Old tools for a new globalization

Old tools for a new globalization

What is the essence of depository receipts (DR) as a tool for facilitating the movement of capital in the stock market? The authors describe their main advantages and disadvantages from the standpoint of both investors and issuers. Paper, the basic concepts of DR types, their common features and differences, according to the standards adopted in the United States. For the first time Market Depository Receipts is seen as a project, whose goal - to provide workers in the U.S. market investors access to the best securities issuers.

The market is very straightforward
So too is arranged in capital markets that, for reasonable recovery of indexes they want growth or the global economy, the economy or a particular country. Investor typically not interested in economic growth in the world system, or a single region, as such, a specific market, where its capital.

While many look at the movement of prices in capital markets through the prism of economic growth, all are interested in more specific indicators for certain groups of securities or currencies. If the investor is not satisfied with market returns or riskiness of operations, he can leave. In doing so, the investor will have to answer at least two questions:
- How to close the position with the least loss?
- How to eliminate the position from the funds?

Unfortunately, the answers for the most part, will not depend on the investor or the market situation and the degree of freedom of the national stock market. Someone understands the freedom of impunity, someone - like the removal of administrative pressure on the market, but the investor will be determined by degree of accessibility of various categories of financial instruments. On many trading floors CIS battle today is for "good" companies.

Mitigation of the listing conditions, improving trade infrastructure, the professional market participants, the development of stock market derivatives - this is just the beginning of competition between trading venues for the "good" issuer, which often ends monopolization of trade infrastructure. At the beginning of last century, Americans and Europeans, and today, decided to change the approach to the problem of bringing to market new "good" companies. The essence of it was to attract companies from other, less developed markets. With this logic, the American investors, financial intermediaries and regulatory authorities came to a consensus, which emerged and the market depository receipts.

Depositary receipts in most countries whose legislation authorizes the issue of these instruments is defined as derivative securities. It shows that in favor of the owner of a receipt in the country of the issuer obezdvizheno a certain number of securities. The appearance of such, at first glance a simple tool was due to increased capital flows between the English-speaking countries: the United States, Britain and their colonies. In 2002 marks 75 anniversary of the release of the first depository receipts in the U.S. (American Depositary Receipt - ADR). Legally enshrined the distinction between the ADA and ADRs (American depositary shares). One ADR includes a few shares, or any part of the action. When it comes to ADA, it means the equivalent of one share issuer in the form of depository receipts (DR). For example, often companies from Western Europe reported dividend payments in U.S. dollars than one ADR, and one ADA to shareholders in the U.S. was more convenient to compare them with payments in Europe. If a DR has one share issuer, the notion of hell and ADRs match.

Since mutual interest
Depository receipts are a number of advantages. From the perspective of the issuer is:
- Getting companies from developing countries access to markets in the U.S. and EU countries. This helps to attract sufficient capital and simultaneously reduce the dependence of the issuer of the environment and the development of national market shares;
- Dissemination of information about the company in the international financial market will inevitably lead to the expansion of its business contacts and attract new partners and potential customers;
- Improving the image of the national market for the issuer in connection with access to international capital market;
- Virtually unlimited, with the competent host, the possibility of raising capital. In doing so, companies with emerging markets is becoming a very important effect of the difference scale. It appears that little to American or European foreign investors, the amount could have a decisive impact on the promotion of the company or bank in emerging markets;
- Simplification of contact with investors in the United States, based on the standardization of reporting issuers from around the world before U.S. regulatory authorities.

These advantages for the release of DR issuers will be possible only by investors with an interest in this market. They agree to buy receipts for shares of the company, because:
- Investors in developed markets need to diversify their investments, investment funds, banks, trusts are looking for markets that are already sufficiently developed but not yet integrated so as to depend on developments in major markets;
- DR denominated in U.S. dollars or in euro, dividend payments are also in hard currency. Although the issue receipts in U.S. securities denominated in Russian rubles, not relieves investors from currency risk, but also eliminates the need for currency conversion and repatriation of dividends, which is of great importance;
- If the company came to market DR, investors perceive it as the leader of the national stock market (although the success of a direct placement of DR on the market initially determined by popular national market among investors in the United States and EU countries).

Types of Depository Receipts
According to generally accepted norms, DR divided into sponsored and nesponsiruemye. By nesponsiruemym receipts are those initiated by the release was a shareholder, a group of shareholders or prospective investor. By the issuance of such Receipts in the United States have established minimum requirements in terms of accountability, but they are not allowed in the formal market and traded on the OTC market (OTC).

Issue nesponsiruemyh receipts to be in a situation where the shareholders of the company sees prospects for the sale of its shares on the market of the United States or Europe. Sam issuer does not participate in the release of DR, but because the shareholder has a sufficient level of freedom. In Ukrainian and Russian working conditions is very important that after the initiation of a shareholder (investor) release nesponsiruemyh Receipts issuer is difficult to identify the real owners of shares, and hence the distribution of votes at the shareholders meeting can be a surprise for all participants.

Nesponsiruemye DR can be applied in the privatization. In this case, the State as a shareholder initiates the release DR. But the efficiency of such privatization is questionable, especially if it is not a commodity company. Large investors and without DR may buy shares of companies to be privatized, but the minority shareholders deters uncertainty. Sponsored DR much more prevalent, because they can attract new capital. The initiator of the release sponsored Receipts must be the issuer.