115 CFA
File: Equity Investments - Reading 39 - 4. Investing in Non-Domestic Equity Securities

4. Investing in Non-Domestic Equity Securities

d. describe methods for investing in non-domestic equity securities;

Can investors invest directly in non-domestic equity securities?

What is a depository receipt?
Depository Receipts (DRs) are domestically traded securities representing claims of shares of foreign stocks.

What is an unsponsored depository receipt?
An unsponsored DR is issued by a broker/dealer or depository bank without the involvement of the company whose stock underlies the DR.

What is a sponsored depository receipt?
A sponsored DR is issued with the cooperation of the company whose stock underlies the DR. These shares carry all the rights of the common shares, such as voting rights.

What is a global depository receipt (GDR)?
A global depository receipt (GDR) is a DR issued outside the company's home country and outside the U.S. A GDR is very similar to an American depository receipt (ADR). It is typically used to invest in companies from developing or emerging markets.

What is an American depository receipt (ADR)?
An American depositary receipt (ADR) is a U.S. dollar-denominated DR that trades on a U.S. exchange.

What are the three levels that American depository receipts (ADR) trade at?
1. Level I ADR - when the issuer is not initially seeking to raise capital in the U.S. markets or does not wish to, or can't, list its ADRs on an exchange or on Nasdaq
2. Level II ADR - stock is listed on the U.S. securities exchange or quoted on Nasdaq, thereby offering higher visibility in the U.S. market, more active trading, and greater liquidity.
3. Level III - issuer floats a public offering of ADRs in the U.S. and lists the ADRs on one of the U.S. exchanges or Nasdaq.
4. Bonus! SEC RULE 144A ADR - allows foreign companies to raise capital by privately placing these DRs with qualified institutional investors. SEC registration is not required.

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