2020-05-04 Meeting notes
- Elisa Kendall
Date
Attendees
- Former user (Deleted)
- Ian Maung
- Christopher Regan (Unlicensed)
- Pete Rivett
- @Scott Orchard
Agenda
1) Use Case reminder
2) Where we are on our road map.
3) Open Action Items
4) JIRA Issues Review - https://jira.edmcouncil.org/projects/SEC/issues/SEC-7?filter=allopenissues
5) Todays content discussion.
SMIF OWL-UML
SKOS
RDF/S
6) For next week.
Proceedings:
Today we discussed next steps with respect to representing the CFI classification of equities, which led to a discussion of depositary receipts. We should have at least 3 classes of depositary receipts - global, American, and European, possibly others. See email of 9-13-2019 from Pete with some content.
There are two broad categories of ADRs: Sponsored ADRs are created by depository banks working in collaboration with the issuer. Sponsored program ADRs trade on either a U.S. stock exchange or in the U.S. over-the-counter, or OTC, market.[7] Unsponsored ADRs, on the other hand, are unilaterally established by a depository bank without the issuer’s involvement — typically in response to or in anticipation of U.S. investor demand — and usually only trade OTC, as was the case for Toshiba.
One primary difference between the two types of ADRs is where investors can buy them. All except the lowest level of sponsored ADRs register with the SEC and trade on major U.S. stock exchanges. Unsponsored ADRs will trade only over-the-counter. Also, unsponsored ADRs never include voting rights. From Ian - Bayer (German company) ADR trades in NY, and the shares are voting shares, meaning, they must be sponsored.
ADRs are also typically categorized into three levels by market participants, based on the extent to which the foreign company has accessed the U.S. market: Level 1 ADR programs — the only level for unsponsored ADRs — establish a trading presence on the OTC market, but may not be used to raise capital. Again, the Toshiba ADRs were Level 1 ADRs. Level 2 ADR programs establish a trading presence for the sponsored ADRs on a national securities exchange, but cannot be used to raise capital. Level 3 ADR programs are used both to establish a trading presence for the sponsored ADRs, and to raise capital for the foreign issuer.
For an ADR that is issued in another country, the investor bears the risk related to currency, both the currency risk related to the price and related to any dividends.
If a foreign organization issues stock in the US in US dollars, then the question of exposure depends on whether the dividend is announced in Euro or the dividend is announced in dollars. If the latter, then the company bears the fx exposure.
The trustee bank that holds the foreign shares backing an ADR will collect dividends paid in foreign currency and convert them into U.S. dollars to be paid out to the U.S. shareholder. Due to currency fluctuations, investors won't know the dividend amount until the actual payment date.
We also identified a couple of gaps - in FND, a written contract is missing the concept of governing jurisdiction. In FBC, financial instrument should be legally recorded in exactly 1 jurisdiction (currently a restriction on security), and we are missing the concept of the currency it is issued in (although we have that on listing). An ADR will be issued in a currency that is likely, but not always, distinct from the original instrument - depending on the issuing bank.