Cum-Ex Trading crosses the Atlantic through ADRs
The SEC’s ongoing investigation into “pre-release” American Depositary Receipts (ADRs) has opened up another avenue into the complex world of Cum-Ex trading.
This revelation calls into question the actions of some of America’s top investment banks and brokers.
Pre-release ADRs potentially enable another variation of the Cum-Ex trades that have convulsed financial markets across Europe. The SEC states in one related filing that,
“the structured transaction was priced by splitting up portions of the foreign tax that was not paid on the dividend.”
This sounds very much like the signature of a Cum-Ex transaction. Deutsche Bank previously reported to German tax authorities that abusive pre-release ADR practices may have allowed its clients to make dividend tax claims on shares they did not own.[2] Examples mentioned in the SEC claims include issuers of French and Portuguese ADRs.
Since 2017, SEC has issued monetary settlements totalling over $432mm across 15 institutions and it has yet to be revealed how many other institutions are still under investigation.[3]
Pre-release ADR Settlements - Who is involved?
An article detailing the mechanics of “pre-release” ADRs and their potential use in Cum-Ex trading will follow shortly. The first Cum-Ex piece was published by FMCR in September 2019 and explored which participants were involved in the more publicised version of Cum-Ex trading via shares and futures.
FMCR is an industry-recognised equity dividend arbitrage expert and is currently undertaking multi-faceted investigations into widely publicised activities in various European markets.
For more information, please contact Aysha Suzuki (ayshasuzuki@fmcr.com)