Execution technology provider ConvergEx has reported record growth in its American depository receipt trading (ADR) owing to increased availability of instruments.
During 2010, ConvergEx has reported that 50 new clients have become users of its ADR offering and revenues have grown by 35%.
ADRs are derivative instruments issued by investment banks to buy-side firms that trade outside of an issuer's home market, with each representing a specific number of stocks in a foreign listed company. They are favoured by some institutions because they allow them to avoid the costs and custody issues that can arise when trading in emerging and frontier markets.
“One of the main things that galvanised the ADR market was a rule change made by the SEC in 2008 for banks to create ADRs without the involvement of the non-US listed company,” said Andrew Levine, managing director and head of ConvergEx's ADR business. “This led to a doubling of the ADR supply in just a couple of years. Our existing client base grew naturally as they had more ADRs to choose from and more institutions were able to enter the market.”
ConvergEx's ADR product suite has been available since 2003 and consists of three tools.
ADR Direct allows clients to trade ordinary shares overseas, convert them into ADR format and receive a net ADR price in US dollars in real-time, settled in the US.
ADR Plus is an algorithmic strategy that allows clients to source liquidity for ADR trades in both US and overseas markets. ADR Plus automatically converts trades to and from ADRs on behalf of clients.
Reverse ADR allows investors to extend trading for certain markets into US market hours by trading stocks via ADRs in the US, receive a local currency conversion price and settle the trade using the local currency and settlement cycle.
The firm will continue to develop its Reverse ADR technology in 2011 and plans to add new emerging and frontier markets during the course of this year. However, Levine notes that this can sometimes be a long process for markets that do not have electronic trading capabilities as it makes the conversion process impossible.
ConvergEx received a patent for the conversion technology used in its ADR trading tools on 15 September 2010.