Are German-Listed vs. US-Listed Stocks The Same?
Disclaimer: this is neither a call to buy or sell any specific stock on any specific listed market. This is merely for educational purposes highlighting the differences between trading each instrument.
As a European investor, you may be wondering why there’s multiple stock listings for the company that you want to invest in. Tesla stock on Trading212 for example, have a NASDAQ listing priced in USD and two German listings priced in EUR. While they may represent a stake in the same company, the differences between them are hidden in plain sight. Choose wisely!
Are these all shares?
Yes. Rest assured, these are not derivatives nor are they Depositary Receipts (DRs). Buying these US shares from German exchanges still ensure that you benefit from the price appreciation and dividends received. The latter can be a little opaque however, as you would receive dividends in EUR and you may have to check manually if the FX rate you were given is indeed competitive.
Although both these US stocks trading on German Exchanges and DRs require a custodian, DRs and their underlying stock are two completely different instruments.
For example, HSBC shares that trade in the UK have a GB ISIN (GB0005405286) while the ADRs that trade in the US have another ISIN (US4042804066). These German-listed US stocks share the same ISIN as those that trade on the NASDAQ or New York Stock Exchange — so it’s safe to say that they are in fact the same instrument.
Would I still have voting rights?
Technically… yes? But practically, most brokers who offer trading in those German-listed US shares may not offer this proxy voting service because of the complexities for international investors to cast votes for US publicly traded companies. It’s difficult and complicated to coordinate this because there’s an additional middleman involved — the custodian bank that holds and offers this US stock on the German exchanges.
Why are they priced in Euros?
They are doing this for us! Having shares priced in Euros makes things massively simpler for both the investors and the brokers — having to deal with foreign currencies would complicate finance and treasury operations. However, the fact that they are priced in Euros doesn’t mean that this complex task of handling foreign currency disappears, the market makers and custodians are merely doing it for you. Since nothing is free in this world, you are still paying an FX fee, baked into the spreads of the German-listed US stocks.
How wide is the spread?
In my crude analysis (screenshotting simultaneously both the NYSE/NASDAQ’s and German Exchange’s bid-ask spreads), I found that the spreads for Large Cap US stocks listed on German Exchanges are pretty decent.
Even though the one-way spread is 2–3 basis points wider than US markets, this is such a good price to pay as the cheapest FX fees are 15 basis points (Trading212). These German exchanges probably also have very competitive FX spread rules, like the one shown below from Tradegate (maximum ~10 basis points).
However, if you’re an “ambitious” investor buying Mid or Small Cap US stocks, you are probably getting screwed big time by the spreads quoted on German exchanges… It may be better to find a broker that offers US-listed US shares directly (IBKR, Degiro, Trading212, Revolut) if you’re keen on trading these smaller US stocks regularly.
So what’s the verdict?
While I am not suggesting which version of Tesla to buy, I do think that if you have a big enough portfolio size, it’s better to cut the middleman and go straight to the source — buying US shares listed on US exchanges. Investors and traders should always be wary about the price you are getting — always check if they are the most competitive! While the prices and voting rights situation can be opaque for German-listed US stocks, this does democratise finance greatly as it allows European Retail investors to participate in US stock markets with so much simplicity and familiarity.
