| American
Depository Receipt |
Overview
Introduced to the financial markets in 1927,
an American Depository Receipt (ADR) is a stock that trades in the United States
but represents a specified number of shares in a foreign corporation. ADRs are
bought and sold on American markets just like regular stocks, and are issued/sponsored
in the U.S. by a bank or brokerage.
Primarily
the difficulties associated with trading at different prices and currency values.
For this reason, U.S. banks simply purchase a bulk lot of shares from the company,
bundle the shares into groups, and reissues them on either the NYSE, AMEX, or
Nasdaq. The depository bank sets
the ratio of U.S. ADRs per home country share. This ratio can be anything less
than or greater than 1. The reason they do this is because they wish to price
the ADR high enough as to show substantial value, yet low enough, so that the
individual investors can purchase these shares. Most
investors try to avoid investing in penny stocks, and many would shy away from
a company trading for 50 Russian Roubles per share, which equates to $1.50 US
per share. As a result, the majority of ADRs range between $10 and $100 per share.
If, in the home country, the shares were worth considerably less, then each ADR
would represent several real shares.
Warrants typically entitle the holder to purchase a specified number of shares for a specified price over a specified
period of time in the local market. ADWs issued against deposited warrants generally entitle the holders to purchase
a corresponding specified number of American Depositary Shares (ADSs) representing the issuer’s shares deposited
in its DR facility for a specified price in $US over the same specified period of time provided under the terms of the
issuer’s warrants. Certain ADWs have been structured as stock appreciation warrants which provide investors the
opportunity to exercise their ADWs for ADSs upon the occurrence of certain events or upon triggering a certain strike
price specified under the terms of the issuer’s appreciation warrants.
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