For many international companies, the successful listing of their security represents an important milestone. It’s a sign of recognition, prestige and success, demonstrating to the market a desire to be open and transparent. There are many reasons why a company may choose to list its shares – to raise capital, increase its valuation and diversify its shareholder base. But many companies are unaware that there are limitations as to what can be achieved by solely listing in their home (primary) market. Many do not realize that U.S. investors are often unwilling or unable to invest in foreign markets, and that the information they disclose locally may not be widely-available in the U.S. So, what is the best way to bridge this gap and access the world’s largest market for capital expansion and growth? Cross-trading.
Access to U.S. capital markets increasingly important for foreign issuers
As access to the U.S. Capital Markets has become even more important for foreign issuers, companies need to determine the most efficient and effective way to expand their investor base. Cross-trading on a secondary market enables companies to establish a U.S. footprint and access a U.S. shareholder base. Many U.S. investors prefer to see quotes in U.S. dollars during their regular trading hours.
To provide this access and to facilitate trade reporting, broker-dealers request the trading symbols or tickers of foreign securities in the U.S. These ticker symbols are 5 letters long and end with either the letter “F” or “Y.” Tickers that end in “F” are the ordinary shares of a company. In most cases, they trade and settle in the local market but are quoted in U.S. dollars for investors. Many jurisdictions allow for F shares to settle within the U.S., making it even more advantageous for U.S. investors. Shares that end in “Y” are American Depositary Receipts (ADRs). An ADR represents ownership in the shares of a non-U.S. company that trades in U.S. financial markets. An ADR program issues American Depositary Shares (ADS) which carry prices in U.S. dollars, pay dividends in U.S. dollars, and may be traded like the shares of U.S.-based companies.
More than 2,000 companies with primary listings on more than 30 global markets, such as London, Frankfurt, Paris, Madrid, Milan, Toronto and Tokyo have an F share or an ADR trading on OTC Markets.
What are the benefits of cross-trading?
There are numerous benefits to Cross-Trading in the U.S:
- SEC reporting exemption (Rule 12g32b)
- Diversifying your shareholder base
- Making your financial information, research, pricing and risk assessment more broadly available to U.S. investors
- Appealing to those investors who prefer securities traded domestically ($USD)
- Enhancing visibility among broker dealers by supporting broker and sell-side compliance
A national exchange, such as NYSE or Nasdaq, may be perceived to be the natural home and fit for foreign issuers looking to access a deep pool of institutional investors. However, foreign issuers are subject to U.S. exchange requirements and different accounting standards that can become duplicative, time-consuming and cost-prohibitive for global IROs with limited budgets. On the contrary, cross-trading on the OTCQX or OTCQB market allows a company to leverage its existing reporting standards to make its disclosure available in the U.S. The simplified requirements to trade OTC are less-resource intensive, require fewer expensive experts and come with less risk.
Synergies among OTC Markets and a National Exchange that create opportunities for enhanced liquidity
Cross-trading also presents global markets and those in the U.S. with reciprocal opportunities for issuers to enhance liquidity in both their home market and abroad, as evidenced in a recent study by Oxford Metrica. On average, companies experience a home market liquidity increase of 28% and an OTC Market increase of 37% after joining the OTCQX Market. This provides international issuers with an alternative, cost-effective trading environment in which to raise capital, increasing the effectiveness of investor relations programs and further build global investor awareness.
In addition to the positive impact of enhanced liquidity in both the home market and on the OTC Market, a first-of-its kind strategic alliance between OTC Markets Group and the Canadian Securities Exchange (CSE) demonstrates the synergies that can be created between a national exchange and OTC Markets Group. Our collaboration with Canadian Securities Exchange CEO Richard Carleton validates that international issuers benefit from secondary trading on OTC Markets’ OTCQX Best Market/OTCQB Venture Market. Investors and the broker dealer community gain greater access to a breadth of financial information, increased global investing opportunities and more efficient trading.
“We see first-hand the value created for companies that choose to cross-trade on OTCQX. These companies experience greater liquidity in the Canadian Market while also increasing their percentage of US ownership.”
– Richard Carleton, Chief Executive Officer, Canadian Securities Exchange
Fundamentally, cross-trading provides a more turnkey approach and a unique opportunity for international companies seeking to bridge the gap and broaden their global reach– paving the way for capital expansion and growth opportunity.