Guide to The American Depositary Receipt (Adr)

An American Depositary Receipt (ADR) pertains to a certificate issued by a United States financial institution that has taken the underlying stocks in custody. One ADR represents typically a fraction of a share, but can also correspond to a full share. A transfer of ADR is by endorsement and delivery.

An issue of ADR can generally be done in the form of sponsored or unsponsored ADR programs. In unsponsored ADR programs, the initiative goes only by a U.S. depositary bank or a dealer. The cost of the ADR program are regularly borne by the investors.

In addition, the depositary bank because of the lack of deposit contract with the foreign company is not obliged to forward information from the company to investors. Unsponsored ADR programs are not admitted to trading on many exchanges, so that only limited practical significance.

In sponsored ADR programs are initiated by the issuer and this is realized in cooperation with the custodian bank. Here, a deposit agreement (depositary agreement) is closed, requiring the custodian bank to take on the issue and redemption of Certificates, the exercise of voting rights by the U.S. investor, the transfer of dividends and corporate information and program maintenance.

Most of the costs incurred by sponsored ADR programs carried by the issuing entity. In addition to a private placement, there are three different forms for sponsored ADR programs:

The ADR can be traded on a U.S. stock exchange, without requiring the corporation to undergo the full registration process of the United States Securities and Exchange Commission (SEC), which otherwise would be necessary for an IPO.

Of the respective holders of ADRs may at any time transfer back of the certificate to the depositary bank to issue the foreign with a depositary bank (custodian bank), usually the branch office of the custodian bank in the country where the foreign company shares held and their sale to the foreign exchange so require.

Another reason for the design of ADR programs is that certain American institutional investors, like state pension funds, life insurance companies or financial institutions, place restrictions on their investment in foreign securities.

???????