Brand launched in Canada but has been listed on US exchanges
Lululemon Athletica Inc., the Vancouver-based apparel giant, is set to re-enter the Canadian markets through an unconventional route, according to an article by The Globe and Mail.
Starting Thursday, Canadian investors will have the opportunity to buy shares of Lululemon in Canadian dollars, not by purchasing stock directly, but through Canadian Depositary Receipts (CDRs). This marks a significant shift from the traditional public listing the company left behind in 2013.
The Canadian Imperial Bank of Commerce (CIBC) is spearheading the introduction of seven new CDRs on the Cboe Canada exchange, enriching the market with a total of 54 CDRs.
This batch includes illustrious names alongside Lululemon, such as BlackRock Inc., Constellation Brands Inc., Deere & Co., Palo Alto Networks Inc., ServiceNow Inc., and Thermo Fisher Scientific Inc.
Since their launch in July 2021, CDRs have quickly become a favored option for Canadian investors eager to engage with major American firms while sidestepping the pitfalls of currency fluctuation.
These instruments are designed to hedge against the Canada-U.S. exchange rate volatility, offering an attractive alternative to direct investment in U.S. dollar-denominated stocks, which come with higher conversion fees.
CIBC capitalizes on this by charging “small fees from the foreign exchange transactions it makes to manage that currency hedge,” yet these fees are “capped at 60 basis points or 0.6 percent on an annualized basis.”
The appeal of CDRs extends beyond currency hedging. Their structure allows for a more accessible investment threshold. Lululemon’s CDR, for instance, is targeting a start price at $20, a figure significantly lower than the cost of a full share on the Nasdaq, making it financially feasible for a wider range of investors.
The traction gained by CDRs is evident in their trading volume, which has seen a substantial increase, from approximately $5m a day shortly after their debut, to $17m per day by the end of 2021.
Erik Sloane, Cboe Canada's chief revenue officer, revealed that trading volumes have now “grown tenfold” with individual client trades also seeing a significant uptick. This success underscores CDRs' market presence and their role in diversifying investment options for Canadians.
CIBC's Elliot Scherer, managing director and global head of the wealth solutions group, noted the growing interest from institutional investors, which is expected to “materially increase trading volumes” and maintain competitive bid-ask spreads. This development is a testament to CDRs' burgeoning appeal across different investor segments.
The introduction of CDRs by Cboe Canada is a strategic endeavor to offer a unique proposition in the financial market, challenging the dominance of TMX Group Ltd. and its Toronto Stock Exchange.
Despite TMX's current disinterest in CDRs, as communicated by spokesperson Catherine Kee, Cboe Canada is determined to maintain its innovative edge, with Sloane emphasizing the exchange's commitment to listing, trading, and data related to CDRs.
