Watch out for unsponsored ADR

Author: | Published: 1 Nov 2009

Elizabeth Fournier
Staff writer

In the three months after October 2008, more than 800 unsponsored American depository receipt (ADR) programmes were set up by US banks. Since then the number has continued to grow, and the trend shows no sign of waning. A US Securities and Exchanges Commission (SEC) rule change to the terms of the Rule 12g3-2(b) exemption has made it easier for banks to set up ADR facilities without informing the issuer, and with investor appetite proving healthy, depositary banks have jumped to take advantage of the change.

But panellists on the IFLR and Latham & Watkins web seminar on unsponsored ADR programmes agreed that the liberalised system was not without its downside, and worried listeners sent in questions raising their concerns about liability, insider trading and how they could protect themselves from this practice.

No issuer involvement An ADR programme is set up by a bank to allow investors to...