An "F" doesn't sell in grade school or on Wall Street.
, U.S. companies had a ticker symbol made up of four letters. Foreign companies had five letters with the last letter being an "F" or a "Y," indicating an ADR. The "F" and "Y" letters were requirements that the Nasdaq had enforced since its inception in 1971, when foreign stocks such as
joined as ADRs.
No longer. Just six weeks ago on Feb. 19, the Nasdaq started allowing non-U.S. companies to remove the "F" from the end of their ticker symbols. "Our issuers wanted a choice, and we gave them a choice," says Nasdaq spokesman Mike Shokouhi.
A raft of foreign companies, some with underperforming stocks, are taking advantage of new Nasdaq rules and lopping the telltale fifth letter "F" from their ticker symbols. Also, foreign companies trading on the Nasdaq through American depositary receipts no longer must append a "Y" to their symbols. For example, Waterloo, Ontario-based software maker
previously was listed under OTEXF. Now its ticker symbol is just plain OTEX.
Thomas Hearne, CFO of Open Text, couldn't wait to lop off the "F." "I always wanted it off," he says. But Nasdaq insisted that Open Text must keep most of its directors, senior managers and assets in the U.S. if it wanted the four-letter ticker symbol. Now Open Text is trading under the symbol OTEX, and all Hearne had to do was to mail a letter to Nasdaq.
A marketing ploy by non-U.S. companies? Perhaps. Foreign companies listed on the Nasdaq felt that the letter "F" was acting as a drag on their performance. American money managers "see the 'F' and don't come close," says Amichai Steinberg, executive vice president of
, an Israeli builder of testing gear for circuit-board manufacturing. Orbotech trimmed its ticker from ORBKF to ORBK on March 22.
By contrast, the
New York Stock Exchange
does not distinguish between foreign and domestic companies, says an NYSE spokeswoman.
So far, more than 70 of the 454 non-U.S. Nasdaq stocks have dropped the scarlet letter: 19 in February, followed by at least 47 in March, and so far five are slated for April. Already companies such as
have lost the "F".
Other companies may be more concerned about how they are viewed by U.S. investors.
There is a "slight stigma" attached to some foreign companies on the Nasdaq, says Roberta Carlton, spokeswoman for Ottawa-based software firm
, which dropped the "F" in late February just to be safe. Cognos, with a market cap of around $970 million, has extensive operations in the U.S. Although it is listed on the
, Cognos shares trade primarily on the Nasdaq.
Liquidity is the key issue, says one professional investor. "The 'F' signals to a portfolio manager, perhaps unjustifiably, that it's a thinly traded stock," says Nicholas Reitenbach, manager of the
Reserve International Equity
Pinnacle International Management
. "When they drop the fifth letter, there's no red flag" for institutions and a growing contingent of retail investors, Reitenbach says.
Any money manager worth his or her money would check for daily average volume and would not be fooled by the dropped fifth letter. But for individual investors, that may be a different story. For example, generally bullish daytraders are not known for their fundamental research
Many foreign companies, especially those in Canada, adhere to generally accepted accounting principles in the U.S. Differences from U.S. accounting practices are reconciled in filings with U.S. regulators.
However, there are loopholes for foreigners that frustrate some investors. For example, insiders might not notify the
Securities and Exchange Commission
-- and therefore U.S. investors -- of plans to unload stock if they sell in foreign markets.
Also, in some cases, the SEC does not require foreign companies to make the customary quarterly filings in the U.S. if they aren't required back home.
Let the market forces decide, says Reitenbach, who argues that U.S. investors sometimes pressure companies to meet quarterly goals at the cost of long-term performance. Roughly 95% of stocks in his portfolio report only every six months, but give frequent updates in investor meetings and conferences.