Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Big plans for Deutsche’s new TraCRs
Chi-X and Deutsche Bank are hopeful of having between 25-50 US stocks on their new TraCRs system for Australian investors within the next 12 months, following last week’s launch of five securities and immediate plans for a further five by the end of this month.
TraCRs enable investors to buy the equivalent of a US stock through the Australian exchange. It is more efficient and cost effective than buying the same stocks directly, Deutsche says.
At a briefing in Sydney, Chris Bagley, Deutsche’s head of depositary receipts for Australia and New Zealand, said that while the growth would be driven by demand “our wish is that they will be very successful and we have 25-50 by this time next year”. He expected initial interest from individual investors but that longer term institutions would also use the system.
The securities took nearly three years to develop, involving a partnership between Deutsche, Chi-X, registry service Link Group and regulators ASIC and the ATO. One of the biggest hurdles was satisfying the continuous disclosure regulations, which has been done with a comprehensive local website that incorporates all announcements and SEC filings from the US stocks.
Jeff Margolick, New York-based head of strategic solutions for Deutsche, said the TraCRs were very similar to American Depositary Receipts, which enabled US investors to gain exposure to Australian companies, for instance. That market had been in existence since 1927 and accounts for about US$2 trillion of US$7 trillion in stock market trades.
“Investors only local brokerage and no overseas custody,” he said. Foreign exchange costs, which can be very high for individual investors, were at wholesale rates which were a fraction of the cost.
Deutsche and Chi-X would also like to introduce European and Asian stocks to the system in due course.
From the registry perspective, Lysa McKenna, the chief executive of Link Market Services Australia, said that the company had worked for “a couple of years” on the new platform to ensure that the securities remained simple from the investor’s view. All the complexity to do with the calculations was underneath.
TraCRs are more like active ETFs than other listed investments, in terms of registry, because of the open-ended nature of the issuances and cancellations.
– G.B.
