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Receipt advantages may include:

Quotation in U.S. dollars and
payment of dividends or interest in U.S. dollars.
Diversification without many of
the obstacles that mutual funds, pension funds and other institutions may
have in purchasing and holding securities outside of their local market.
Elimination of global custodian
safekeeping charges, potentially saving Depositary Receipt investors up to
10 to 40 basis points annually.
Familiar trade, clearance and
settlement procedures.
Competitive U.S. dollar/foreign
exchange rate conversions for dividends and other cash distributions.
Ability to acquire the
underlying securities directly upon cancellation.

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Despite the
disadvantages related to investing in foreign companies such as  political risk and economic risk, there are
specific disadvantages related to depository 
receipts that affect mainly investors.

1.      Dividend distribution.

 Dividends distributed  by foreign companies are not directly
distributed to the Domestic Receipts’ holders rather, a percentage is deducted
as commission for the depository bank. That makes Depository Receipts have a
lower value relative to the original stock.

2.      Currency risk.

Although Domestic
Receipts are traded and quoted in terms of the domestic currency, dividends are
declared in terms of the foreign currency which makes the return on the
investment  volatile and therefore risky.

3.      Double taxation.

This risk occurs
when the home country of the issuing company and the home country of the
Domestic Receipts’ holders do not have a treaty to eliminate  double taxation.

Comparing the
advantages and the disadvantages of Depository Receipts, and  Especially.  Global Depository Receipts depends on the
conditions of the offer made by the   issuing company because as we have indicated
it is so flexible and each case should  be
  studied apart to evaluate its






An American depositary receipt (ADR) is a negotiable security that represents securities of a
non-US company that trade in the US financial markets. Securities of a foreign
company that are represented by an ADR are called American depositary shares (ADSs).

Shares of many non-US companies trade
on US stock exchanges through ADRs. ADRs are denominated and pay dividends in
US dollars and may be traded like regular shares of stock. Over-the-counter
ADRs may only trade in extended hours.

The first ADR was introduced by J.P. Morgan in 1927 for the British retailer Selfridges.

The stock of many non-US companies trade on US exchanges
through the use of ADRs.

ADRs enable US investors to
buy shares in foreign companies without undertaking cross-border transactions.
The shares of the non-US corporation trade on a non-US exchange, while the ADRs
trade on a US exchange. ADRs are one type of depositary receipt (DR), which is any negotiable securities
that represents securities of companies that is foreign to the market on which
the DR trades. DRs enable domestic investors to buy securities of foreign
companies without the accompanying risks or inconveniences of cross-border and
cross-currency transactions.

This is an excellent way to buy shares
in a foreign company while realizing any dividends and capital gains in
U.S. dollars. However, ADRs do not eliminate the currency and economic
risks for the underlying shares in another country. For example, dividend
payments in euros would be converted to U.S. dollars, net of conversion
expenses and foreign taxes and in accordance with the deposit
agreement. ADRs are listed on either the NYSE, AMEX or Nasdaq as well as





     1 ADR = 1

     ADR Ratio =


  • Multiple

   1 ADR = 5 SHARES

   ADR Ratio = 1:5


  • Fraction

   1 ADR = ½ SHARE

Ratio = 2:1






are issued by a US bank, such as J.P. Morgan or the bank  of  New
York, which functions as a depository, or stock transfer and issuing agent for
the ADR program. The foreign, or local shares, remain on deposit with the
depository’s custodian issuer’s home market.

ADR is backed by a specific number of an issuer’s local shares (e.g. one ADR
representing one share, one ADR representing ten shares, etc.) This is the ADR
ratio, which is designed to set the price of each ADR in US dollars.

•Financial information, including annual
reports and proxies are delivered to US holders on a consistent basis by the
Depositary. The dividends are converted into dollars and paid to ADR holders by
the Depositary.


16.2 How Does ADR Work?


Let us take Infosys example – trades on the
Indian stock at around Rs.2000/-

•This is equivalent to US$ 40 – assume for

•Now a US bank purchases 10000 shares of
Infosys and issues them in US in the ratio of 10:1

•This means each ADR purchased is worth 10
Infosys shares.

•Quick calculation means 1 ADR = US $400

•Once ADR are priced and sold, its subsequent price is
determined by supply and demand factors, like any ordinary shares.


16.3 TYPES

When a
company establishes an ADR program, it must decide what exactly it wants out of
the program, and how much time, effort, and other resources they are willing to
commit. For this reason, there are different types of programs, or facilities,
that a company can choose.



Unsponsored ADR

Sponsored ADR

Level 1

Level 2

Level 3


shares 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.

As a
result of an SEC rule change effective October 2008, hundreds of new ADRs have
been issued, both sponsored and unsponsored. The majority of these were
unsponsored Level I ADRs, and now approximately half of all ADR programs in
existence are unsponsored.

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