The ADR is a great way to invest in a foreign company and keep your money in the domestic market at the same time. The term ADR stands for American depository receipt and it comes in several different forms. Here are the different types of ADR programs and how they work.

1. Unsponsored Shares

One of the most common types of ADR programs involves unsponsored shares. In fact, more than 50 percent of all of the ADR programs out there are now unsponsored share programs. With this type of arrangement, the foreign company does not have any particular arrangement with the domestic bank that is issuing the shares. The bank simply purchases them on their own. These programs trade in over-the-counter markets instead of on an actual stock exchange. Many times, these unsponsored share programs are issued by multiple banks at the same time. Each bank takes care of the individual shares that they issue. This is one of the easiest ways to get involved in an ADR program.

2. Level 1

The level 1 ADR program is another program that trades in the over-the-counter market. With this program, the foreign company does have a formal agreement with the issuing bank in the United States. With this type of program, the SEC gets involved and regulates the foreign company to a certain extent. They require that the foreign company publish their annual statements in English on their own website. They do not require them to send quarterly financial statements as they do with domestic companies. They also have to be listed on at least one stock exchange somewhere in the world. This method is the easiest way for a foreign country to ensure that their stocks are trading in the US market.

3. Level 2

The level 2 ADR program is a little bit more involved for the foreign company. In order to qualify for this level of ADR, they have to register with the SEC. At this point, they are under SEC regulation. They will have to follow all of the regulations that a traditional business in the United States does. Although it is more complicated for the company, this program allows them to become listed on a stock exchange in the US. This increases exposure for the company.

4. Level 3

The level 3 ADR is a program that allows the foreign company to utilize a public offering of shares to raise money for their business. This level of ADR utilizes the most regulation of any of the levels. When a company wants to get involved with a level 3 ADR, they typically release more information than they normally do to accommodate United States investors.

5. Restricted Programs

Many ADRs utilize restricted programs when issuing shares to the United States. This means that they have some control over who can trade shares of their company. Some of these programs eventually choose to move up to a level one program in the future.

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