Since 1980, the value of U.S.investment in non- U.S.equities has grown approximately 100-fold to $1.9 trillion .The first ADRs were introduced in the United States in 1927 when JPMorgan issued receipts for the British retailer Selfridges. Prior to the 1980s,ADRs primarily were used by foreign companies to create stock-purchase plans for their U.S.-based employees. However, since the mid-1980s, increasing numbers of non-U.S. companies have issued ADRs to raise capital and/or to increase their U.S. exposure. Today, more than 2,100 companies from approximately 80 countries have issued ADRs that trade in the United States. Of those 2,100 ADRs, more than 500 are listed on U.S. exchanges. In some cases, ADRs may constitute 5 -15% of a company 's total shareholder base. ADR trading volume has grown significantly since 1992.The value of ADR trading peaked in 2000 at $1.1 trillion. Trading volume, measured in billions of shares has climbed every year since 1992, reaching 34.7 billion in 2003.
Globalization is the dissolution of barriers to trade and the tendency of the world's businesses to integrate customs and values. Globalization is making it increasingly easy to travel, correspond and even invest in other countries.
Investing money in your own country's stock market is relatively simple. You call your broker or login to your online account and place a buy or sell order. Investing in a company that is listed on a foreign exchange is much more difficult. Would you even know where to start? Does your broker provide services in other countries? For example, imagine the commission and foreign exchange costs on an investment in Russia or Indonesia.
[...] equity markets, the ADR offers a new avenue for raising capital, often at highly competitive costs. For companies with a desire to build a stronger presence in the United States, an ADR program can help finance U.S. initiatives or facilitate U.S. acquisitions. ADRs can provide enhanced communications with shareholders in the United States. ADRs provide an easy way for U.S. employees of non-U.S. companies to invest in their companies' employee stock purchase plans. Features such as dividend reinvestment and direct purchase programs can help ensure a continual stream of investment into an issuer's program. [...]
[...] With a view to further liberalizing the operational guidelines and in particular track record scrutiny of the ADR proposals and approval mechanism various options were considered by the Government. Given the fact that investments through ADR being risk capital, it has been decided that the track record scrutiny process for ADR issues and the two stage approval by the Ministry of Finance, Department of Economic Affairs could be dispensed with.The following guidelines for ADR issues, in continuation of the Notification of November 1993 (amended in November, 1999) shall come into effect from the date of issue of these guidelines. [...]
[...] Key Roles in Establishment of a ADR Program Accountants >>Prepare financial statements in accordance with (or reconciled to) U.S.Generally Accepted Accounting Principles (U.S.GAAP) for Securities Act registered securities (Level II and Level III DR facilities) Custodian >>Receive underlying shares >>Confirm deposit of underlying shares Lawyers >>Advise on facility structure >>Negotiate Deposit Agreement >>Prepare appropriate registration statements or establish exemptions with SEC, as applicable >>Prepare listing agreements to list on U.S.exchanges (Level II and Level III DR facilities) >>Draft offering circular/prospectus Brokers >>Submit required forms to become a market maker in a security (for Level l programs),as needed >>Make securities available to investors Depository >>Advise on DR facility structure >>Appoint custodian >>Assist with DR registration requirements >>Coordinate with lawyers and investment bankers to ensure that all implementation steps are completed >>Prepare and issue DRs >>Enlist market makers, if applicable >>Announce program establishment to brokers and traders Issuer >>Determine financial objectives >>Appoint depositary, lawyers, investment bank and accountants >>Determine program type >>Obtain approval from board of directors, shareholders and regulators, as needed >>Provide financial information to accountants >>Develop investor relations plan Investment Bankers >>Lead underwriting process >>Establish syndicate of participating banks >>Advise on capital structure >>Advise on type of DR structure >>Conduct due diligence >>Draft prospectus >>Obtain CUSIP number >>Obtain DTC, Euroclear and Clear stream eligibility, as needed >>Coordinate road show >>Organize book-building and line up market makers >>Price and launch securities How ADRs Work The price of ADRs in the secondary market is, of course, determined by supply and demand, but the price will not deviate too much from the price of the underlying stock. [...]
[...] exchange, so listed ADRs represent a way to add international exposure to a portfolio. Through JPMorgan's no-load ADR purchase program, Global Invest Direct, investors can purchase ADRs inexpensively and without the use of a broker. Drawbacks : While ADRs have many benefits for U.S.-based investors, there are a number of potential disadvantages to consider: Additional Costs The cross-border creation of ADRs may involve narrowly higher costs than ORDs.These costs may be passed on to investors. In addition, banks issuing ADRs that are not listed on the NYSE may keep a portion of dividends as payment for services. [...]
[...] An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number of shares of a foreign corporation traded on a U.S. stock exchange. An ADR will be used by a foreign corporation that wishes to have a portion of its equity traded in the U.S. market, but doesn't want to actually list its company's shares on a U.S. exchange. An American Depositary Receipt is a U.S. dollar denominated form of equity ownership in a non-U.S. [...]
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