depositary receipts (foreign stocks traded on local exchanges) and the role DRs play in global investing. The NYSE Group (NYSE and NYSE MKT) lists 278 American depositary receipts (75% of the listed ADRs in the United States), which have a total market value of USD 5.7 trillion (94% of the ADR market value).
Alex Ibrahim is Vice President and Regional Head of Latin America, Bermuda, and the Caribbean for the Global Corporate Client Group of NYSE Euronext, and manages the Exchange’s relationships with over 150 companies in the region. He currently serves as a board member of the Brazilian American Chamber of Commerce and the North American Chilean Chamber of Commerce. In addition to attending the School of Engineering at Universidade Gama Filho in Rio de Janeiro, Brazil, he obtained his undergraduate degree in Marketing and International Trade as well as his MBA from the Zicklin School of Business at Baruch College in New York City.
Slepko: Why would a company list its ADR with the NYSE?
Ibrahim: Companies come to the US market and list on the NYSE for many reasons. One of them is liquidity because the US is the most liquid market in the world, and has a deep pool of investors. Also, being listed on the NYSE gives a company access to a broader group of investors, sector specific funds, smaller funds, and even retail investors. Listing in the US also means the company is in a different league if they register with the SEC and comply with Sarbanes-Oxley, which investors like.
The ADR mechanism can also be used to make acquisitions. This very liquid, dollar-denominated product can be used to acquire assets around the world – which is often easier than trying to do the same from their home country.
Slepko: One of the foreign companies being given a lot of press lately is Mongolian coal miner ETT. I’ve heard they will be listing in Hong Kong and London. Hong Kong makes sense as its preferred regional exchange, but why would ETT list in London and not New York?
Ibrahim: London has historically positioned itself as a mining, natural resource market. However today, a lot of those companies are cross-listed in New York. I think in London they have very specific investors that understand the mining sector, and companies think that if they are there they will be in front of the main investors. But in reality they are not, and that’s why you see companies like BHP Billiton [(UK-Australia)] and Rio Tinto [(UK-Australia)] being cross-listed in [the US] markets, whereas Vale [(Brazil)], probably the world’s largest mining company, is listed with us along with Buenaventura [(Peru)], Southern Copper [(Mexico)], as well as others.
In the past, London was positioned as a mining center, but I think because the US market is a much deeper market, companies have realized they need to be here so they can access investors outside of London. Many Latin American and Brazilian funds may choose not to go to the London exchange since it is very difficult due to restrictions on their by-laws and currencies.
Slepko: Why would one foreign company choose the NYSE over the NASDAQ?
Ibrahim: We are extremely invested in our non-US franchise. We have approximately 500 companies representing approximately 47 countries. They trade very well in the US market. I am responsible for the Latin America region, from which we have 80 companies listed, NASDAQ has 4. The NYSE has become the destination for Latin American countries considering listing abroad, and we have a strong client services team frequently traveling to the region to visit our clients.
The NYSE has been involved in non-US markets since the creation of the first ADR. The first Latin American company to list in the US (which was in the ’50s) was from Mexico and was a utility which no longer exists (as the electricity sector is now controlled by the government). More recently, the first one was telecommunications company CTC Chile which is now controlled by Telefonica [(Spain)]. Since that listing in 1992, we have started to see more companies coming to the market. They actually opened the market for Latin American issuers interested in accessing the US capital markets.
Slepko: The basic difference people assume between the NASDAQ and NYSE is that NASDAQ has the reputation of being the technology sector’s exchange. Also, most of the foreign companies listing ADRs are not technology companies, is that why the NYSE is so dominate among ADRs?
Ibrahim: We changed our listings requirements and few years ago and have invested and lot of time and effort in supporting these companies. As a result, we are seeing more and more technology companies come to the NYSE. In the past, our market share in tech company listings was in the single digits, but today it is closer to, and at times more than, 50%.
In Latin America, we are starting to see technology companies deciding to access the market. I think over the next couple years, you are going to see a lot of tech companies from Latin America listing in the US market.
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Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend NYSE Euronext. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.