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. American Depositary Share - ADS

    A U.S. dollar-denominated equity share of a foreign-based company ...
  6. Global Depositary Receipt - GDR

    1. A bank certificate issued in more than one country for shares ...
Related Articles
  1. American Depositary Receipt Basics
    Economics

    American Depositary Receipt Basics

  2. Investing Beyond Your Borders
    Insurance

    Investing Beyond Your Borders

  3. Investing in Foreign Stocks: ADRs and ...
    Investing Basics

    Investing in Foreign Stocks: ADRs and ...

  4. Introduction To American Depositary ...
    Investing Basics

    Introduction To American Depositary ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center