Two European CDRs from BMO – Mercedes-Benz AG and Nestlé SA – will start trading Feb. 6 on the Cboe Canada exchange. BMO will then launch three Japanese CDRs, including Toyota Motor Corp., Honda Motor Co. Ltd. and Nintendo Co. Ltd., on Feb. 10.Sean Kilpatrick/The Canadian Press
Competition is coming to the Canadian Depository Receipt market.
CDRs, which allow investors to purchase a fraction of a share of a more expensive stock in Canadian dollars, have until now been offered only by Canadian Imperial Bank of Commerce. But on Thursday, Bank of Montreal BMO-T is set to announce plans to launch its own CDR lineup.
Two European CDRs from BMO – Mercedes-Benz AG (MB) and Nestlé SA (NEST) – will start trading Feb. 6 on the Cboe Canada exchange (formerly known as the Neo Exchange). BMO will then launch three Japanese CDRs, including Toyota Motor Corp. (TOYM), Honda Motor Co. Ltd. (HNDA) and Nintendo Co. Ltd. (NTDO), on Feb. 10.
All of the CDRs currently available in Canada are major U.S. companies such as “the Magnificent Seven,” referring to Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. But CIBC announced plans earlier this week to add five European CDRs to its lineup, with Allianz SE, BMW AG, Mercedes-Benz AG, SAP SE and Siemens AG set to begin trading Friday on the Cboe Canada exchange.
BMO will be the first issuer to offer Japanese CDRs, though the bank is planning a rapid expansion of its own lineup.
“We filed for up to 30 to start and I hope to have that rolled out by the spring,” David Hudson, head of structured solutions at BMO Global Asset Management, said in an interview. “We will continue to roll it out in waves depending on market timing and our own processes here, but we are looking to be pretty efficient.”
Mr. Hudson, who joined BMO in 2022 after having previously worked on the CDR team at CIBC, said retail investors should benefit from more choice in the market.
“We love that there is more than one issuer now doing this because it means there will be more innovation in the space,” he said. “You may see different issuers go in different directions with things, but right now it is important for investors just to have choices.”
CIBC, which will have a total of 70 CDRs trading as of Friday, makes money on the CDRs it develops and manages by charging small fees from the foreign exchange transactions it makes to manage that currency hedge. However, those fees are capped at 60 basis points or 0.6 per cent on an annualized basis for U.S. CDRs, and 80 basis points or 0.8 per cent on an annualized basis for global CDRs.
BMO has adopted a similar business model, though its own fees for global CDRs will be capped at 60 basis points or 0.6 per cent on an annualized basis, Mr. Hudson said.
Canadian banks typically charge investors conversion fees of more than a full percentage point to buy stocks denominated in non-Canadian currency.
Those lower fees are part of the reason why CDRs have become extremely popular since CIBC first introduced them in 2021. Buying in Canadian dollars provides a natural hedge against exchange-rate volatility.
CDRs are also far more affordable for investors who want direct exposure to some of the world’s largest public companies. While buying a full share can cost the equivalent of several hundred Canadian dollars, BMO is planning for its first CDRs to start trading at $10 each and CIBC’s CDRs range from less than $7 to nearly $50 apiece.
Mr. Hudson said the CDR market today is comparable to where exchange-traded funds (ETFs) were in 2012.
“If you go back to 2012 and said there was going to be 3,000 ETFs, it is not something you could have foreseen,” he said. “I am very optimistic about where this world of CDRs is going. It is going to continue to grow and there is going to continue to be innovation.”