DR News: Unsponsored ADR Market To Slow


By Gordon Platt

New unsponsored American depositary receipt (ADR) program creation is likely to slow down in the short to medium term, according to a report by Celent, a Boston-based financial research and consulting firm.

“All the unsponsored programs that could be of investor interest have already been created,” the report says. “Consequently, the unsponsored ADR marketplace has become saturated. Moreover, some firms with unsponsored programs are likely to convert to sponsored programs to attain greater control over their shares,” it adds.

Unsponsored ADRs are those issued by one or more depositary banks in response to market demand, but without a formal agreement with the company. The number of unsponsored programs has surged since October 2008, when the US Securities and Exchange Commission adopted new rules that made it easier to create them.

Arin Ray, analyst with Celent and author of the report, says that depositary banks will become more careful in choosing new foreign companies and appropriate ADR programs. With electronic trading on the upswing, alternative venues will pick up ADR trading and add liquidity to the market, it says. “International ETFs (exchange-traded funds) are fast gaining popularity among the investors,” Ray says. “This may be a barrier to growth of the ADR market. Therefore, product innovation is expected to become a niche, yet significant, phenomenon shaping this market.”