Transcript Global Registered Shares

Global Registered Shares
| Jeff Bijas | Thomas Kutzman | Gaurav Malhotra | Mei Lin Zhang |
Agenda
 American Depository Receipts
 Global Registered Shares
 Comparison of Methods
 DaimlerChrysler’s Initiative
 DCX Results
 Deutsche Bank’s GRS Issue
 GRS Future Outlook
American Depository Receipt (ADR)
 A certificate that represents ownership in a non US
company’s publicly traded securities that may be
traded on a listed or unlisted exchange in the US
 Ordinary share deposited in trust with a local
custodian bank
 Primary method for the majority of US investors to
invest abroad
 US dollar denominated
ADR - Example
Ex. Sony in Japan
¥30,000 per share
$1 = ¥100
10 shares = 1 ADR
Conversion fee = 5% per
share per transaction
Mr. Jones wants to hold 100
ADRs
1. US investor
Mr. Jones
Invest: (¥30,000 1000)  ($1/¥100) = $300,000
Conversion fee: ($0.05)  (1000) = $50
Total cost: $300,000 + $50 = $300,050
2. US Custodian Bank
JP Morgan Chase
Receives $300,050
Keeps $50 conversion fee
Converts dollars to yen
3. JAP stock market
JP Morgan Chase buys shares of Sony
Deposits shares in custody account
Delivers 100 ADRs to Mr. Jones
Global Registered Share (GRS)
 Alternative to ADR with greater flexibility
 Similar to ordinary shares except that investors can
trade it on stock exchanges worldwide – they are not
domestic securities representing a foreign interest
 Make shares easily accessible not only to US
investors but also to investors in other countries
 Local currency denominated
GRS – Example
Ex. Sony in Japan
¥30,000 per share
$1 = ¥100
Transaction fee = $5
Mr. Jones wishes to hold
1000 shares
1. US investor
Mr. Jones
Invest: (¥30,000 1000)  ($1/¥100) =
$300,000
Transaction fee: $5
Total cost: $300,000 + $5 = $300,005
Mr. Jones receives 1000 GRSs of Sony
2. Global Registrar
Clears and settles trade using two-way
electronic link between the exchanges
Comparison of Methods
ADRs
GRSs
 Conventional method of
 No additional
accessing international
equity markets since1927
intermediaries
 Fully fungible
 Bundling feature adds to
liquidity
 Depository bank maintains
ADR ownership records,
processes corporate actions
 Conversion fees
Source: A. Karolyi, “Daimler Chrysler AG, the First Truly Global Share”
 High initial costs
 Flat transaction fees
 All shareholders have
equal status
Introduction of the GRS
 DaimlerChrysler established in 1998 to create a
global, diversified manufacturer and distributor.


German company Daimler Benz with market
capitalization of $36 billion
US company Chrysler with market capitalization of $23
billion
 Share-for-share exchange effected with new global
registered share (GRS) facility


.6325 new DCX shares per Chrysler share
1.005 new DCX shares per Daimler Benz share
Source: A. Karolyi, “Daimler Chrysler AG, the First Truly Global Share”
“Equity could follow the sun…”
 Only one equity vehicle to be issued to all
DCX stockholders
 Dual-listing could keep the US and the
German company on even terms
 Global share would allow DaimlerChrysler to
keep Chrysler’s spot in the S&P 500
Source: A. Karolyi, “Daimler Chrysler AG, the First Truly Global Share”
GRS Structure
 Single, bilingual, multi-jurisdictional certificate
applicable in both US and Germany
 Issued in registered rather than bearer form

Eliminates need for each share to be
accompanied by dividend coupons
 Share registration and transfer handled by
the US and German-based agents/registrars
Source: A. Karolyi, “Daimler Chrysler AG, the First Truly Global Share”
Dynamics of GRS Trading
Source: A. Karolyi, “Daimler Chrysler AG, the First Truly Global Share”
GRS Outcomes
 Greater trading activity and enhanced liquidity


Significantly higher value of combined trading
Significantly lower intraday bid-ask spreads
 Tremendous migration of order flow back to
Frankfurt


NYSE retains only 5% of total global trading
volume of stock
DCX dropped from S&P 500
 Volatility of returns increased dramatically
Trading Activity
Source: A. Karolyi, “Daimler Chrysler AG, the First Truly Global Share”
Bid-Ask Spread Comparison
Source: A. Karolyi, “Daimler Chrysler AG, the First Truly Global Share”
Deutsche Bank issues GRSs
 In 2001, Deutsche Bank chose to list on
the NYSE via GRSs, making it the fourth
foreign company to ever issue such
shares
 Critics suggested that a GRS listing
would lead to a lower trading volume on
the NYSE
Deutsche Bank’s Goal
"Deutsche Bank, with a share traded
globally, is increasing its flexibility and -above all in the U.S.A. -- its ability to
actively take advantage of business
opportunities," including "the financing of
future acquisitions.“
-- Press Release, 2001
Deutsche Bank (DB) Performance
Conclusion
 Not enough companies are willing to endure the up-
front costs of GRS’s to determine if they are a viable
and worthwhile means to make international investing
more efficient and accessible to investors.
 Results from DaimlerChrysler, Deutsche Bank, etc
provide inconsistent data with unclear results
 Small number of sample cases makes testing general
hypotheses on GRS’s very difficult
 GRS’s are simpler for the average investor and
cheaper for high volume institutional investors