American depository receipts are denominated in U.S. dollars and trade in the United States. The underlying security on which the ADR is based is the American depository share, which trades in the firm’s home market.
There are 4 kinds of ADRs which we summarise in this table. Level 1 ADRs trade in the over-the-counter market and are not listed on any exchange. Level 2 and Level 3 ADRs are both listed securities that trade in the US markets. The main difference between the two is that level 3 ADRs can raise capital in the US market through public offerings.
The Rule 144A securities extend to private equity and does not require SEC registration. Foreign firms are allowed to raise capital by privately placing these depository receipts with qualified institutional investors.
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