Bank of New York Mellon on the Joy of Depositary Receipts
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The Bank of New York Mellon (NYSE: BK) discusses depositary receipts (foreign stocks traded on local exchanges) and the role they play in global investing. As one of the world's four depositary banks that manage the 3,600+ DRs around the globe, BNY Mellon accounts for over 2,700 DR programs (with a market value of over USD 770 billion) in 68 countries. With 62% of the market, BNY Mellon is the largest of the four depositary banks and, in addition to having seven of the top ten most actively traded DR programs, they also manage the largest number of DR indices which are used as investing benchmarks for ETFs and other funds.
Anthony Moro is the Managing Director and Head of Emerging Markets for BNY Mellon’s depositary receipts business. Since joining the company in 1996, he has held a number of leadership roles in marketing, business development, and relationship management. His focus has been primarily on emerging markets in Europe, Russia, the Middle East, Africa and the Americas. Prior to joining BNY Mellon, he spent four years working for an international investor consulting firm in New York and obtained his undergraduate degree in Political Science (International Relations) and Organizational Behavior and Management from Brown University.
Nick Slepko: How long have you been involved with DRs?
Anthony Moro: Since 1992 – my entire working career.
Slepko: What attracted you so early to the magical world of DRs?
Moro: I think it was the ability to turn something foreign into something local.
The power of the DR really comes into play when the language is really different (especially one that doesn’t even have Roman characters like Russian or Hindi or Mandarin), hugely different time zones (12 hours away), and a currency most investors haven’t heard of.
I own lots of [American depositary receipts] myself, both as individual holdings as well as through exchange-traded funds that use ADR indices as their benchmark. I use them to diversify my portfolio and gain exposure to lots of amazing companies outside the US, the same way thousands of retail and institutional investors do every day.
My personal account is with Charles Schwab (NYSE: SCHW) and (in addition to BNY Mellon’s own DR site) they have a good section explaining ordinary shares versus ADRs. So if you want to buy shares directly from France or Japan or South Africa, you call your Schwab broker, change your dollars into the local currency, buy it on the local exchange at the local time, and then it settles back into your account and you pay all these incredible fees to convert your currency, to hold your security, to pay your broker. The cost is pretty significant. If you are talking about [Toyota (TYO:7203) in] Japan, and you want to make a trade at mid-day US time, sorry it’s the middle of the night in Japan, so you really have to wait until 10pm New York time to make your trade and find out what the price is.
However, if you are buying the Toyota ADR (NYSE: TM) here in the US and I’m a Schwab customer I pay USD 9.99 for an online trade and I don’t have any custody costs or [foreign exchange] costs then it settles and trades just like I was buying Ford Motor. So, from the perspective of the average US investor it is very easy. That’s what we do, we provide the back office magic that turns foreign things into local things.
Slepko: Why does Bank of New York Mellon claim it is the top DR bank in the world?
Moro: First, our company is specialized in these types of businesses. We are the world’s largest custodian which is important because depositary receipt products rely on global connections. We have about a quarter of the world’s investable assets sitting on our books and records as custodian to the tune of USD 27.9 trillion in assets under custody and administration. That kind of infrastructure helps, plus it is the focus of our institution. We are a securities servicing and investment service. We currently have 62% of the issuers with these products. We’re also the depositary for seven of the top 10 most actively traded DR programs in the world.
The rest of the DR market is split among Citibank, Deutsche Bank, and JPMorgan. All three of our competitors are wonderful banks, but they are all different institutions.
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