BNY: What Could Growth in the Current Market Look Like?

In today’s global marketplace, tapping into the world’s most liquid capital pool requires more than just listing – it demands a compelling narrative and flawless strategy. 

Depositary receipts (DRs) offer international companies a seamless gateway to US investors, but navigating these markets requires seasoned expertise.

With nearly three decades in Equity Capital Markets – including leadership roles at Daiwa, Citi and Santander – and over a decade leading BNY’s DR advisory team, Karen specialises in bridging that cross-border divide. 

In an exclusive Q&A with Finance Chief, she discusses long-term growth strategy, encouraging international growth among businesses and what can influence investor markets.

What are some trends you have noticed in the markets recently? 

Not a trend necessarily, but a misconception in the market. We’ve seen a number of companies looking to list in the US using ordinary shares instead of DRs. 

Some of these companies are really turning into US companies, with US incorporation, US-centric revenues and US based management teams. 

For those issuers, this makes sense. For companies that remain focused on operations in their home market, it doesn’t. We see some misconceptions here – on index inclusions and on trading. Generally speaking companies are added to indices based on their domicile.

So a French company, for example, with operations primarily in France will be part of the indices in Europe, and not the US, no matter what the security type. 

Cross-border trading between the two markets is actually easier and quicker with the DR than with the ordinary share. 

It sounds odd because you wouldn’t think it would be easier, but the DR has been in existence for more than 100 years specifically to facilitate cross border trading  because cross border trading isn’t otherwise smooth. 

Cross-border trading for the DR is generally T+1. For the ordinary share, it can take up to a week to settle according to the websites of several companies who have done this. 

That loss of efficiency is the exact opposite of the trends in the rest of the markets. The ability for investors to trade across borders quickly, easily and with a well-known process drives price equivalence across markets.

What is the best solution to long-term growth in the markets? 

I don’t know that there is one best solution, but part of the solution has to be the free flow of capital and ease of investor access. 

If investors can truly make choices based on what they see as companies’ growth prospects in the markets that they operate in (their total addressable market), evaluate their durable advantage, know their management team’s strengths, then that knowledge and access will drive capital to where there is growth and opportunity. 

Being able to seamlessly add those companies to a portfolio of peers makes those choices simpler and the comparisons more direct. 

That’s what we saw with the PayPay offering out of Japan, for example. Increasing investor access drives capital to where the market sees growth. 

Similarly, I’d point to biotech issuers like BioNTech, a German company that’s a client of ours. They listed in the US to give them access to capital from the specialty biotech investors in the US who understood and could value their equity story appropriately. 

Their work on the mRNA Covid vaccine with Pfizer was groundbreaking and their vaccine was the first to be approved for regular use. 

Are there any countries that are a good example of growth? 

Anywhere there are large private companies that want to tap the public equity markets there is the potential for growth. I’d actually look at this in terms of sectors or themes instead of places or countries. 

Biotech companies, as I just mentioned, are a key segment where US investors have significant experience and expertise in understanding and valuing firms and those companies tend to look to the US capital markets to fund their growth. 

Similarly fintech companies also look to the US markets to access specialist investors as well as US retail or middle market investors who appreciate innovation and want to tap this base of investors who tend to be willing to look at earlier stage companies to fund their long-term capital plans.

In both of these cases it’s the sector and not the country that’s the theme – there are fintech companies from all over the world including Latin America, Asia and Europe that have been growing and expanding their markets and operations as private companies that are getting ready to go public now. 

Could you describe how ADRs influence investor experience, and long-term capital goals? 

It’s simple. US-listed ADRs allow foreign companies to trade in the US using a US security. They trade and settle in US dollars and pay dividends in dollars.

So US investors can hold them in their portfolios or their brokerage accounts like any other US company. 

That means that international issuers can access those investors seamlessly. Registered offerings like PayPay allowed that company to raise equity here, including from long-term, large and sophisticated US funds. 

That helps PayPay to meet its funding needs and fund its growth. 

What is the key to ensure issuers, investors, regulators and exchanges to encourage businesses to grow internationally?

I think regulators and exchanges are all focused on the right things – smooth and efficient movement of capital, encouraging large private companies to go public, disclosure that focuses on materiality so that investors understand what is driving the results of the company. 

Across markets and geographies this is the same conversation we are having: how do we best encourage public capital formation. 

It’s not one solution, but the global focus from all of those parties on trying to identify and then eliminate any roadblocks to companies going public is what we find that’s encouraging for the markets as a whole, so the key is that cross-border, open and clear conversation. 

And that’s something we are proud to be a part of every day.