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.


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.

  1. American Depositary Share - ADS

    A U.S. dollar-denominated equity share of a foreign-based company ...
  2. Arbitrageur

    A type of investor who attempts to profit from price inefficiencies ...
  3. American Depositary Receipt - ADR

    A negotiable certificate issued by a U.S. bank representing a ...
  4. Merger

    The combining of two or more companies, generally by offering ...
  5. Index Fund

    An index fund is a type of mutual fund with a portfolio constructed ...
  6. Mergers And Acquisitions - M&A

    A general term used to refer to the consolidation of companies. ...
Related Articles
  1. Economics

    American Depositary Receipt Basics

    Thanks to American depositary receipts, investors now have a world of investing opportunities to choose from.
  2. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  3. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  4. Mutual Funds & ETFs

    Index Investing

    Get to know the most important market indices and the pros and cons of investing in them.
  5. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  6. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  7. Stock Analysis

    An Introduction To The Indian Stock Market

    Most trading in the Indian stock market occurs through its two exchanges – the Bombay Stock Exchange and the National Stock Exchange.
  8. Savings

    How Americans Can Open a Bank Account In Thailand

    Have your paperwork in order and be sure to shop around.
  9. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  10. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  1. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  2. Do mutual funds have CUSIP numbers?

    The Committee on Uniform Securities Identification Procedures (CUSIP) number is a standardized identification system used ... Read Full Answer >>
  3. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  4. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  5. How are American Depository Receipts (ADRs) exchanged?

    American depositary receipts (ADRs) are bought and sold on regular U.S. stock exchanges, either in the over-the-counter market ... Read Full Answer >>
  6. What are the differences between global depositary receipts (GDRs) and American depositary ...

    A global depositary receipt (GDR) is a bank certificate issued in multiple countries for shares in a foreign company. The ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center