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. Chinese Depositary Receipt - CDR

    A type of depositary receipt that is traded on Chinese stock ...
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. 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 >>
  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 >>
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. Mutual Funds & ETFs

    Top 3 ETFS for Investing in Germany

    Discover why Germany is considered an economic powerhouse in the eurozone, and learn about the three ETFs that provide investors exposure to Germany’s economy.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares FTSE/Xinhua China 25

    Learn about iShares FTSE/Xinhua China 25 and its asset allocation and how investing in this fund comes with heightened risks of emerging market risk.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!