What is an American Depository Receipt?

ADRs are US commercial banks to assist one kind of foreign securities trading in the United States issued in negotiable certificates. Usually stocks and bonds on behalf of non-US companies that trade publicly. The stock market has the following advantages by American Depositary Receipts ways: increase the visibility of the issuing company in foreign markets, expand overseas financing channels, to lay the foundation for future direct issuance of securities in the US market. (2) has a higher flowability than the average stock. Not only are the depositary receipts interchangeable, they can also be exchanged with other securities. (3) reduce transaction costs. Most American Depositary Receipts are registered with the US Securities and Exchange Commission, and are considered as a type of US securities. They can be freely traded on the US stock exchange market or over-the-counter market, making it easy for non-US companies to enter the US securities market. ^[1]

American Depositary Receipts

According to the provisions of the securities laws of the United States, US-listed companies must be registered in the United States, like

Level ADR (Level I). The first-level ADR can only be traded on the over-the-counter market (OTC), which is the easiest way to list and trade in the United States. The US Securities and Exchange Commission (SEC) also has few regulatory requirements for first-class ADRs. It does not require annual reports or compliance with US GAAP. The first-level ADR is the type of ADR with the highest proportion in terms of quantity.

Level ADR (Level II, listed). The second-level ADR is more complicated than the first level. It requires registration with the SEC and is subject to SEC supervision. In addition, secondary ADRs must provide regular annual reports (Form 20-F) and comply with US accounting standards. The benefits of secondary ADR are

Benefits of American Depositary Receipts to Issuers

(1) Large market capacity and strong financing ability. Taking American depositary receipts as an example, the most prominent feature of the U.S. securities market is its huge market capacity, which enables foreign companies that issue ADRs in the United States to raise a large amount of foreign exchange funds in the short term, broadening the company's shareholder base and increasing its long-term Ability to raise funds, improve the liquidity of the company's securities and diversify risks.

(2) Avoiding the legal requirements for direct issuance of stocks and bonds, listing procedures are simple, and issuance costs are low.

(3) issuing depositary receipts but also to attract attention from investors, listed companies to enhance visibility, broaden the shareholder base and increase stock liquidity; ADS price may be adjusted within a price range similar listed companies by adjusting American depositary receipts ratio to facilitate listed companies to enter the US capital markets, providing new sources of financing. For intends to expand business in the United States, the implementation of strategic mergers and acquisitions of listed companies are particularly attractive; ease of listed companies to strengthen ties with US investors and improve investor relations; to facilitate non-US companies listed on its US employees Employee Stock Option Plan and so on.

American Depositary Receipts advantages for investors

(1) with US dollars, and liquidation by investors familiar American Clearing Corporation;

(2) traded ADR subject to SEC registration, will help safeguard the interests of investors;

(3) listed companies pay dividends, ADR investors to receive timely, and paid in US dollars;

(4) Certain institutional investors by investment policy restrictions, can not invest in non-US listed securities, ADR can circumvent these restrictions.