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ADR
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  • Overview
  • How It Works
  • Types of ADRs
  • Rules And Regulations
  • Risks
  • Getting Started

An American Depositary Receipt (ADR) is a U.S. security that represents ownership of shares in an organization.

 

The information in this section, "Overview", is reproduced with the permission of Singapore Exchange.

 

Be a step ahead

ADR used to be only available for trading during U.S. hours. With the launch of ADR on GlobalQuote by SGX, you can now act on news and information about companies, such as Baidu Inc and Suntech Power Holdings, during Asian hours for the first time. You can be a step ahead and buy-sell these companies before the U.S. market opens for trading.

 

Round-the-clock reaction

Because ADRs traded in Singapore are the same ADRs traded in the U.S., you can freely transfer your ADR between your account in the Central Depository of Singapore (CDP) and your account in the Depository Trust & Clearing Corporation (DTCC) in the U.S. You can hold your ADRs in either depositary and will still be able to buy-sell in both Singapore and U.S. exchanges. This way, you can almost trade round-the-clock.

 

Simplify international trading and investing

An ADR makes it easy to buy and hold securities of an overseas company. There is no need to open a separate overseas trading account, no need to put up foreign currency capital or pay foreign custody fees, and no need to worry about unfamiliar trading, settlement or tax practices in other countries. You can simply buy and hold the ADRs of overseas companies through GlobalQuote similar to buying and holding Mainboard-listed securities.

 

Eliminates investment barriers

An ADR is a particularly useful investment tool to access markets with high investment barriers. There are markets that have capital controls and foreign ownership restrictions, thus making it difficult for overseas investors to invest directly into such markets. But through an ADR, you can trade and invest into companies from such markets using your KE Trade account, similar to buying and holding Mainboard-listed securities.

 

 

 

 

ADR trading is made available via SGX new quotation board: GlobalQuote. You can now buy and sell ADRs on Asian companies with your KE Trade account.

 

The information in this section, "How It Works", is reproduced with the permission of Singapore Exchange.

 

Parties involved in an ADR programme

The Issuer
Shares of the issuer are put into an ADR programme so that investors can invest in the issuer by investing in its ADRs rather than its common shares. The rights and obligations of the issuer vis-à-vis its appointed depositary bank and ADR holders are set out in the deposit agreement. The issuer is responsible for providing notices of dividends, rights offerings and other corporate actions to the depositary bank. It is also responsible for ongoing compliance with the U.S. stock exchange and the U.S. Securities and Exchange Commission (SEC) regulations, including disclosure and reporting requirements.
 
The Depositary Bank
The depositary bank is the party that sets up the ADR programme, and facilitates the conversion of the issuer’s common shares into ADRs and vice versa. The depositary bank also provides asset servicing functions such as dividend distributions, currency conversions, proxy voting, etc. The rights and obligations of the depositary bank are set out in the deposit agreement.
 
The Depositary Bank’s Overseas Custodian

The depositary bank appoints an overseas custodian, with whom the issuer’s shares are deposited. The overseas custodian safeguards the shares that back each ADR that the depositary bank issues. When the overseas custodian receives shares from an investor seeking to create ADRs, the overseas custodian will confirm the receipt of shares to the depositary bank, thereby allowing the depositary bank to issue the equivalent number of ADRs to the investor who has delivered those shares.

 

Trading, clearing and settlement of ADRs on GlobalQuote

Trading of ADR on GlobalQuote will be in U.S. Dollars and in board lot sizes of 10 ADRs. The trading hours are:


Session

 

Timing

Pre-open

0830 – 0859

Non-Cancel

0859 – 0900

Open

0900 – 1230

Adjust

1230 – 1359

Non-Cancel

1359 – 1400

Open

1400 – 1700

Pre-Close

1700 – 1705

Non-Cancel

1705 – 1706

Closed

After 1706

 

Clearing and settlement of ADRs will also follow the Mainboard on T+3. Buy-in of short positions of ADR will commence together with Mainboard securities at 2.00 pm on T+3. Investors will pay the same fees for trading shares and ADRs. The following fees are chargable:

 

  • The standard brokerage fees of KE Trade applies. Click here for the brokerage fees for trading ADRs via KE Trade.
  • Clearing fee of 0.04% on the value of the contract, subject to a maximum of S$600; and
  • Prevailing Goods and Services Tax (GST) on brokerage and clearing fees.

 

Issuance, cancellation and cross-border transfer

All ADRs on GlobalQuote are fully fungible with the ADRs in the U.S. This means that they are the same securities and you can freely transfer them, at a fee, across borders between Singapore and the U.S. Furthermore, the dual-listed ADRs are also fully fungible with their common shares listed in the overseas market. This means that you can convert the ADR into common shares and vice versa through a process known as “Issuance & Cancellation”. For the single-listed ADRs, their common shares are not listed in the overseas market and hence it is not advisable for investors to convert the ADR into unlisted common shares.

 

An overview of the various conversion processes are provided below. For detailed descriptions of the conversion processes, please visit here to download the ADR Conversion Guide. You are strongly advised to consult your broker before executing a conversion. Note that you need to have the securities in your account before you can instruct a conversion.

 

Issuance Process -  Converting Common Shares into ADR
The issuance process converts common shares into ADRs. It starts with you (or your broker) sending an instruction to your overseas custodian to deliver common shares to the depositary bank. At the same time, you will need to inform CDP via Form 57A to expect receipt of ADRs into your CDP account. Next, when the depositary bank receives your common shares, the bank will issue new ADRs of equivalent value less fees to CDP, who will credit the new ADRs into your CDP account. The entire process, if executed correctly, takes about 24 hours to complete. You need to have an overseas custody account that is holding the common shares.

 

CDP’s cut-off time for receiving instruction for such conversion is 10.00 am.

 

CDP charges a transfer fee of $10.70 (including GST) per transfer instruction. The ADR depositary bank charges an issuance fee of up to US$0.25 per ADR issued. You may be charged with applicable fees by your overseas custodian. You are strongly advised to consult your broker before executing an issuance.

 

Cancellation Process - Converting ADR into Common Shares.
The cancellation process converts ADRs back into common shares. It starts with you (or your broker) sending an instruction to CDP via Form 57B to deliver ADRs to the depositary bank. At the same time, you will need to inform your overseas custodian to expect receipt of common shares in your (or your broker’s) overseas custody account. Next, when the depositary bank receives your ADRs, the bank will cancel the ADRs and deliver common shares of equivalent value less fees to your (or your broker’s) overseas custody account. The entire process, if executed correctly, takes about 24 hours to complete. Similarly, you need to have an overseas custody account in order to receive the common shares.

 

CDP’s cut-off time for receiving instruction for such conversion is 10.00 am.

 

CDP charges a transfer fee of S$10.70 (including GST) per transfer instruction. The ADR depositary bank charges a cancellation fee of up to US$0.25 per ADR cancelled. You may be charged with applicable fees by your overseas custodian. You are strongly advised to consult your broker before executing a cancellation.

 

Cross-Border Transfer of ADRs - Transferring between CDP and DTCC
All ADRs on GlobalQuote are fully fungible with the ADRs in the U.S. They are freely transferrable, at a fee, between the two national depositories: CDP in Singapore and DTCC in the U.S.

 

Delivering ADRs from DTCC to CDP starts with you (or your broker) sending an instruction to your DTCC custodian to deliver ADRs to CDP. At the same time, you will need to inform CDP via Form 57A to expect receipt of ADRs into your CDP account. Next, when CDP receives the ADR delivered by your DTCC custodian, CDP will credit the ADRs into your CDP account.

 

Delivering ADRs from CDP to DTCC starts with you (or your broker) sending an instruction to CDP via Form 57B to deliver ADRs to your (or your broker’s) DTCC account. At the same time, you will need to inform your DTCC custodian to expect receipt of ADRs from CDP. Next, when your DTCC custodian receives the ADR delivered by CDP, the DTCC custodian will credit the ADRs into your DTCC account.

 

CDP’s cut-off time for receiving instruction for such transfer is 10.00 am.

 

CDP charges a transfer fee of S$10.70 (including GST) per transfer instruction. You may be charged with applicable fees by your DTCC custodian. Note that the ADR depositary bank is not involved in such transers.

 

Things to Take Note when Instructing ADR Conversion
You should note that the above fees and conversion timings is set by the depositary bank or CDP and may be subject to change. Your broker or depositary agent may impose additional fees or cut-off times to perform a conversion. You should also note that public/banking holidays in Singapore or in the overseas markets may delay the conversion process.

 

Buy and sell orders of ADR executed on SGX will settle on T+3. If you execute a sell trade on SGX, you must ensure that sufficient quantities of ADRs are available in your CDP securities account for pre-settlement at 12.00 noon on T+3. If ADRs are expected to be issued or transferred into your CDP securities account from overseas to settle a sell trade here, you must ensure that the conversion process can be completed before 12 noon on T+3. Otherwise, buy-in will commence at 3.00 pm on T+ 3. However, if T+3 is a half-trading day on SGX-ST, you must ensure that sufficient quantity of ADRs are available in your CDP securities account for pre-settlement at 9.00 am on T+3. Otherwise, buy-in will commence at 11.00 am on T+3.

 

You are strongly advised to consult your broker before executing a transfer.

 

Corporate action & dividends

The right of an ADR holder to participate in corporate action events and dividend distributions by the issuer depends on the terms in the deposit agreement. In addition, ADR holders in CDP are bound by the “Terms & Conditions For The Central Depository (Pte) Limited To Act As Depository for Depositary Receipts” . Please visit here to download and read copies of these agreements and terms & conditions.

In general, ADR holders are usually treated like common shareholders. The economic benefits offered to common shareholders are often similarly offered to ADR holders through the depositary bank and CDP whenever practicable. In the event where common shareholders are able to participate in certain corporate actions but ADR holders are not able to, ADR holders who want to participate may convert their ADRs into common shares so as to participate as a common shareholder in the overseas country.

ADR holders in CDP will not be entitled to receive non-cash entitlements or to vote. For non-cash entitlements, CDP will arrange to encash the entitlements and distribute the cash proceeds to ADR holders in CDP after deducting applicable fees and taxes if any. Voting matters will not be extended to ADR holders in CDP. In such cases, ADR holders in CDP may transfer their ADRs to the U.S. DTCC account so as to participate as an ADR holder in the U.S., or convert their ADRs into common shares so as to participate as a common shareholder in the overseas country.

Dividends and Other Cash Distributions
For dividends and other cash distributions that are made by the issuer in its home currency, the depositary bank will pass on the same dividends and cash distributions to ADR holders whenever possible, after converting it into U.S. Dollars and after deducting applicable fees (e.g. depositary bank charges a fee of up to US$0.05 per ADR per cash distribution) and taxes (e.g. withholding tax1.) if any. Investors are urged to consult their own independent tax advisor if they are in doubt about their tax situation and implications for them of investing in ADRs quoted on GlobalQuote.

Non-Cash Entitlements
For non-cash entitlements (e.g. rights issue, bonus shares and other non-cash offers), you should always refer to the terms in the deposit agreement and related announcements by the issuer from time to time. Such non-cash entitlements may be offered to ADR holders or the depositary bank may sell the entitlements and distribute net cash proceeds in U.S. Dollars to ADR holders, subject to the terms in the deposit agreement. It is possible for ADR holders to receive nothing in cases where such entitlements are not offered and cannot be sold (e.g. non-renounceable rights.) In such  cases, ADR holders may convert their ADRs into common shares so as to receive the entitlement as a common shareholder in the overseas country. If you hold ADRs through CDP, please refer to 'Holding ADRs in CD' paragraph below.'

Voting Rights
As for voting rights, ADRs listed on U.S. exchanges may be voting or non-voting in nature depending on the terms in the deposit agreement. The ability of ADR holders to vote may also be constrained by the amount of time available to submit voting instructions through depositary banks to the company registrar in the overseas market. If you hold ADRs through CDP, please refer to 'Holding ADRs in CDP' paragraph below.'

Holding ADRs in CDP
If you hold ADRs in CDP, CDP will pass on any dividends and cash distributions whenever possible after deducting applicable fees and taxes if any. However, CDP will not distribute any amounts below US$10. For non-cash entitlements, CDP will arrange to encash the entitlements and distribute the cash proceeds after deducting applicable fees and taxes if any. Voting matters will not be extended to ADR holders in CDP. In such cases, ADR holders may transfer their ADRs to the U.S. DTCC account so as to participate as an ADR holder in the U.S., or convert their ADRs into common shares so as to participate as a common shareholder in the overseas country. You are advised to read the “Terms & Conditions For The Central Depository (Pte) Limited To Act As Depository For Depositary Receipts” available at www.sgx.com/globalquote/adr.

 

Termination and de-quotation

An ADR programme may cease to be quoted on GlobalQuote if the ADR fails to meet the conditions for quotation set by SGX. It may also be terminated in accordance to the termination clauses in its deposit agreement. In general, an ADR programmee may be removed from quotation on GlobalQuote if the ADR is delisted in the U.S. or if the depositary bank ceases its role as the depositary bank and there is no replacement.

 

Exit Alternatives Upon De-quotation from GlobalQuote
Prior to the effective de-quotation date, you can:

  • sell your ADRs on GlobalQuote;
  • transfer your ADRs from CDP to DTCC, provided that you have a U.S. DTCC account, and sell the ADRs on U.S. exchanges; or
  • cancel your ADRs into common shares, provided that the common shares are listed and you have an overseas custody account, and sell the common shares on its overseas exchange.

 

After the ADRs are removed from quotation on GlobalQuote, CDP will arrange to sell any remaining ADR holdings and distribute cash proceeds to remaining ADR holders in CDP. It is possible to lose your entire investment amount as there is a risk that the ADRs are worthless or cannot be sold.

 

Exit Alternatives Upon Termination of ADR Programme
Prior to the effective termination date, you can:

  • sell your ADRs on GlobalQuote if trading in the ADR is not halted;
  • transfer your ADRs from CDP to DTCC, provided that you have a U.S. DTCC account, and sell the ADRs on U.S. exchanges if the ADRs are not suspended from trading; or
  • cancel your ADRs into common shares, provided that the common shares are listed and you have an overseas custody account, and sell the common shares on the overseas exchange if the common shares are not suspended from trading.

 

On termination date, the remaining ADR holders in Singapore are ranked pari passu with ADR holders in the U.S. and common shareholders in the overseas market. If a cash offer is made by the issuer or other third parties, the same cash offer will be extended to Singapore ADR holders through the depositary bank and CDP. If a non-cash option is offered, CDP will arrange to sell the entitlements where possible and distribute cash proceeds to remaining ADR holders in CDP. It is possible to lose your entire investment amount as there is a risk that the ADRs are worthless or the entitlements cannot be sold.

 

Exit Alternatives when Issuer Goes into Receivership
When an issuer goes into receivership, its ADRs and common shares are likely to be halted from trading in the various exchanges where they are listed or quoted. If the issuer successfully restructures, e.g. through a takeover or a scheme of arrangement, holders of its ADRs and common shares may receive distributions in cash or in non-cash entitlements. It is possible to lose your entire investment or entitlements as there is a risk that the ADRs and/or common shares are worthless.

 

If there is a distribution in cash, CDP will arrange to distribute the cash proceeds to ADR holders in CDP. If there is a distribution in non-cash entitlement, CDP will arrange to encash the entitlements where possible and distribute the cash proceeds to remaining ADR holders in CDP. It is possible to lose your entire investment or entitlement as there is a risk that the entitlements cannot be sold.

 

ADR holders should note that if the issuer is placed into receivership, the process may be protracted.

 

Throughout this period, holders of ADRs in CDP may also:

  • transfer the ADRs from CDP to DTCC, provided that you have a U.S. DTCC account; or
  • cancel the ADRs and hold common shares, provided that the common shares are listed and you have an overseas custody account.

 

By doing so, you will be participating in any distributions either as an ADR holder in U.S. or as a common shareholder in the overseas market.

 

1 The maximum statutory withholding tax rate in the U.S is 30%. For more information, please refer to the IRS website – www.irs.gov

The types of ADRs available for trading on GlobalQuote are sponsored depositary receipts listed on the U.S. stock exchanges.

 

The information in this section, "Types of ADRs", is reproduced with the permission of Singapore Exchange.

 

Sponsored vs. unsponsored ADRs

ADRs may be unsponsored or sponsored. An unsponsored ADR is issued by one or more depositary banks in response to market demand, but without a formal agreement with the issuer. A sponsored ADR is issued by one depositary bank appointed by the issuer under a deposit agreement. Sponsored ADRs offer control over the facility, the flexibility to list on a U.S. or European stock exchange and the ability to raise capital. There are three levels of sponsorship:

 

Sponsored Level II and Sponsored Level III Depositary Receipts
Issuers that wish to list their depositary receipts on a U.S. stock exchange, raise capital or make an acquisition using securities, can use sponsored Level II or sponsored Level III depositary receipts. Level II and Level III depositary receipt programmes require SEC registration and adherence to applicable requirements for U.S. GAAP and listing regulations. Level II depositary receipts are exchange-listed securities but do not involve raising new capital whereas Level III programmes do. Generally, companies that choose either a Level II or Level III programme will attract a significant number of U.S. investors. All the ADRs quoted on GlobalQuote are sponsored Level II and Level III American Depositary Receipts.

 

Sponsored Level I Depositary Receipts
Sponsored Level I depositary receipts are traded in the U.S. over-the-counter (OTC) market. Establishment of a Level I programme does not require full SEC registration. The issuer does not have to report its accounts under U.S. GAAP or provide full SEC disclosure. Essentially, a sponsored Level I depositary receipt programme allows companies to enjoy the benefits of a publicly traded security without changing its current reporting process. Sponsored Level I Depositary Receipts are not quoted for trading on GlobalQuote at the moment.

 

Privately Placed and Offshore (SEC Rule 144A / Regulation S) Depositary Receipts

In addition to the three levels of sponsorship, an issuer can also access the U.S. and other capital markets through SEC Rule 144A and/or SEC Regulation S depositary receipt facilities. Rule 144A programmes provide for raising capital through the private placement of depositary receipts with large institutional investors (often referred to as Qualified Institutional Buyer or QIBs in the United States. Regulation S programmes provide for raising capital through the placement of depositary receipts offshore to non-U.S. investors. Rule 144A and Reg S depositary receipts are not quoted for trading on GlobalQuote at the moment.

 

Dual-listed vs single-listed ADR

All Dual-listed ADRs and Single-listed ADRs are either Sponsored Level II or III ADR Programmes
Dual-listed ADRs are listed in the U.S., and represent ownership of shares in an issuer which shares are listed in an overseas market. For example, China Mobile Ltd has common shares listed on the Hong Kong Exchange and ADRs listed on the New York Stock Exchange. Such issuers are therefore required to abide by the securities laws and listing regulations in both the overseas market and the U.S. These ADRs are now quoted for trading on GlobalQuote.
 

Single-listed ADRs are listed in the U.S., and represent ownership of shares in an issuer not listed in an overseas market. For example, Baidu Inc does not have listed common shares but its ADRs are listed in NASDAQ. Such companies are therefore required to abide by the securities laws and listing regulations in the U.S. The ADRs are now quoted for trading on GlobalQuote. All single-listed ADRs traded on GlobalQuote are marked with a “+” at the end of their stock trading name.

 

List of ADRs

 

Refer here for the list of ADRs you can trade

 

ADRs admitted onto GlobalQuote for trading do not fall under SGX listing rules. This is different from a company listed on SGX Mainboard or Catalist. As the ADRs admitted onto GlobeQuote are listed U.S. securities, it is the SEC and the U.S. exchanges that regulate these ADRs. In brief, the Securities Act of the U.S. governs the offering, sales and registration of securities, while the Exchange Act of the U.S. creates the duties of ongoing disclosure and reporting by issuers. Also, the deposit agreement is governed under U.S. laws. The avenue of recourse action by holders of ADRs is at the court in the U.S. and holders of the ADRs quoted on GlobalQuote will be treated equally as the holders of ADRs listed in U.S.

 

The information in this section, "Rules and Regulations", is reproduced with the permission of Singapore Exchange.

 

U.S. securities laws

U.S. securities laws centre on the concept of “materiality,” applicable to both overseas and domestic issuers. Materiality is considered to be corporate news or actions that may affect an investor’s decision whether to trade a security. In general, material information must be promptly, widely and publicly disclosed, However, non-U.S. issuers are required to disclose material information on a current basis only if it is made public in the issuer’s home country. The disclosed information must be accurate and truthful.Non-U.S. issuers are subject to U.S. anti-fraud liability for material misstatements of facts or omissions that may deceive or mislead investors.

 

The two principal U.S. federal securities laws that govern the creation of ADR facilities are:

  • The Securities Act of 1933 generally governs the offering and sale of securities. The Securities Act requires full and fair disclosure of all information of which investors should be aware in order to make an informed investment decision about securities being offered and/or sold, and contains requirements for the registration of securities to be offered and sold to the public.
  • The Securities Exchange Act of 1934 regulates the secondary markets for listed or quoted securities and requires on-going reporting by those issuers whose securities are traded in secondary markets.

 

The deposit agreement

The deposit agreement is a tri-party agreement that sets forth the legal relationship and obligations of the depositary bank, the issuer and the ADR holders, It describes the services and rights the depositary bank and issuer will provide to ADR holders. Many provisions of a deposit agreement are standard, with little deviation from one agreement to the next, other than jurisdictional requirements.

 

The deposit agreement includes provisions relating to the following:
  • Form of the ADRs
  • Deposit of the issuer's shares
  • Execution and delivery of the ADRs
  • Transfer and surrender of the ADRs
  • Obligations and rights of the depositary and the holders of the ADRs
  • Limitations on depositary's liabilities
  • Distribution by the depositary of cash dividends, stock dividends, rights to acquire additional shares of the issuer, and other distributions made by the issuer
  • Setting of record dates by the depositary
  • Voting rights arising from the issuer's underlying shares (i.e., the shares evidenced by the ADRs)
  • Circumstances in which reports and proxies are to be made available to ADR holders
  • Tax obligations of ADR holders
  • Fees and expenses that ADR holders, the issuer, and the depositary may have to pay
  • Amendment and termination of the deposit arrangements

 

By trading or investing in the ADRs, investors are deemed to have understood the terms and conditions in the deposit agreement and are bound by the terms and conditions in the deposit agreement and the rules of the Exchange. Investors are urged to read carefully the terms and conditions in the deposit agreements of the ADRs as the terms and conditions in the deposit agreements of different underlying companies may vary from one another, You can go to the Electronic Data Gathering and Retrieval (EDGAR) system used by the SEC to retrieve the individual ADR deposit agreements.

 

Information dissemination & availability

You can log in to KE Trade to view trading information of ADR such as live prices, volume trade and stock charts.

You can go to the SGX Website to view the following information about ADRs quoted on GlobalQuote:

  • List of ADRs and related information such as trading currency, trading stock code, conversion ratio, place of listing and depositary bank
  • Investor education materials & FAQs
  • Past company research reports and trading summaries
  • Depositary banks'confirmation on pertinent provisions in deposit agreements
  • Summary of time period in termination clause of single-listed ADRs
  • Relevant links and other information

 

You can go to the Electronic Data Gathering and Retrieval (EDGAR) system used by the SEC to retrieve company documents made available to investors publicly. All overseas and domestic companies regulated by the SEC are required to file registration statements, periodic reports, and other forms electronically through EDGAR. Anyone can access and download this information for free.

 

To search for an ADR company filing on EDGAR:

  • Go to EDGAR system
  • Enter the ADR company’s Ticker Symbol (e.g. CHL for China Mobile ADR)
  • Look under Filings to download the information.
  • The usual filings include:

    • Form F-6: Registration Statement for ADR and deposit agreement
    • Form 20-F: Annual Disclosure to SEC (i.e. Company annual report, identity of directors, senior managers and advisors, Sarbanes-Oxley compliance)
    • Form 6-K: Informational Reports
    • Form F-1, F-2, F-3, F-4: Public Offerings

 

You may also visit the company’s official website or websites of the depositary banks for past and current information about the company’s business, related news, annual reports, upcoming corporate events, etc. The four major depositary banks have dedicated websites for Depositary Receipts:

 

 

Other than risks similar to any investment in stocks, investing in ADRs carries additional risks arising from international investment. IMPORTANT: Prior to investing in ADR, you should ensure that you have understood the risks associated with investing in ADRs. If you are in any doubt regarding ADR, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser prior to any subscription or acquisition.

 

The information in this section, "Risks", is reproduced with the permission of Singapore Exchange.

 

Risk Related to International Investing

Market and Company‐Specific Risk
Like investing in common shares of the company, investing in ADRs is similarly subject to market, country (including but not limited to capital market controls / restriction imposed) and company‐specific risks.

 

Foreign Currency Risk
If the value of the U.S. dollar rises against the value of the company's home currency, you may suffer losses from foreign exchange translation. Conversely, if the U.S. Dollar weakens against the company's home currency, you may profit from foreign exchange translation.

 

Foreign Political, Economic & Social Risk
ADR status does not insulate a company's stock from the inherent risk of its home country's political stability. Revolution, nationalization, currency collapse or other potential disasters may be greater risk factors in other parts of the world than in the U.S., and those risks will be clearly translated through any ADR that originates in an affected nation.

 

Price Risk
The price of an ADR may not always track the price of the underlying common share in its overseas market. Foreign ownership restrictions in companies in overseas markets imposed by their governments often causes
ADRs to trade at a premium to the common shares in the overseas markets. As a result, ADR prices may be subject to wide fluctuations even when the underlying shares are relatively stable.

 

Investor Protection & Recourse
Holders of ADRs may face difficulty in protecting their interests, and their ability to protect their rights through the U.S. federal court may be limited, because the issuers may be incorporated and conduct substantially all of the operations in jurisdictions outside the U.S. Most or all of their officers may reside outside the U.S. and some or all of the assets of those persons may be located outside of the U.S. These jurisdictions may have a less developed body of securities laws as compared to the U.S. and provide significantly less protection to investors. In the event that ADR holders believe that their rights have been infringed under the securities law or otherwise, it may be difficult or impossible for ADR holders to bring an action against the companies or against their directors or officers. Even if an action is successfully brought against them, it may be difficult or impossible to enforce a judgment, if any, against their assets.

 

Hence, ADR holders may have more difficulty in protecting their interests through actions against the companies, their management, directors or major shareholders than would shareholders of a corporation incorporated in the U.S.

 

Risk Related to Investing in Single-listed ADRs

Single‐listed ADRs are ADRs with unlisted underlying shares. The ADR holders may be exposed to the risk of holding unlisted shares should they surrender their ADRs.

 

In the event of a termination of the ADR programme of single‐listed ADRs, it is possible for remaining ADR holders to get non‐cash entitlements such as unlisted underlying shares. CDP will arrange to sell the entitlements where possible and distribute cash proceeds to remaining ADR holders in CDP. Subject to the termination clause in the deposit agreement, the depositary bank may sell the underlying shares for the remaining ADR holders after a certain time period subsequent to the termination date. However, it is possible for ADR holders to receive a lower cash value or even lose the entire investment amount as the ADRs may be sold at depressed prices or become worthless or the entitlements cannot be sold.

 

Risks related to issuer

Liquidation & Receivership

In the event that the issuer is in liquidation or winding‐up or placed under receivership, there is no assurance that holders of ADRs will be able to enforce their right of claim. Holders of ADRs may lose their entire investment.

 

Risk Related to Parties Involved in ADR

Counterparty risks
You will deal with more counterparties when you invest in ADRs than when you invest in SGX‐listed shares. For example, because the depositary bank or its custodian holds the shares underlying the ADRs, you must rely on it to exercise the rights of a holder of the ADRs. Other counterparties include, among others, your brokers, DTCC and CDP. Counterparty risk exists in each of them.

 

Limitations on ADR Conversion
ADRs are transferable on the books of the depositary bank. However, the depositary bank may close its transfer books at any time it deems expedient in connection with the performance of its duties.

 

Depositary Bank or its Custodian in Financial Difficulty
The common shares that back every ADR are held in custody on behalf of ADR holders. If the depositary bank or its custodian goes into financial difficulty, the common shares underlying the ADRs are ring‐fenced and should not constitute assets of the depositary bank or its custodian. Nevertheless, in the event that the depositary bank or its custodian goes into financial difficulty or liquidation and if the common shares underlying the ADRs are deemed to be their assets, ADR holders may lose their entire investment.

 

Limitation on Obligations and Liability of Issuer and Depositary Bank
The deposit agreement in general expressly limits the obligations and liability of the depositary bank and the issuer to ADR holders. The depositary bank and the issuer:

  • are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
  • are not liable if either the depositary bank or the issuer is prevented or delayed by law or circumstances beyond their control from performing their obligations under the deposit agreement;
  • are not liable if either the depositary bank or the issuer exercises discretion permitted under the deposit agreement;
  • have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on the behalf of ADR holders or on behalf of any other party;
  • may rely upon any documents the depositary bank and the issuer believe in good faith to be genuine and to have been signed or presented by the proper party.

 

Inability to Seek Remedy Against Issuer and Depositary Bank
Holders of ADRs may face administrative difficulties or may not be able to take legal action against the issuer or the depositary bank in the U.S. should there be a breach of terms in the deposit agreement by the parties.

 

No approval from ADR holders for delisting of ADRs and termination of ADR programme

Holders of ADRs face the risk that the ADRs may be delisted from the U.S. exchanges and/or the ADR programme may be terminated without ADR holders'approval.

 

Risk Related to Investing Through GlobalQuote

SGX‐ST Listing Rules Do Not Apply
ADRs quoted on GlobalQuote do not constitute a listing on the SGX‐ST. Therefore, the companies whose ADRs are quoted on GlobalQuote are NOT subject to the listing requirements of the SGX‐ST. The issuers are not subject to the disclosure requirements of the Exchange. Quotation of the ADRs is not to be taken as an indication of merits of the issuer, its subsidiaries and their securities, the depositary banks or the ADRs. Investors are expected to keep themselves abreast of information on the issuers of the ADRs from other public sources.

 

Inability to Participate in Voting Matters
Holders of ADRs in CDP will NOT be able to vote through CDP. This is unlike direct holders of ADRs listed on the U.S. exchanges. ADR holders who wish to participate in voting are advised to transfer their ADRs to the U.S. DTCC so as to participate as an ADR holder in the U.S., or convert their ADRs into common shares so as to participate as a common shareholder in the overseas country.

 

Note however that ADRs listed on the U.S. exchanges can be voting or non‐voting in nature. Subject to terms and conditions of the deposit agreement, direct holders of ADRs listed on U.S. exchanges may not be able to receive voting materials in time to ensure that they can instruct the depositary bank to vote. In such cases, direct holders of ADRs listed on U.S. exchanges may also not be able to exercise their right to vote and there may be nothing they can do if their votes are not cast as they requested.

 

Inability to Receive Non‐Cash Entitlements
Holders of ADRs through CDP will NOT be able to receive non‐cash entitlements (e.g. rights issue, bonus shares, and other non‐cash offers). The depositary bank or CDP may sell the entitlements and distribute net cash proceeds in U.S. Dollars to ADR holders, subject to the terms in the deposit agreement and Terms and Conditions For Central Depository (Pte) Ltd to Act As Depository For Depositary Receipts. It is possible for ADR holders to receive nothing in cases where such entitlements are not offered and cannot be sold (e.g. non-renounceable rights).

 

In such cases, ADR holders are advised to transfer their ADR to the U.S. so as to participate as an ADR holder in the U.S., or convert their ADRs into common shares so as to participate as a common shareholder in the
overseas country.

 

Potential Losses Arising from De‐Quotation from GlobalQuote
In the event that ADRs cease to be quoted on GlobalQuote, holders of ADRs may suffer losses arising from time delay and inability to trade during this time period. Also, holders of ADRs may have to bear costs associated with exit alternatives as a result of the de‐quotation.

 

Potential Losses Arising from trading halt in ADRs quoted on GlobalQuote
A trading halt on ADRs on GlobalQuote may be imposed by SGX at any time.

 

Amongst other things, SGX will take into consideration if trading of the same ADR is halted in the U.S. or if the trading of the underlying common shares is halted in a overseas market. Similarly, SGX will also take into consideration if the same ADR resumes trading in U.S. or if the ADR’s common shares resume trading in a overseas market. Where trading halts or suspensions are imposed and lifted, the imposition and the lifting of the trading halt or suspension may not be contemporaneous with the trading halts or suspensions on the underlying shares.

 

In the event where the trading of the underlying common shares in an overseas market is not halted or suspended, SGX may allow the ADRs to continue to trade on GlobalQuote even if the ADRs may have been halted or suspended in the U.S. Trading halts or suspensions may not be imposed on ADRs quoted on GlobalQuote when material announcements are made by the issuer.

 

In the event that trading in ADRs on GlobalQuote is halted, holders of ADRs may suffer losses arising from time delay and inability to trade during this time period.

 

Electronic Trading

What are the electronic trading risks which I need to take note of?

 

Getting started to trading ADR on SGX GlobalQuote using KE Trade

 

 

Steps

 

Step 1: Enter the ADR SGX Trade Symbol that you wish to trade

E.g For Baidu Inc ADR, SGX Trading Symbol is "K3SD"

Refer here  for the full listing of ADRs.

Step 2: Enter desired quantity. Note that the board lot is 10. 

Step 3: Enter trade price. Note that the trading currency is in USD. 

Step 4: Click on "Submit"

 

 

 

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