The Challenges of Cross-border Trading

It’s tough being a US-only investor today. This isn’t a political comment on “Buy-American” purchasing provisions; it’s a statement of fact that if an investor is looking for exposure to most domestic economic sectors, that involves owning stakes in multi-national companies based and listed outside the US. Whether you look at the auto industry (Japan, Germany, Italy, India), raw materials (Australia, UK, Russia, Canada), consumer goods (UK, Holland, Switzerland), or electronics (Hong Kong, Taiwan, Korea, Finland), it is hard to invest in market share leaders without getting involved with foreign companies.

So what’s the best way for Americans to invest in non-US companies? As usual, there is no single “right” answer. Many would say one should trade directly in the foreign company’s local market where price discovery and liquidity are (theoretically) greatest. Others would advocate using American Depositary Receipts (ADR) to build these positions, which offer exposure to the underlying foreign shares while being traded, cleared and settled efficiently and transparently on US exchanges in US dollars.

As we have come to expect from these either-or scenarios, the answer lies in both solutions. Traders should be able to access the prices and liquidity where it resides: the home market, an MTF or the US listing. And then, once the position has been acquired, the firm can make a separate decision about how to settle and hold those securities. That means having the ability to convert foreign ordinary trades into ADR shares and vice versa, either through depositaries’ ADR desks or one of the many cross-books that allow counterparties with different preferences to match with each other.

The good news is that today’s trading systems enable traders to find the greatest quantity of shares at the best prices. SunGard’s solutions for trading allow traders to see and compare the current prices for the foreign shares across multiple markets and available US depository shares.

To learn more about how SunGard’s solutions for trading help the sell-side out perform their client’s expectations in cross-border trading, email us at  trading-info@sungard.com.