Types of ADRs
There are two types of ADRs:
1. Sponsored ADRs
A sponsored American depositary receipt (ADR) is a depositary receipt (ADR) issued by a bank on behalf of a foreign company whose equity functions as the underlying asset. A sponsored ADR establishes a legal relationship between the ADR and the foreign company, which bears the cost of the security’s issuance. Sponsored ADRs can be listed on prominent exchanges, whereas unsponsored ADRs can only trade on the over-the-counter market (OTC).
2. Unsponsored ADRs:
A depositary bank initiates an unsponsored ADR program without the company’s contractual involvement. The establishment of an unsponsored ADR program is prompted by demand from brokers and investors. In the United States, ADRs are transacted on the over-the-counter (OTC) market.