Demand continues for unsponsored ADRs
Jan 19, 2009
Investors handing wish lists of stocks to depositary banks
The number of unsponsored American depositary receipt (ADR) programs continues to rise as banks respond to demand from specialist US investors.
More than a dozen new programs are being launched each week, taking the total number set up since October last year - when the SEC relaxed its reporting rules for ADRs - to more than 1,100.
The rule change made it possible for banks to establish ADR programs without the involvement of the issuer of the underlying shares.
Of the four depositary banks, the Bank of New York Mellon (BNY Mellon) has been the most active, creating around 700 of the unsponsored programs. Deutsche Bank is responsible for about 300.
‘The flood that followed the rule change is now a trickle, but we’re still setting up new programs every week,’ comments Jason Paltrowitz, vice president of the depositary receipts division at BNY Mellon.
Much of the demand is coming from the managed account business, which offers private investors access to personalized investment accounts run by professional money managers.
Some managed accounts try to mimic the portfolios of institutional investment firms, which often contain non-US stocks. ADRs allow this replication to take place in a cost-effective way.
In addition, managed accounts allow clients to customize their portfolios, further adding to the requests for new ADRs.
‘Our portfolio managers are very happy about the unsponsored ADRs,’ says Kevin Miller, senior vice president at BNY Mellon Asset Management. ‘They have enabled us to put our best investment ideas and products in front of our clients.’
Not everyone has been happy about the new programs, however. Some IROs have expressed irritation after unsponsored programs were created without their approval.
This is because unsponsored programs can complicate IR, as depositary banks are under no obligation to pass along shareholder communications or exercise voting rights, lawyers warn.
When questioned by IR magazine, depositary banks insist they do not set up unsponsored programs against the wishes of companies. ‘If an issuer categorically says it doesn’t want one, we’ll not set one up. Or if we have already set it up, we’ll terminate it,’ explains Paltrowitz.
‘Our approach has always been to consult issuers beforehand,’ states Tom Murphy, vice president and transaction manager for depositary receipts at Deutsche Bank. ‘If they object to us establishing an unsponsored program, we simply will not do it.’
By Tim Human