DEFINITION of 'Flowback'

When foreign investors perform a massive sell-off of a company's cross-listed shares back to the country of issuance as a result of an impending cross-border merger. In some situations, these cross-border mergers give foreign investors the perception that certain serious drawbacks are so apparent that they have no choice but to sell their shares.

Flowback can also refer to an investor's right to convert an American depositary receipt (ADR) into its representative stock.

BREAKING DOWN 'Flowback'

For example, country A's tech index fund only deals with tech stocks from country A. Country A's leading tech company, ABC, decides to merge with country B's leading company, DEF, and incorporates the new company, ABEF, in country B.

The net effect of this action would force the previously mentioned index fund to sell all of its shares in ABC, because the company will no longer fit into the fund's investment thesis. In such cases, companies should examine flowback that occurs as a result of corporate actions in order to prevent share prices from tumbling.

Flowback of ADRs occurs when arbitrageurs take advantage of domestic and foreign market mispricings.

RELATED TERMS
  1. Cross-Listing

    The listing of a company's common shares on a different exchange ...
  2. Cross-Border Outstanding

    Any loan, receivable or payment extended to or owed by a person ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies ...
  4. Y

    A letter that appears on a Nasdaq stock symbol specifying that ...
  5. American Depositary Receipt - ADR

    A negotiable certificate issued by a U.S. bank representing a ...
  6. Foreign Direct Investment - FDI

    A foreign direct Investment (or FDI) is an investment made by ...
Related Articles
  1. Investing

    How Foreign Exchange Affects Mergers and Acquisitions Deals

    Learn how foreign exchange rates can impact the flows of international merger and acquisition (M&A) transactions, and understand how deals can impact exchange rates.
  2. Investing

    Investing Beyond Your Borders

    Investing abroad poses risks, but can also help you diversify. Discover ways to invest in foreign stocks.
  3. Investing

    How To Trade Foreign Stocks

    We weigh the major ways to trade foreign stocks for investors.
  4. Investing

    Investing in Foreign Stocks: ADRs and GDRs

    Depositary Receipts are easy ways to invest in foreign stocks, regardless of what part of the world you live in.
  5. Investing

    Playing It Safe In Foreign Stock Markets

    Find out some of the lower-risk ways to invest in foreign markets.
  6. Investing

    Go International With Foreign Index Funds

    As global trade continues to expand and the world's economies grow, spice up your portfolio with these exciting opportunities.
  7. Investing

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  8. Investing

    An Introduction To Depositary Receipts

    Learn about a security that allows you to invest in a foreign company through your local exchange.
  9. Managing Wealth

    Here's How To Tap International Markets (PBR, VALE)

    Access to foreign markets has grown a lot in recent years, allowing US market players to trade these bourses in real-time.
  10. Investing

    Introduction To American Depositary Receipts (ADRs)

    Investors should look beyond the confines of the U.S. borders to diversify and maximize returns. ADRs are one way to diversify your portfolio and help you achieve better returns when the U.S. ...
RELATED FAQS
  1. Does a company's American depositary share equal one share of common stock?

    American depositary shares (ADS) come into play when a foreign company wants its shares to trade on a major American exchange. ... Read Answer >>
  2. Why would an investor want to hold an American Depository Receipt rather than the ...

    Learn about the advantages for investors of using American Depositary Receipts instead of investing directly in the underlying ... Read Answer >>
  3. Why are big foreign companies considering delisting their American depositary receipts?

    American depositary receipts (ADRs) were developed to give investors an easier way to invest in foreign companies. An ADR ... Read Answer >>
  4. What parties are involved in the creation of an American depositary receipt?

    An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number ... Read Answer >>
  5. Is there a difference between ADR and ADS?

    American depositary receipts (ADRs) allow foreign equities to be traded on U.S. stock exchanges; in fact, this is how the ... Read Answer >>
  6. Which of the following best describes American Depository Receipts (ADRs) ...

    The correct answer is b): ADRs are used to trade foreign securities in the United States. Instead of buying shares of foreign ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center