What is an American Depositary Receipt?
An ADR is a negotiable U.S. certificate representing ownership of shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. Also, the dividends are paid to investor in U.S. dollars. ADRs were specifically designed to facilitate the purchase, holding and sale of non-U.S. securities by U.S. investor, and to provide a corporate finance vehicle for non-U.S. companies. ADRs can be held in book-entry form or as a physical certificate.
Level I Depositary Receipts are traded in the U.S. OTC market with prices published in the “Pink Sheets” and on some exchanges outside the United States. Establishment of a Sponsored Level I program does not require full SEC registration and the company does not have to report its accounts under U.S. GAAP or provide full SEC disclosure. Essentially, a Sponsored Level I Depositary Receipt program allows companies to enjoy the benefits of a publicly traded security without changing its current reporting process.
An American Depositary Receipt is a means for American investors to invest easily in foreign stocks. An American Depositary Receipt is traded on American stock exchanges in US dollars. However, its value is dependant upon how the foreign stock the American Depositary Receipt represents is doing on the foreign exchange on which the stock is listed. A US bank or an international bank purchases an amount of stock in a foreign company. It then creates a financial instrument, the American Depositary Receipt, to sell on a US listed exchange. Investors in the United States are then able to indirectly invest in this foreign company using US dollars. This allows the American investor to avoid a great deal of administration and duty costs that would be incurred if the foreign stock were held directly. The US or international bank either charges a management fee, which is included in the price of the American Depositary Receipt, or receives a fee from the foreign company. In the latter case, the
