Global Registered Shares

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Global Registered Shares

• Jeff Bijas Thomas Kutzman Gaurav Malhotra
  Mei Lin Zhang

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Agenda

• American Depository Receipts
• Global Registered Shares
• Comparison of Methods
• DaimlerChryslers Initiative
• DCX Results
• Deutsche Banks GRS Issue
• GRS Future Outlook

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American Depository Receipt (ADR)

• A certificate that represents ownership in a non
  US companys 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

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ADR - Example

• 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

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
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
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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

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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
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Comparison of Methods

• ADRs
• Conventional method of accessing international
  equity markets since1927
• Bundling feature adds to liquidity
• Depository bank maintains ADR ownership records,
  processes corporate actions
• Conversion fees

• GRSs
• No additional intermediaries
• Fully fungible
• High initial costs
• Flat transaction fees
• All shareholders have equal status

Source A. Karolyi, Daimler Chrysler AG, the
First Truly Global Share
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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
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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
  Chryslers spot in the SP 500

Source A. Karolyi, Daimler Chrysler AG, the
First Truly Global Share
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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
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Dynamics of GRS Trading
Source A. Karolyi, Daimler Chrysler AG, the
First Truly Global Share
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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 SP 500
• Volatility of returns increased dramatically

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Trading Activity
Source A. Karolyi, Daimler Chrysler AG, the
First Truly Global Share
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Bid-Ask Spread Comparison
Source A. Karolyi, Daimler Chrysler AG, the
First Truly Global Share
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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

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Deutsche Banks 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
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Deutsche Bank (DB) Performance
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Conclusion

• Not enough companies are willing to endure the
  up-front costs of GRSs 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 GRSs very difficult
• GRSs are simpler for the average investor and
  cheaper for high volume institutional investors