How to Establish a DR Program

Depositary Receipts, including American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs), play an essential role in the global marketplace. Since the 1920's, brokers have used Depositary Receipts to facilitate settlement of securities transactions across international borders. In today's globalized markets, however, investors and issuers alike are using Depositary Receipts to diversify their portfolios and expand their offerings and shareholder base.

Structuring A Depositary Receipt Facility

Depositary Receipt facilities are available in different levels and formats.

Sponsored Level I Depositary Receipts

A sponsored Level I Depositary Receipt program is the simplest method for companies to access the U.S. and non-U.S. capital markets. Level I Depositary Receipts are traded in the U.S. OTC market with prices published in the "Pink Sheets" and on some exchanges outside the United States. Establishment of a Sponsored Level I program does not require full SEC registration and the company does not have to report its accounts under U.S. GAAP or provide full SEC disclosure. Essentially, a Sponsored Level I Depositary Receipt program allows companies to enjoy the benefits of a publicly traded security without changing its current reporting process.

The Sponsored Level I Depositary Receipt market is the fastest growing segment of the Depositary Receipt business. The majority of sponsored programs are Level I facilities. In addition, because of the benefits of Depositary Receipt investing, it is not unusual for a company with a Level I program to obtain 5 percent to 15 percent of its shareholder base in Depositary Receipt form. Many well-known multinational companies have established such programs. In addition, numerous companies have started with a Level I program and then upgraded to a Sponsored Level II (Listing) or Sponsored Level III (Offering) program.

Sponsored Level II and Sponsored Level III Depositary Receipts

Companies that wish to list their Depositary Receipts on a U.S. stock exchange (NASDAQ, American or New York), raise capital or make an acquisition using securities, use Sponsored Level II or Sponsored Level III Depositary Receipts. Level II and Level III Depositary Receipt programs require SEC registration and adherence to applicable requirements for U.S. GAAP. These types of Depositary Receipts can also be listed on some exchanges outside the United States. Level II Depositary Receipts are exchange-listed securities but do not involve raising new capital. Level III programs typically generate the most U.S. investor interest because capital is being raised. Generally, companies that choose either a Level II or Level III program will attract a significant number of U.S. investors.

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

Non-U.S. companies can also access the U.S. and other capital markets through Rule 144A and/or Regulation S Depositary Receipt facilities without SEC registration. Rule 144A programs provide for raising capital through the private placement of Depositary Receipts with large institutional investors (Qualified Institutional Buyers or QIBs) in the United States. Regulation S programs provide for raising capital through the placement of Depositary Receipts offshore to non-U.S. investors in reliance on Regulation S. A Level I program can be established along side a Rule 144A program and a Regulation S program may be merged into a Level I program after the restricted period has expired. BNY Mellon is a pioneer in the development and utilization of "bifurcated" and multiple Depositary Receipt structures to facilitate offering structure and trading goals.

Issuers

Today, corporations and governments are using Depositary Receipts in global equity offerings and privatizations to U.S. and non-U.S. investors in a variety of traditional and innovative ways to raise equity capital, diversify their shareowner base, globalize their non- U.S. shares, increase demand for their securities and improve share valuation. In addition, non-U.S. companies can issue Depositary Receipts to establish employee share programs, which in turn increases the number of Depositary Receipts issued and purchased; all of which leads to an expanded investor base and improved name recognition worldwide. Because they are dollar-denominated securities, more and more non-U.S. companies are using Depositary Receipts for mergers and acquisitions.

Investors

Depositary Receipts may be used by investors to diversify globally to help realize greater average returns and experience lower volatility than portfolios comprised solely of U.S. stocks.

At the same time, Depositary Receipt investors can avoid many of the complexities associated with international investing. For example, Depositary Receipts: Offer greater convenience and easy conversion - because they clear and settle within the U.S. settlement cycle or through Euroclear or Clearstream; Protection - because they can be cancelled and the underlying shares acquired; and Tax advantages - because they may facilitate the reclaim of withholding taxes on dividends.

BNY Mellon Difference

Ease of Doing Business

Among major depositaries, BNY Mellon is the only bank in the stock transfer (registrar) business - a critical component of any successful Depositary Receipt program. Our highly flexible internal processing capabilities enable us to quickly make systems enhancements to meet the needs of our clients, their shareowners and the brokerage community. These capabilities also enable us to deliver specialized services such as on-line access to account information, tender and exchange services for mergers and acquisitions, subscription agent services for rights offerings, and services for direct share purchase and sale plans, dividend reinvestment and employee share incentive programs.

Innovation and Specialization

BNY Mellon has an unparalleled record of achievement in developing new services to help clients meet their objectives and in resolving complicated regulatory issues. Analysts and the financial press alike consider us to be the industry's leading spokesperson on regulatory matters and serve as a respected advisor to corporations and governments around the world.

We achieved and continue to maintain this leadership position by offering enhanced value through innovation and specialization. For example:

  • Capital Raising and Listing - With our highly specialized transaction team of administrative and operational experts to assist our clients in capital raising and listing, BNY Mellon has acted as depositary bank for the vast majority of programs established for these purposes.
  • Depositary Receipts for Privatizations - BNY Mellon has handled more privatizations than any other depositary and maintains a dedicated team responsible for all aspects of planning, structuring and administering a privatization program. Team members work with government officials, the company being privatized, the investment bankers and attorneys to structure the facility and resolve all regulatory issues.
  • Broker/Institutional Marketing - Our specialized team of marketing officers are available worldwide to assist our clients in improving the visibility of their programs in the brokerage community and among institutional investors. Our services can be used independently or in conjunction with an investor relations program.
  • Depositary Receipts for Acquisitions - BNY Mellon has taken the lead in developing the use of Depositary Receipts for acquisitions of U.S. companies. We are a leader in tender and exchange services, providing a critical component for companies using Depositary Receipts for acquisitions.
  • Shareowner Services - We have a dedicated Shareowner Services Department to ensure that every Depositary Receipt inquiry receives prompt, personal attention from a highly qualified, specialized staff member who is well-versed in all aspects of the Depositary Receipt and stock transfer businesses.
  • Employee Services - Recognizing the value associated with facilitating employee ownership, BNY Mellon has developed numerous services promoting employee ownership of non-U.S. companies through the use of Depositary Receipts.
  • Stock Transfer Capabilities - BNY Mellon is the only major depositary bank in the stock transfer business, servicing not only non-U.S. Depositary Receipt clients but also some of the largest, most prestigious companies in the United States. Besides maintaining Depositary Receipt ownership records, transferring Depositary Receipt certificates and processing corporate actions, including paying dividends as well as stock splits, rights issues and ratio changes, our stock transfer systems enable us to offer the most extensive range of value-added services in the industry.
  • Related Investor and Issuer Services - BNY Mellon is one of the largest providers of investor and issuer services in the United States and one of only a handful of banks that can handle all the requirements imposed by today's global issuers and investors. Unlike many of our competitors who have withdrawn from the business, we remain firmly committed. Because these services account for a significant percentage of the Company's earnings, our Worldwide Securities Services receive considerable attention and the resources necessary to assure the highest quality services available anywhere.

Value-Added Services

Inform - Internet Management Reporting

BNY Mellon has long recognized the importance of providing our clients with useful, timely and value-added information about their Depositary Receipt programs. Inform, our proprietary bank-wide Internet Depositary Receipt management reporting platform, reflects our strategic focus on delivering the most advanced information delivery tools for our clients. Inform's innovative capabilities allows Depositary Receipt issuers to access, view, print and save management reports directly from their PCs through standard Internet software. Reports that were once available only through monthly mailings can now be immediately accessed on-line through Inform. Ten years of on-line history is available. As a result, Depositary Receipt issuers receive timelier access to all information regarding their Depositary Receipt programs, including activity reports, price performance charts, trading volumes, issues outstanding and a host of shareowner and investor-related information. All issuer data is secured through the use of unique ID numbers and passwords.

The various information options available through Inform include:

  • Program Highlights: provides a summary of the Depositary Receipt program's price performance, cross-border trading activity and institutional shareholders. Charts provide a price benchmark of Depositary Receipts versus the S&P 500 Index and the BNY Mellon ADR Index. These broad market indicators track the respective share price performance of major U.S. and non-U.S. companies. Summary tables highlight trends in ownership and trading activity, such as the brokers for cross-border trading, institutional holders and price information for a Depositary Receipt program.
  • Depositary Receipt Program Status: compiles multiple shareholder identification reports that are accessible from quarterly filings made by investment managers to the U.S. Securities and Exchange Commission. This includes investment managers with $100 million in assets under management, as well as mutual funds, banks, pension plans and other companies. The institutional investors in both your Depositary Receipt and underlying security are provided with holdings and contact information. Additional reports allow targeting of the top Depositary Receipt holders for your industry and region.
  • Cross-border Trading Activity: displays, in tabular format, a list of the brokers who are buying and selling Depositary Receipts and the underlying shares in the U.S. and home trading market. This includes the number of transactions and the number of Depositary Receipts issued and cancelled by each broker. Additional indicators highlight net issuance/cancellation activity and the total cross-border trading of Depositary Receipts.
  • Institutional Holders: compiles multiple shareholder identification reports that are accessible from quarterly filings made by investment managers to the U.S. Securities and Exchange Commission. This includes investment managers with $100 million in assets under management, as well as mutual funds, banks, pension plans and other companies. The institutional investors in both your Depositary Receipt and underlying security are provided with holdings and contact information. Additional reports allow targeting of the top Depositary Receipt holders for your industry and region.

DR AlertSM

DR Alert is our proprietary on-line notification system for Depositary Receipt clients, which tracks daily activity in our clients' Depositary Receipt programs.

DR Alert establishes pre-defined parameters to monitor daily Depositary Receipt activity and uses "push technology" to notify clients by e-mail when significant cross-border trading and price changes occur in the market with respect to their Depositary Receipt program. In addition, when market or company conditions change, DR Alert offers clients the flexibility to further adjust their activity parameters.

Global BuyDIRECTSM

During the last several years, there has been rapid growth in the number and types of dividend reinvestment and direct share purchase plans offered by U.S. companies. Recognizing this trend and realizing that in order to attract and retain investors, it is important that non-U.S. companies offer the same type and range of services that U.S. companies offer to investors, a number of non-U.S. companies are now able to offer similar plans for their Depositary Receipt holders via BNY Mellon.

BNY Mellon is currently one of the few stock transfer agents and the only depositary bank capable of offering an in-house direct share purchase and dividend reinvestment plan for Depositary Receipt investors. The program allows existing and first-time investors to purchase Depositary Receipts without a broker. Global BuyDIRECT encourages investors to make initial and ongoing investments by providing the convenience of investing directly in listed Depositary Receipts while at the same time reducing brokerage commissions and service costs. Global BuyDIRECT provides both current shareowners and first-time investors a cost-effective alternative for buying, holding and selling Depositary Receipts. Even companies that do not pay dividends benefit from Global BuyDIRECT because a direct share purchase and sale program can help increase a company's registered shareowner base and serve as an alternate method for raising capital. Global BuyDIRECT can also help increase the number of Depositary Receipts issued into the U.S. market by helping to stimulate the demand for Depositary Receipts by attracting investors that otherwise would not invest. Global BuyDIRECT is also available for your U.S.-based employees, and is a convenient, low-cost method to increase employee ownership in your company.

BuyDIRECT is a service mark of The Bank of New York Mellon.

© 2014 The Bank of New York Mellon Corporation. Depositary Receipt business and services are conducted through The Bank of New York Mellon.