Direct share investment in the US has historically proved challenging for Australians. Investors require US accounts capable of holding the shares, and given the time zone difference, may have trades executed at unknown prices during the Australian nighttime. Additionally, direct investment has meant higher brokerage fees than for domestic trades, and foreign exchange conversion costs. In some cases, investors also bear US custody costs.
TraCRs solve these challenges, as they trade on the Chi-X exchange during local market hours in Australian dollars. Market makers provide quotes, with the expectation that natural liquidity will form on both sides over time. TraCR investors also benefit from wholesale foreign exchange rates via Deutsche Bank’s foreign exchange platform. Since TraCRs are traded domestically, there is no US account requirement, nor associated US custody costs. Investors can trade TraCRs in the same way as they would invest in Australian listed shares.
“If they're happy to buy them and we come to an agreement to buy the Apple TraCRs, it's a pretty straightforward system where the advisors place an order from the desk, and that order reaches the trading desk at Morgans Financial, which would then purchase or sell it,” says Lake.
Market Makers are responsible for providing liquidity enabling Morgans Financial to acquire TraCRs for their clients and produce a contract note immediately after execution. According to Lake, it’s a simpler process than going direct in the international market to place an order in the evening and only knowing the FX rate in the morning. “With TraCRs the client gets a contract within 20 minutes and they know what they have bought, what they have to pay, and they can see the shares in their holdings account here at Morgans,” he adds.