American Depository Receipt

So, the difference between level II and III is that level III is floating a new issue…? Woulden’t that be a requirement for entering the exchange? Woulden’t every ADR have to go through level III at some point?

No love?

no, i dont think so. An ADR is a vehicle for investing in foreign equities in the US. The foreign shares are held in a trust which backs the actual ADR security. For level 3, I think that the foreign corporation is actually raising new capital through an issuance in the US. It is not a requirement to do this just to trade on the exchange. Make sense?

How else would you get onto the exchange than by at some point in time issue new shares? Telling you’re local investors that you are sending a portion of their shares to a foreign exchange seems unlikely…

willispierre is right. L1 and L2 shares let the foreign co. deposit shrs at an agent to trade in the US. L3 lets the co. actually issue new shrs to raise capital. not every co. that issues ADR’s wants to go and raise new capital in a foreign market. L3 is giving you the right/reqs more or less to do a secondary offering in the foreign mkt. big difference b/t that and just listing up shares in a foreign market. most ADR’s are fungible with the home shrs, so they really shouldn’t in theory trade any differently (arbitrage) than the home shares. just easier for a joe retail US investor to go and buy shares of volkswagon under shares of VLKAY in $usd trading during US trading hours than it is to go and buy them in germany, deal with the forex, etc. doubt this topic would come up on the exam, but if it did, for CFA purposes it’s just one of those memorize that L1 most basic, not on exchange, L2 listed on exchange, registration reqs of SEC, L3 issuer floats a public offering… or something like that. memorize that 3 is more strict than 1, move on.

Here! Here! We should all be “blazin” through sections like that.

Cute… Very cute…