Canadian Depositary Receipts- CIBC’s innovative stock trading product for 🇨🇦 Canadian investors
Opinions expressed are solely my own and do not express the views or opinions of my employer or any other financial institution.
An introduction to Depositary Receipts
According to Investopedia, a depositary receipt (DR) is a type of negotiable financial security that allows investors to hold shares in a foreign public company. They are represented by a physical certificate and trade on national stock exchanges. Learn more.
Canadian Depositary Receipts™(CDRs) are designed to make it easier for Canadians to access the most popular publicly listed US companies, in Canadian Dollars, and with a built-in currency hedge.
Why are Canadian Depositary Receipts™(CDRs) important for 🇨🇦 Canadian investors?
Canadian Depositary Receipts™(CDRs) are designed to be more inclusive and accessible to retail investors. Some of the key features of CDRs:
- Buy foreign company (U.S.) stocks, in Canadian dollars — CDRs represent shares of global companies but are traded on a Canadian stock exchange, in Canadian dollars.
- Built-in currency hedge (Canadian dollar, CAD) — returns depend on the performance of the underlying shares — regardless of currency fluctuations.
- Fractional ownership — investing in the world’s top companies is more accessible to the average retail investor.
Who is offering the Canadian Depositary Receipts™(CDRs) to access shares of foreign listed companies in 🇨🇦 Canada?
CIBC Capital Markets, Canadian Depositary Receipts™(CDRs) — https://cdr.cibc.com — a first of its kind for Canadian investors on cross-border investing with built-in currency hedging, allowing you to own the company, not the currency. Canadian Depositary Receipts (CDRs) launched by CIBC Capital Markets are traded on NEO Exchange.
CDRs is an innovative financial instrument that allows CIBC Capital Markets to offer a more accessible investment product to Canadian retail investors, financial advisors, and institutional investors. By investing in CDRs investors get the ability to grow their high-growth US equity portfolios without the exposure to currency fluctuations. By offering CDRs, CIBC generates profits by managing the notional currency hedge through daily adjustments to the “CDR Ratio” — the specific number of shares that each CDR represents. You can find all CIBC’s official resources and FAQs here — https://cdr.cibc.com/#/resources
What is the difference between CDRs and US shares?
Image source: CIBC webinar with NEO Exchange on CDRs
Which stocks can you invest in as a CDR?
A list of all the stocks that you can invest in with CIBC CDRs can be found here — https://cdr.cibc.com/#/cdrDirectory
As of this writing, CIBC is offering 23 of the world’s top company stocks (mostly all U.S. for now) as CDRs and more companies are added frequently. You can submit new tickers to the CDR issuer from NEO Exchange’s CDR page.
How can you invest in CDRs?
Investors can trade CDRs through their usual investment channels, including discount brokerage platforms and full-service dealers. You can find a CDR ticker just like you would look up a standard stock ticker.
Image source: CIBC webinar with NEO Exchange on CDRs
See the below example on how to buy CDRs with RBC Direct Investing —
Step 1 — If you want to buy Apple CDR (CAD Hedged), i.e. the Apple stock, then search for its’ CDR ticker (AAPL), which in this case is the same as the underlying Apple stock ticker (AAPL). From the CIBC CDRs directory above, you’ll find that most CDR tickers and underlying stock tickers are the same.
Step 2 — Once you click on the CDR ticker, you will find all the necessary trading details like normal company stock. The most important identification of the CDR is where it is traded — NEO Exchange and its’ minimum fractional cost in Canadian dollars (CAD). As of this writing, for example, Apple CDR (CAD Hedged) ticker AAPL is trading at $23.98 CAD, this allows you to invest in actual Apple stock trading on NASDAQ, ticker AAPL at $157.28 USD.
Canadian Banking Incumbents — Better Late Than Never
I have previously written about how Canadian Neo Banks are NOT really challenging the incumbent banks yet (article link). Launching new financial products is hard and according to CIBC’s Elliot Scherer (Managing Director & Head of Sales, Wealth Solutions Group), it took their team almost 3 years to launch CDRs back in 2021 (source, CIBC webinar with NEO Exchange). CDRs are complex financial instruments and the technology behind them needs to function properly for their success.
I also highlighted that WealthSimple was the first Canadian fintech company that helped stock investments more accessible through fractional trading on limited stocks. But now with CDRs, CIBC Capital Markets has made a giant step forward toward a more accessible and inclusive investment product for the retail investors. CDRs offer fractional trading, are available in Canadian dollars, and have a built-in currency hedge.
Now, as a next step, what we all need from incumbent banks in Canada, is commission-free stock trading.
Sources -
- CIBC & NEO Exchange webinar on CDRs — https://youtu.be/qmWtGZ3giZg
- NEO Exchange — https://www.neo.inc/en/services/raising-assets/canadian-depositary-receipts
- CIBC Capital Markets — CDRs — https://cdr.cibc.com/
