Sponsored ADR

AAA

DEFINITION of 'Sponsored ADR'

An American depositary receipt (ADR) issued by a bank on behalf of the foreign company whose equity serves as the underlying asset. A sponsored ADR creates a legal relationship between the ADR and the foreign company, which absorbs the cost of issuing the security. Unsponsored ADRs can only trade on the over-the-counter market, while sponsored ADRs can be listed on major exchanges.

INVESTOPEDIA EXPLAINS 'Sponsored ADR'

Foreign companies use ADRs in order to tap into capital markets abroad. Investors who may typically focus on domestically listed companies are given the opportunity to obtain returns from higher growth emerging markets, such as those in China or India. Despite being listed in America, a company using a sponsored ADR will still have its revenue and profit denominated in its home currency.

There are three levels of sponsored depository receipts. A Level I sponsored ADR can only be traded over-the-counter (OTC) and cannot be listed on a U.S. exchange, but is  easier to set up for foreign companies, does not require the same disclosures and does not require the company to abide by GAAP. Level II sponsored ADRs can be listed on an exchange and are thus visible to a wider market, but require the company to comply with the SEC.  Level III sponsored ADRs permit the company to issue shares to raise capital, but require the highest level of compliance and disclosure.

RELATED TERMS
  1. Depositary Receipt

    A negotiable financial instrument issued by a bank to represent ...
  2. Investment Manager

    A person or organization that makes investments in portfolios ...
  3. Foreign Investment Funds (FIF) ...

    A tariff imposed on Australian residents by their government ...
  4. American Depositary Receipt - ADR

    A negotiable certificate issued by a U.S. bank representing a ...
  5. Global Depositary Receipt - GDR

    1. A bank certificate issued in more than one country for shares ...
  6. American Depositary Share - ADS

    A U.S. dollar-denominated equity share of a foreign-based company ...
RELATED FAQS
  1. What are the differences between Levels I, II, and III American Depository Receipts ...

    Mutual funds and exchange-traded funds offer American investors opportunities to diversify a portfolio through investing ... Read Full Answer >>
  2. 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 Full 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 Full Answer >>
  4. What are some risks a company takes when entering a currency swap?

    Currency swaps are commonly used to hedge loan transactions. Often, an American company and a foreign company exchange the ... Read Full Answer >>
  5. What does a positive capital account balance mean?

    A positive capital account balance indicates that more money is flowing into, rather than out of, a country. A country's ... Read Full Answer >>
  6. What does a negative balance in the capital account mean?

    A negative capital account balance indicates a predominant money flow outbound from a country to other countries. The implication ... Read Full Answer >>
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. Insurance

    Investing Beyond Your Borders

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

    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. ...
  5. Fundamental Analysis

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  6. Mutual Funds & ETFs

    Protect Your Foreign Investments From Currency Risk

    Hedging against currency risk can add a level of safety to your offshore investments.
  7. Bonds & Fixed Income

    An Introduction To Depositary Receipts

    Learn about a security that allows you to invest in a foreign company through your local exchange.
  8. Options & Futures

    Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  9. Fundamental Analysis

    Can You Invest in China's Huawei?

    Have you heard of giant Chinese telecom maker Huawei? Here's what you need to know.
  10. Investing

    Too Late To Invest In EM?

    Investors have flocked to developing markets amid continued low U.S. interest rates & hopes of further economic stimulus from emerging world central banks.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center