MEANING,WORKING MECHANISM AND ELIGIBILITY

1. ADR
AMERICAN DEPOSITORY
RECEIPTS

2. MEANING
• American Depositary Receipts (ADRs) are stocks that trade in the
U.S. but represent a specified number of shares in a foreign
corporation. Like regular stocks, ADRs are bought and sold on U.S.
markets. They also trade in U.S. dollars and clear through U.S.
settlement systems – allowing ADR investors to avoid transacting in
a foreign currency.
• ADRs allow U.S. banks to purchase a bulk lot of shares from a
foreign company, bundle the shares into groups and reissue them on
U.S. stock markets – namely, the New York Stock
Exchange and NASDAQ.

3. CONT….
• J.P. Morgan’s (JPM) predecessor firm Guaranty Trust Co. pioneered
the ADR concept. In 1927, it created and launched the first ADR,
enabling U.S. investors to buy shares of famous British retailer
Selfridges and helping the luxury depart store tap into global
markets.

4. ISSUE MECHANISM

5. GUIDELINES
• ELIGIBILITY:-
• Any Indian company, listed or unlisted, private or public
• Any person holding permissible securities.
A. FOR LISTED COMPANIES:-
• For Issuer:- An Indian company which is not eligible to raise funds
from Indian Capital Market will not be eligible to issue:
• FCCBs and ordinary shares through GDRs
• For subscriber:- overseas corporate bodies who are not eligible to
invest in India will not be eligible to subscribe to:
• FCCBs and ordinary shares through GDRs

6. FOR UNLISTED COMPANIES
• Unlisted Indian companies shall list abroad only on exchanges in
IOSCO(International org. of security commission)
• The no of underlying equity shares offered for issuance of ADRs to
be kept with local custodian shall be determined upfront and ratio of
ADRs to equity shares shall be decided upfront based on FDI
pricing norms
• The companies shall file a copy of return which they submit to
proposed exchange and also to SEBI for the purpose of prevention
of Money Laundering Act.

7. PRICING
• FOR LISTED COMPANIES:-
• The average of weekly high and low of losing prices of related
shares quoted on stock exchange during six months preceding the
relevant date.
• The average of weekly high and low of losing prices of related
shares quoted on stock exchange during the two weeks preceding
the relevant date.
• Whichever is HIGHER
• FOR UNLISTED COMPANIES:-
• In accordance with the scheme as prescribed under FEMA
regulation.

8. LIMITS RIGHTS & DUTIES
The aggregate of foreign
investment made directly or
indirectly or through ADR shall
not exceed 51% of the issued
and subscribed capital of
issuing company.
• Foreign depository shall be
entitled to exercise voting
rights.
• The shares of company
underlying DR shall form part
of public shareholding of
company under SC rules 1957
• A holder of DR on back of
equity shares of company shall
have the same obligations as if
it is the holder of underlying
shares.

9. OBLIGATIONS
• The domestic custodian shall:
• Ensure that the relevant
provisions of scheme are
complied with.
• Maintain records
• Provide information & data as
may be called upon by SEBI,
RBI Ministry of Finance and
any other authority of law.
• Indian depositories shall
coordinate among themselves
& disseminate:-
• The outstanding permissible
securities against which the
depository receipts are
outstanding.
• The limit upto which
permissible securities can be
converted to DR