What is ‘ADRs not sponsored’
Not sponsored ADR is the American Depository receipts (ADRs) , which Depository Bank issues without the involvement, participation or even the consent of a foreign Issuer whose stock underlies the ADR. The Issuer has no control over ADRs not sponsored, unlike a sponsored ADR where he maintains control.
Depositaries generally set not sponsored ADRs in response to investor demand. Shareholder privileges and voting rights may not be extended to holders of these securities. Not sponsored ADRs typically trade OTC (OTC) and not on US exchanges.
Breaking down the ‘not sponsored ADRs’
The number of questions not sponsored ADRs rose after Oct. 10, 2008, when the securities and exchange Commission (sec) amended the exception applies to foreign issuers, which allowed them to have their securities traded in the U.S. on the OTC market without the Registration required in accordance with section 12(g) of the SEC act of 1934.
This amendment eliminated the written application and paper submission requirements by providing automatic exemption from section 12(G) to foreign issuers that meet certain conditions. These conditions required the Issuer to maintain the listing of its shares in its primary market outside the United States, and publish electronically in English specified non-U.S. disclosure documents.
Because the Depositary banks are not required to notify the underlying issuers or obtaining permission prior to the registration of ADRs not sponsored in the sec, was the rush to bring them to market, as a result of several not sponsored ADRs are sometimes created for the same Issuer.
Not sponsored ADR Sponsored ADR V.
Unlike not sponsored ADRs sponsored ADRs allow foreign companies to directly tap into the international capital markets. While sponsored ADRs can be listed in the United States, the issuing company still has its revenues and profits denominated in its currency. Three levels of sponsored Depositary receipts are established:
A level I sponsored ADR can only be traded over the counter (otc) and not on the official rate of the American currency, however, the level of sponsored ADRs easier for foreign companies because it does not require the same information, should not comply with generally accepted accounting principles GAAP. Level I-sponsored ADRs represent certain risks for investors, given their relative lack of transparency.
Sponsored ADR the second level can be listed on the stock exchange and, thus, visible to the broader market, however, they require the organization to comply with sec.
III the authors the level of ADR allows companies to issue shares to raise capital, but require a high level of compliance and disclosure.