Unsponsored ADR

What is an 'Unsponsored ADR'

An unsponsored ADR is an American depositary receipt (ADR) issued by a depositary bank without the involvement or participation - or even the consent - of the foreign issuer whose stock underlies the ADR. The issuer therefore has no control over an unsponsored ADR, in contrast to a sponsored ADR where it retains control. Unsponsored ADRs are usually established by depositary banks in response to investor demand. Shareholder benefits and voting rights may not be extended to the holders of these particular securities. Unsponsored ADRs generally trade over-the-counter (OTC) rather than on United States exchanges.

BREAKING DOWN 'Unsponsored ADR'

The number of unsponsored ADR issues surged after Oct. 10, 2008, when the Securities and Exchange Commission (SEC) amended an exemption applicable to foreign issuers, which allowed them to have their securities traded in the U.S. OTC market without the registration required under Section 12(g) of the SEC Act of 1934.


The amendment eliminated the written application and paper submission requirements by providing automatic exemption from Section 12(g) to foreign issuers that met certain conditions. These conditions required the issuer to maintain a listing of its shares in its primary market outside the U.S., and publish electronically in English specified non-U.S. disclosure documents.


Since depositary banks were not required to notify the underlying issuers or obtain permission before registering unsponsored ADRs with the SEC, there was a rush to bring these to market, resulting in multiple unsponsored ADRs sometimes being created for the same issuer.

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