American Depository Receipt

Topics: Bank, Stock market, Banks Pages: 6 (1816 words) Published: March 29, 2011
American Depositary Receipt
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An American Depositary Receipt (abbreviated ADR) represents ownership in the shares of a non-U.S. company that trades in U.S. financial markets. The stock of many non-US companies trade on US stock exchanges through the use of ADRs. ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border & cross-currency transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies. Each ADR is issued by a U.S. depository bank and can represent a fraction of a share, a single share, or multiple shares of the foreign stock. An owner of an ADR has the right to obtain the foreign stock it represents, but US investors usually find it more convenient simply to own the ADR. The price of an ADR often tracks the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares. In the case of companies incorporated in the United Kingdom, creation of ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government. Depositary banks have various responsibilities to an ADR shareholder and to the non-US company the ADR represents. The first ADR was introduced by JPMorgan in 1927, for the British retailer Selfridges&Co. There are currently four major commercial banks that provide depositary bank services - JPMorgan, Citibank, Deutsche Bank and the Bank of New York Mellon. Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADS). Contents[hide] * 1 Types of ADR program * 1.1 Unsponsored shares * 1.2 Level I (OTC) * 1.3 Level II (listed) * 1.4 Level III (offering) * 1.5 Restricted programs * 2 Sourcing ADRs * 3 ADR termination * 4 See also * 5 External links| [edit] Types of ADR program

When a company establishes an American Depositary Receipt program, it must decide what exactly it wants out of the program, and how much time, effort and resources they are willing to commit. For this reason, there are different types of programs that a company can choose. [edit] Unsponsored shares

Unsponsored shares are a form of Level I ADRs that trade on the over-the-counter (OTC) market. These shares are issued in accordance with market demand, and the foreign company has no formal agreement with a depositary bank. Unsponsored ADRs are often issued by more than one depositary bank. Each depositary services only the ADRs it has issued. Due to a recent SEC rule change making it easier to issue Level I depositary receipts, both sponsored and unsponsored, hundreds of new ADRs have been issued since the rule came into effect in October 2008. The majority of these were unsponsored Level I ADRs, and now approximately half of all ADR programs in existence are unsponsored. [edit] Level I (OTC)

Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a company issues sponsored ADRs, it...
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