Flowback

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-Border Outstanding

    Any loan, receivable or payment extended to or owed by a person ...
  2. Cross-Listing

    The listing of a company's common shares on a different exchange ...
  3. Y

    A letter that appears on a Nasdaq stock symbol specifying that ...
  4. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies ...
  5. American Depositary Receipt - ADR

    A negotiable certificate issued by a U.S. bank representing a ...
  6. American Depositary Share - ADS

    A U.S. dollar-denominated equity share of a foreign-based company ...
Related Articles
  1. Forex Fundamentals

    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. Professionals

    International Investing

    NASAA Series 65: Section 10 International Investing. In this section international investing is discussed with a focus on risks and opportunities including ADRs.
  3. Options & Futures

    20 Investments: American Depository Receipt (ADR)

    What Is It? Introduced to the financial markets in 1927, an American Depository Receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign ...
  4. Investing

    How To Trade Foreign Stocks

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

    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.
  6. Mutual Funds & ETFs

    Playing It Safe In Foreign Stock Markets

    Find out some of the lower-risk ways to invest in foreign markets.
  7. Economics

    Ever Wanted to Own International Stocks? Here's How

    Tips and strategies for users to trade in different exchanges around the world.
  8. Investing Basics

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  9. Options & Futures

    Mergers and Acquisitions: Definition

    The Main Idea One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and ...
  10. Economics

    ADR Basics: What Is An ADR?

    Introduced to the financial markets in 1927, an American depositary receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ...
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. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center