Depositary Receipts website

When investors want to sell their Depositary Receipts, they notify their broker. The broker can either sell the Depositary Receipts in the U.S. market through an intra-market transaction or sell the shares outside of the U.S., typically into the home market through a cross-border transaction. In cross-border transactions, brokers, either through their international offices or through a local broker in the company's home market, will sell the shares back into the home market. In order to settle the trade, the U.S. broker will surrender the Depositary Receipt to the depositary bank with instructions to deliver the shares to the buyer in the home market. The depositary bank will cancel the Depositary Receipt and instruct the custodian to release the underlying shares and deliver them to the local broker who purchased the shares. The broker will arrange for the foreign currency to be converted into U.S. dollars for payment to the Depositary Receipt holder.

Once Depositary Receipts are issued and there are an adequate number of Depositary Receipts outstanding in the U.S. market (usually three percent to six percent of the company's shares in Depositary Receipt form) a true intra-market trading market emerges. Until this market develops, the majority of Depositary Receipt purchases result in Depositary Receipt issuances upon the deposit of shares. When executing a Depositary Receipt trade, brokers seek to obtain the best price by comparing the Depositary Receipt price in U.S. dollars to the dollar equivalent price of the actual shares in the home market. Brokers will buy or sell in the market that offers them the best price and they can do so in three ways: by issuing a new Depositary Receipt, transferring an existing Depositary Receipt or canceling a Depositary Receipt. For example, if the price of the actual shares in the home market is $12.28 per share after allowing for foreign currency translation, and the Depositary Receipt is selling for $12.30, the broker will buy shares and issue Depositary Receipts until the price of the ordinary shares increases to $12.30, at which time the broker will simply buy and sell the existing Depositary Receipts that are outstanding in the market. The broker may also be holding an inventory of ordinary shares, in which case the local trading price is irrelevant.

The continuous buying and selling of Depositary Receipts in either market tends to keep the price differential between the local and U.S. markets to a minimum. As a result, about 95 percent of Depositary Receipt trading is done in the form of intra-market trading and does not involve the issuance or cancellation of a Depositary Receipt.

When a non-U.S. company completes an offering of new shares, part of which will be sold as Depositary Receipts in the U.S. or international market, the company will deliver the shares to the depositary bank's local custodian at the time of the closing. The depositary bank will then issue the corresponding Depositary Receipts and deliver them to the members of the underwriting syndicate. With this pool of Depositary Receipts, a regular trading market commences where Depositary Receipts can then be issued, transferred or canceled.

Source: The Bank of New York, http://www.adrbny.com;