An American Depositary Receipt (or ADR) represents ownership in the shares of a foreign company trading on US financial markets. The stock of many non-US companies trades on US exchanges through the use of ADRs. ADRs enable US investors to buy shares in foreign companies without undertaking cross-border 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 US depositary bank and can represent a fraction of a share, a single share, or multiple shares of 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 is often close to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares.

Depositary banks have numerous responsibilities to an ADR holder and to the non-US company the ADR represents. The first ADR was introduced by JPMorgan in 1927, for the British retailer Selfridges&Co. The largest depositary bank is the Bank of New York.

Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADS). (From wikipedia)

1 BACKGROUND

ADRs

ADRs assumed their present form in 1955, when the Securities and Exchange Commission (SEC) established its Form S-12 for registering all depositary receipt programs. Form S-12 was later replaced by Form F-6, which is still in use today.

ADRs are US dollar denominated negotiable instruments issued in the US by a depositary bank (eg Deutsche Bank), representing ownership in non-US securities, usually referred to as the underlying ordinary shares. ADRs enable US investors to acquire and trade non-US securities denominated in US dollars without concern for the differing settlement timetables and the problems typically associated with overseas markets. They also provide non-US companies with access to the US capital markets, the largest domestic investor base in the world.

Capital raising and non-capital raising ADRs

There are several types of ADR, each of which involves a different level of disclosure of information and compliance with the regulations of the SEC. But perhaps the most important distinction for issuers of ADRs is that some structures allow the company to raise capital in the US, while others simply provide a mechanism which makes it easy for US investors to buy and trade existing shares.

Global Depositary Receipts (GDRs)/European Depositary Receipts (EDRs)

In the last few years, the depositary receipt concept has developed considerably. Issuers in a variety of countries have realised that there are advantages in making their stock available in a form convenient not only to US investors but also, or alternatively, to investors in the Euromarkets or elsewhere. This has prompted the development of European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs).

The EDR accesses the Euromarkets but not the US market. It settles and trades through the Euromarket clearing systems, Euroclear and Clearstream, and may be listed on a European Stock Exchange, normally London or Luxembourg.

A GDR will access two or more markets, usually the Euromarkets (like an EDR) and the US (like an ADR). GDRs are often launched for capital raising purposes, so the US element is generally either a Rule 144(a) ADR or a Level III ADR, depending on whether the issuer aims to tap the private placement or public US markets. However, we have also pioneered the non-capital raising Unsponsored and Level I GDR.

EDRs and GDRs are generally denominated in US dollars, but may be denominated in any currency. They represent the underlying shares in exactly the same way as ADRs, and make it possible for foreign investors to trade in the issuing company's stock without the problems associated with custody and settlement in foreign markets. ...

Download Depositary Receipts Handbook, Deutsche Bank

PDF format, 165KB, 22Pages.

CONTENTS
Section
1 Background 2
2 Why DRs? 4
3 Types of DRs 6
4 Listing Requirements 11
5 US Securities and Exchange Commission Compliance 14
6 Other Considerations 16
7 What Benefits does Deutsche Bank offer? 18
8 Contacts 21

Visit Depositary Receipts with Deutsche Bank Website

Deutsche Bank is one of the largest securities services banks in the world, with a reputation for providing first class and innovative products.

We offer exceptional benefits to those issuers who choose Deutsche Bank as their depositary.

Comments (0)

Show/Hide comments

Name

Email

Website

Title

Comment

smaller | bigger

Add Comment