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10
Issuer Services
Table 5: A Snapshot of DR Program Types
U.S. Market – ADR
International Market –
Broaden Shareholder Base with Existing
Shares
Raise Capital with New Shares
Raise Capital with
New Shares
Over-the-Counter
Level I
U.S. Listing
Level II
U.S. Listing and
Public Offering
Level III
U.S. Private
Placement
Rule 144A DR
Non-U.S. Private
Placement
Regulation S (GDR)
Description
• Unlisted Program in
the U.S.
• Listed on a major U.S.
Exchange
• Offered and listed on
a major U.S. Exchange
• Private placement
in U.S. to Qualified
Institutional Buyers
(QIBs)
• Placement in non-U.S.
markets
• May also be accompanied
by a U.S. tranche as a
Rule 144A placement
Trading
• OTC: Quoted in the
Pink Sheets or on
OTCQX
• NYSE or NASDAQ • NYSE or NASDAQ • In U.S. 144A DRs are
traded OTC
• Usually a non-U.S.
Exchange
SEC and GAAP
Requirement
• No U.S. GAAP
reconciliation
required
• SEC compliance and
partial reconciliation
to U.S. GAAP or
qualifying IFRS
• Full SEC compliance
including full U.S.
GAAP reconciliation
or qualifying IFRS
• GAAP conformity
not required
• GAAP conformity not
required
SEC Filings
• File Form F-6
• File Form F-6, 20F • File Form F-6, F-1
and 20F
• No SEC registration
requirements
• No SEC registration
requirements
Over-the-Counter Traded ADR
Programs (Level I)
An over-the-counter traded ADR
program (Level I) is the most cost-
effective way for a non-U.S. company
to have its equity traded in the U.S.
and access the incremental pool of
available capital. Level I ADRs are
traded on the OTC Markets platform,
which includes three trading levels:
• OTC Pink: A centralized marketplace
designed for all types of companies
with no specific financial standards
or reporting requirements. The
platform is further sub-categorized
by the levels of information that
issuers provide and is an ideal
stepping stone platform for entrance
into the U.S. markets with limited
requirements from issuers
• OTCQB: For small or developing U.S.
companies (SEC reporting) or an
internationally listed company on a
qualified non-U.S. stock exchange
• OTCQX: Exclusively for companies
that meet the financial standards
and undergo a qualitative review.
To qualify, companies must meet
financial standards, be current in their
disclosure, and be sponsored by a
professional third-party advisor. Ideal
for issuers that desire a high-level
engagement with their DR programs.
Investor access to OTC traded ADRs is
comparable to listed U.S. securities as
it provides access to incremental pools
of capital through U.S. funds that are
mandated to invest in U.S. dollars or
do not have local custody capabilities
to invest in the ordinary shares.
Additionally, retail investors can buy
and sell OTC-traded ADRs, through their
brokers. However, solicitation to retail
investors requires Blue Sky exemption.
OTC-traded ADRs provide a multitude
of benefits to issuers seeking to test
the U.S. equity markets and build a core
level of ADR holders, prior to exchange
listing or raising capital by Level III
issuances. Level I ADRs have minimal
regulatory requirements in which no
reconciliation of financial statements
to U.S. GAAP is required and exemption
is granted from Sarbanes-Oxley Act
and other U.S. reporting requirements
under SEC Rule 12g3-2(b). As a result,
OTC-traded ADRs are the simplest
and most cost-effective type of ADR
program to establish, while affording
issuers access to a diversified
shareholder base.
Similarly, investors can achieve a wide
range of benefits from Level I ADR
programs. These programs facilitate
investor’s desire for diversification and
trade, clear and settle in accordance with
practices in the investor’s home market,
eliminating the need for local custody
and safe-keeping solutions. Additionally,
as ADRs are quoted in and pay dividends
in U.S. dollars, this overcomes obstacles
investors may have with purchasing
securities outside their local market.
In order to establish a sponsored Level
I ADR program in the U.S., the issuer
must:
• Confirm and qualify for Rule
12g3-2(b) exemption
• File Form F-6 with the SEC which
includes the Deposit Agreement as
an exhibit.