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CDRs mimic various U.S. stocks, but trade in Canadian dollars on Toronto’s NEO Exchange – often at a fraction of the price of shares on the New York Stock Exchange or on Nasdaq.Fred Lum/the Globe and Mail

Investors have embraced Canadian depositary receipts linked to U.S. stocks since Canadian Imperial Bank of Commerce launched the new securities in July, and their success could pave the way for access to more U.S. companies.

Canadian depositary receipts (CDRs) are financial instruments that mimic various U.S. stocks. However, they trade in Canadian dollars on Toronto’s NEO Exchange – often at a fraction of the price of shares on the New York Stock Exchange or on Nasdaq.

That can make the securities appealing to small investors who perhaps can’t afford a single share of Inc. , balk at currency exchange fees or don’t want exposure to the fluctuating value of the U.S. dollar.

“I think the motivation for CIBC is that it can attract retail investors in Canada,” said Shi Li, a professor of finance at Carleton University’s Sprott School of Business in Ottawa, in an interview.

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According to Elliot Scherer, the managing director and head of sales within the wealth solutions group at CIBC Capital Markets, retail investors were indeed the earliest adopters of CDRs. But the bank is seeing interest among investment advisers and hopes to attract institutional investors as its roster of CDRs expands.

“We’ve been saying, ‘Tell us what other CDRs would you like.’ And the feedback we’ve received from clients has been quite strong,” Mr. Scherer said in an interview.

There are now 18 CDRs available – a considerably faster rollout than the original expectation of 12 to 15 within the first year.

Canadian investors have access to many of the highest-profile companies in the United States, from Amazon, Apple Inc. and Google parent Alphabet Inc. to Pfizer Inc. , Walt Disney Co. and JPMorgan Chase & Co. .

Mr. Scherer said CIBC’s CDRs now have $325-million in assets under management.

Trading volumes have also been rising, he said. In the first couple of months, the value of trades averaged about $5-million a day. Over the past six weeks, the average volume has more than tripled to $17-million a day.

“So that’s obviously a sign of growth, especially considering that December is a quieter period, from a trading-volume perspective,” Mr. Scherer said.

He also pointed out that the number of individual client trades has exploded since the debut of CDRs. At the start, there were about 300 a day, but the number has since risen to more than 5,000 a day.

CDRs may have found a market among investors who don’t want to mess with foreign exchange. Their low prices can also be attractive. After several months of trading on the NEO Exchange, the average price is still less than $25, compared with US$3,390 for one Amazon share trading on Nasdaq and US$2,855 for one share of Alphabet (in mid-December).

While the difference in price has nothing to do with value, the lower-priced CDRs may appeal to investors with small budgets or those who want to fine tune their exposure to a company with relatively small, incremental purchases or sales.

As well, the lower prices can appeal to investment advisers who employ model trading but can’t distribute fractional shares across smaller accounts.

While CDRs are often compared with American depositary receipts (ADRs), there are significant differences between the two. ADRs are issued by global companies looking for a wider investor base. They tend to tout rigorous U.S. governance standards, which can contribute to higher stock valuations.

“With CDRs, the motivation is different,” Mr. Li said. The securities are issued by CIBC, they are limited to U.S. stocks (for now) and with the purpose of providing flexibility to retail investors.

Still, CIBC is hoping it can attract institutional players as well, such as active money managers, as the selection of CDRs expands.

“The conversations we’ve had are: ‘Call us when you’ve got 50 CDRs,’” Mr. Scherer said.

“They are going to basically wait for us to have a more fulsome lineup. We are trying to grow as quickly as we can, but we have to do so prudently.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/06/24 3:22pm EDT.

SymbolName% changeLast
Apple Inc
Alphabet Cl A
Pfizer Inc
Walt Disney Company
Jpmorgan Chase & Co. [Jpm/Pm]

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