Understanding the Different Levels of American Depositary Receipts (ADRs)

Introduction: Investors looking to diversify their portfolios with foreign securities often face obstacles when purchasing individual stocks of foreign companies. One alternative is to invest in American depositary receipts (ADRs), which are certificates representing shares of foreign company stock held in a bank within the United States and denominated in U.S. dollars. ADRs offer different levels of compliance and regulatory oversight, categorized as Level I, Level II, and Level III. This article aims to provide a clear understanding of the differences between these ADR levels and their implications for investors.

  1. Level I ADRs:
  • Sponsored ADRs listed as Level I issues require the least amount of compliance and regulatory oversight.
  • Investments are originated by the foreign company itself.
  • A Level I ADR offering requires filing an F-6 registration statement, but the company is exempt from full Securities and Exchange Commission (SEC) reporting requirements.
  • Level I ADRs are only traded on the over-the-counter market.
  1. Level II ADRs:
  • Foreign companies issuing Level II ADRs must fulfill all registration and reporting requirements imposed by the SEC.
  • This includes submitting the company’s F-6 registration statement, SEC Form 20-F, and annual financial reports prepared in accordance with either generally accepted accounting principles (GAAP) or international financial reporting standards.
  • Compliance with the Sarbanes-Oxley Act, which requires accounting and financial disclosure, is also mandatory for Level II ADRs.
  • Level II ADRs can be listed on major U.S. stock exchanges such as the New York Stock Exchange or the Nasdaq Stock Market.
  • Issuing Level II ADRs provides the foreign company with greater exposure in the United States without needing to complete a public offering.
  1. Level III ADRs:
  • Level III ADRs are similar to Level II issues in terms of reporting requirements and listing on U.S. exchanges.
  • Foreign companies issuing Level III ADRs can raise capital through a public offering of the ADR within the United States.
  • This additional step requires filing a Form F-1 with the SEC to properly register the public offering.

Key Takeaways:

  • ADRs represent shares of foreign company stock held in a U.S. bank and denominated in U.S. dollars.
  • Most ADRs are sponsored, meaning the foreign company is involved in creating the investment for U.S. investors.
  • Level I ADRs have the least compliance and regulatory oversight, while Level III ADRs have the most.
  • Level II ADRs fulfill all SEC registration and reporting requirements and can be listed on major U.S. stock exchanges.
  • The Sarbanes-Oxley Act applies to Level II and Level III ADRs, ensuring accounting and financial disclosure standards are met.

Note: Tables and additional formatting can be used to present any relevant data or comparisons between the different ADR levels, depending on the available information and specific requirements of the reader.

Further Resources:

Websites and Online Resources:

  • Securities and Exchange Commission (SEC): The official website of the SEC provides detailed information on ADR regulations, registration requirements, and filing procedures. Visit their ADR section for comprehensive guidance. SEC ADR Information
  • American Depositary Receipt Association (ADRA): ADRA is a professional organization dedicated to promoting and facilitating the use of ADRs. Their website offers resources, educational materials, and industry insights for investors interested in ADRs. ADRA Website


  • “American Depositary Receipts: An International Guide for Investors” by Michel-Henry Bouchet: This comprehensive guide explores various aspects of ADRs, including their types, benefits, risks, and regulatory frameworks. Amazon Link
  • “The Handbook of Depositary Receipts” by Brian R. Bruce: This book offers a comprehensive overview of depositary receipts, including ADRs, their history, mechanics, and investment considerations. Amazon Link

Academic Journals and Research Papers:

  • “The Impact of ADR Listings on Stock Liquidity: Evidence from Latin American Firms” by G. Andrew Karolyi and Rene M. Stulz: This research paper analyzes the impact of ADR listings on the liquidity of Latin American firms and provides valuable insights into the benefits and challenges of ADR investments. Link to Paper
  • “The Price and Performance of ADR IPOs” by Reena Aggarwal and Sandeep Dahiya: This study examines the price and performance of ADR initial public offerings (IPOs) and provides insights into the dynamics of ADR markets. Link to Paper

Reports and Studies:

  • “ADRs: The Benefits of American Depositary Receipts” by J.P. Morgan: This report provides an overview of ADRs, including their benefits, risks, and investment considerations. It also offers insights into the ADR market and trends. Link to Report
  • “The 2019 Depositary Receipts Yearbook” by BNY Mellon: This comprehensive yearbook covers various aspects of depositary receipts, including ADRs, their issuance, trading, and market trends. Link to Yearbook

Professional Organizations and Associations:

  • CFA Institute: The CFA Institute offers resources and educational materials related to ADRs and international investing. They provide insights into valuation, risk management, and best practices for analyzing ADR investments. CFA Institute ADR Resources
  • International Securities Association for Institutional Trade Communication (ISITC): ISITC is an industry association that focuses on standardizing operational processes in the financial services industry. Their website offers resources and insights on ADR settlement and post-trade processing. ISITC Website