What is Global Registered Share (GRS)
A global registered share (GRS, or Global Share) is a security that is issued in the United States but is registered in multiple markets around the world and trades in multiple currencies. With GRSs, identical shares may trade on different stock exchanges and in various currencies across country borders without needing to be converted into local currencies. All holders of GRSs, as with any other shareholder, have equal rights — such as voting, percentage of dividends, and so forth — in the issuing corporation (issuer).
Breaking Down Global Registered Share (GRS)
Global registered shares are similar to ordinary shares except that investors can trade them on stock exchanges around the world in many currencies. For example, if a publicly traded company issues shares in dollars on the New York Stock Exchange (NYSE) and issues the same security in pounds on the London Stock Exchange (or vice versa), then it is issuing global shares.
Similar to, But Different From…
- Global shares are different from the more popular international depository receipts (IDRs). IDRS are negotiable certificates issued by a bank that represent ownership of stock in a foreign company held by the bank in trust.
- In the United States, IDRs are known as American depository receipts (ADRs). The main difference between ADRs and global shares is that ADRs are issued only by U.S. banks for foreign stocks that are traded on a U.S. exchange. The underlying security of an ADR is held by an overseas branch of an American financial institution rather than by a global institution. ADRs have become known as efficient ways to buy shares in a foreign company and obtain any dividends and capital gains in U.S. dollars. J.P. Morgan created and launched the very first ADR for London’s famed department store Selfridges PLC, whose founder, Harry Gordon Selfridge, himself was American. This first-ever ADR was listed on the New York Curb Exchange —precursor to the American Stock Exchange (AMEX) — on April 29, 1927.
- In Europe, IDRs are known as global depositary receipts (GDRs). GDRs are bank certificates that are issued in multiple countries for shares in a foreign company. The shares of a GDR trade as domestic securities that represent a foreign (non-U.S.) interest. GDRs may be used by private markets to raise capital that is denominated in either American dollars or euros.
Global Shares — A Brief History
- Reign of the ADR. Foreign issuers have been keen to list securities on the NYSE from its earliest days, and to register them with the Securities and Exchange Commission (SEC). Listing stock in the U.S. makes sense for foreign companies because it offers enhanced scope and liquidity by increasing the number of potential purchasers of the shares being offered. For foreign companies that already have a large number of shareholders, substantial assets, or operations in the United States, the need for a U.S. listing is even more pressing.
- But they don’t make it easy! Listing securities in the United States has never been stress-free for non-U.S. companies. To start, foreign companies incur huge initial — and extensive ongoing — costs when listing in America. Then, they need to restate their financials in accordance with U.S. Generally Accepted Accounting Principles (GAAP); or be prepared to discuss and quantify the material differences between the accounting principles of their home country and U.S. GAAP. Moreover, these issuers become subject to continual reporting requirements. They also are faced with certain rules about how they may conduct their business, including limitations in dealing with the press — even in their home countries!
- Birth of the GRS. The German company DaimlerChrysler Aktiengesellschaft (AG) is a perfect example of a large foreign corporation that does have substantial shareholders, assets, and operations in the United States, as well as American roots. Naturally, DaimlerChrysler would want a large presence in the U.S. The rub for German companies is that bearer shares are the prevalent share type issued in Germany; but bearer shares are not allowed on the NYSE. So, DaimlerCrysler and other German companies have used ADRs to list their securities on the NYSE, which can be a lengthy process. At a certain point in DaimlerChrysler's operations, trading in the U.S. became especially critical for the company, and it sought a tool more expeditious than ADRs. Hence, DaimlerChrysler actually created the global share! In November 1998, DaimlerChrysler became the first non-U.S. corporation to list GRSs on the NYSE. How did they do it? Although it is true that bearer shares are more common in Germany, the German Corporation Act, Handelsgesetzbuch (HGB), originally authorized that companies could issue either bearer or registered shares. Seizing this option, DaimlerChrysler created the concept of a "global share" — which is simply a registered share — so that it could trade on the NYSE.
Benefits of GRSs
A Global Share allows for cross-market portability, while generally costing less than other instruments of its type. Because of increasing globalization, securities might trade in multiple markets going forward, which could make the concept of ADRs less valid, but would make GRSs more attractive. As trading moves toward a round-the-clock timetable, various stock markets and clearing houses could consolidate, which would make global shares more convenient. Moreover, the regulatory structures of different markets could become more aligned, which would make it less necessary for securities to comply with different local regulations. Finally, a global fungible security is likely best suited to track liquidity around the world.
Slow to the Start; Fast to the Finish Line?
Well, maybe. Even with their potential benefits, very few GRSs have been launched since they appeared on the finance scene. Most companies that list securities in the U.S. want access to the broadest range of U.S. investors possible. Some securities experts believe that moving from an ADR to a GRS would do just the opposite — reduce liquidity instead of enhance it. Another potential problem is whether the global trading system would be able to handle widespread trading of GRSs because — despite consolidation in the industry — trading still is influenced by regulatory bodies that are national, not international. Before a global share can be launched, operators of the home country's clearing houses must work closely with a U.S. counterpart — as did DaimlerChrysler in 1998 — in order to harmonize their listing requirements with the SEC. New structures would need to be built one country at a time. Some critics believe that the cost of creating GRS programs would be too great, thus offsetting any benefits; and that too much would need to change too fast in order for GRSs to work effectively in the near term.
Yet proponents of global shares say that it is only a matter of time before more businesses replace their ADRs with a single global security, mainly because of how cheap they are to trade. According to the NYSE, trading fees on ADRs tend to cost between three and five cents per share traded. In contrast, global shares cost a flat $5.00 per trade — no matter how many shares change hands!
There is always comfort in the familiar. ADRs have enjoyed a long, lucrative history, and they continue to be U.S.-based investors' tool of choice for listing foreign stock in America. Although no one knows what may come of GRSs as a trading tool going forward, the comfortable tradition of ADRs, combined with the problems of balancing local market regulations with U.S. rules, could well deter finance managers from issuing quantities of global shares any time soon.