What is a Canadian Depositary Receipt?

A Canadian Depositary Receipt (CDR) is a type of investment that allows Canadian investors to gain exposure to global companies that are listed on foreign exchanges. CDRs are listed on a Canadian exchange and priced in Canadian dollars and have several features that can make them attractive to Canadian investors:

Avoiding currency conversion: A CDR allows a Canadian investor to purchase international stocks with Canadian dollars, on a Canadian exchange. This can help reduce the costs of currency conversion when buying international stocks.

Currency hedging: CDRs are unique in that they have a built-in notional currency hedge to Canadian dollars, minimizing the currency risk associated with global investing.  

Fractional investment: Some stock prices can be in the thousands of dollars per share range. The price of a CDR is usually less than the price of the underlying share of the foreign company. This makes it easier for investors to obtain access to global companies. This allows more investors to make purchases of stocks that might otherwise be unattainable.

Dividend rights retained: CDR investors retain the same proportional right to dividends and voting. Additionally, any dividends are also paid in Canadian dollars.

Easy to buy and sell: CDRs trade just like other shares on Canadian exchanges.

Canadian Depositary Receipts are relatively new, but are close cousins to the American Depositary Receipt (ADR) which were first established in 1927. ADRs allow for U.S. investors to get exposure to public companies listed around the world without being subject to foreign currency fluctuations. ADRs are only available on U.S. exchanges.

A Global Depositary Receipt (GDR) is generally issued in multiple countries, while depositary receipts with a specific domicile in its name (like a Canadian Depositary Receipt or an American Depositary Receipt) are only issued in those specific countries.

How do CDRs work?

Each series of CDRs provides economic exposure corresponding to a number of underlying shares equal to the CDR ratio. The specific number of shares that each series of CDRs represents is called the CDR ratio. For example, if the CDR ratio for a particular series is 0.50, this means that such series of CDR represent 0.50, or half, of a company share, so an investor would need to purchase 2 CDRs of the series to obtain the economic exposure to 1 underlying share. The CDR ratio for each series of CDRs is adjusted daily to provide the notional currency hedge as the foreign currency increases/decreases in value to the Canadian dollar.

Other than that, a CDR essentially looks and behaves like any other stock you would buy on a Canadian exchange. You can receive dividends and you have the voting rights (when eligible) similar to someone holding an internationally listed stock.

Let’s suppose a Canadian investor would like to buy around a CAD$250 stake in SAP, a German company whose stock is listed on the German Xetra exchange. If the current price of SAP stock is €250 per share, they would not be able to purchase one single share unless they had the ability to buy fractional shares. A CDR for SAP could be one way for this investor to do just this.

SAP CDR is available on the CBOE Canada exchange and the ticker symbol is SAPG:CA SAP SE CDR (CAD HEDGED). The price per share is significantly lower than for SAPs stock listed on the Xetra. The CDR version could be around CAD$10. For our Canadian investor who wants CAD$250 in exposure to SAP, they can divide €250 by $10 to get 25. Rounding down to a whole number, that means they could place an order for 25 shares and have an exposure of CAD$250 to SAP’s stock. Normal trading commissions would apply.

Conversely, if they decided to buy a single share of SAP stock listed on the German stock exchange, they would first need to ensure that they either had Euro funds in their account or they would need to incur costs for converting their Canadian funds into Euro funds first. If the current exchange rate was Euro€1 to CAD$1.5503, then the would have to convert around CAD$340 in order to purchase one share of SAP on the German stock exchange. This might be more exposure than they want. In this case a CDR not only allowed them to get the exposure they wanted, they avoided currency conversion costs.

In addition, going forward, their investment performance will not be affected by changes in the Euro to Canadian dollar exchange rate.