American Depository Receipts(ADR)
ADR is a dollar denominated negotiable certificate representing a non-US company in US market which allows the US citizens to invest in overseas securities.
1. First of all, a company hands over the shares to a Domestic Custodian Bank (DCB)
2. Then DCB requests the American Depository Bank (ADB) to issue the shares in the form of ADRs
3. ADB converts the issue which are in rupees into US dollars
4. Finally, ADB issues them to the intending investors.
The features of ADR are briefly given hereunder
1. ADRs are denominated only in US dollars.
2. They are issued only to investors who are American residents.
3. The depository bank should be located in US.
4. The approval of Securities and Exchange Commission (SEC) of US needs to be obtained for issuing ADR.
5. They are sub-classified on the basis of level of clearance made by SEC.