Creditex establishes platform for ADRs
Creditex, a trading platform for credit derivatives, is launching an online market place to enable dealers to swap American Depository Receipts (ADRs) and the respective underlying ordinary shares (ORDs) of foreign stocks.
The company says ADR Swapbook will be the first platform to enable market participants to see swap information electronically in a centralised location and to make anonymous exchanges of economically equivalent ADR and ORD positions.
ADRs, which are dollar-denominated certificates representing ownership in a non-US company that typically trade on an exchange, make it easier for US investors to purchase shares in foreign companies because they eliminate things like FX transaction costs and non-US custodial expenses.
More than 2000 companies have issued ADRs, which are also traded for liquidity reasons. Industry estimates suggest that the market has grown more than 300% in the past five years and that it will continue to expand.
Users of the Swapbook will be able to post a swap request or match a need against another swap listed on the site, in effect creating an ADR and ORD trade of equal dollar value. As far as possible, Swapbook automates transactions, but users will also be able to interact with voice brokers who will close the trades and assist in the confirmation and settlement process. Creditex says that the platform has a lower fee structure than traditional ADR/ORD conversions.
Improved bridge from Clearstream and Euroclear
Euroclear Bank and Clearstream International are to develop an automated daytime bridge between the two international central securities depositories (ICSDs). The bridge is an electronic communications link that facilitates the efficient settlement of securities transactions between counterparties between Clearstream Banking Luxembourg and Euroclear Bank. It will supplement the existing overnight electronic bridge and replace the manually operated daytime bridge that currently links the two ICSDs.
The partners say it will substantially improve the existing infrastructure by extending instruction deadlines and allowing same-day bridge transactions.
The launch is timetabled in two phases during 2004. Phase one of the upgrade, scheduled for June, will improved the settlement efficiency of bridge transactions in general.
Users will be able to settle a larger number of securities transactions by being able to re-deliver securities from many more local markets across the bridge during the day. The extended opportunities to settle transactions that failed during the overnight process should enable clients to reduce financing costs. The partners say there will also be a reduction in and better control of the risk exposure between the ICSDs for bridge transactions.
Phase two, planned for November 2004, will enable same-day settlement of trades over the bridge, in particular repo and securities financing transactions between ICSD counterparties.
This stage will extend bridge input deadlines into the daytime (from 20.30 the evening before settlement to 13.30 on settlement date) and will provide the means for same-day distribution of new issues during the daytime over the bridge. The second stage should also bring further cost and settlement efficiencies by enabling users to repair previously unmatched instructions.
