Delivery of American Depositary Shares: Overview, definition, and example
What is delivery of American Depositary Shares?
Delivery of American Depositary Shares (ADSs) refers to the process by which a depositary bank issues ADSs to investors in exchange for deposited foreign shares. It can also refer to the transfer or settlement of ADSs between parties after purchase or sale. ADS delivery is a key part of how U.S. investors gain exposure to non-U.S. companies without holding the foreign shares directly.
Why is delivery of American Depositary Shares important?
This process is important because it enables cross-border investment by simplifying access to foreign equity markets. When investors buy ADSs on a U.S. exchange, they rely on the depositary to deliver the ADSs accurately and in a timely manner. For initial issuances, delivery confirms that the corresponding foreign shares have been properly deposited. For secondary trades, it ensures that buyers receive legal and beneficial ownership of the ADSs.
Understanding delivery of American Depositary Shares through an example
A German company lists ADSs on the NYSE. An investor in the U.S. purchases 1,000 ADSs through a broker. The depositary bank, having received the equivalent underlying shares from the German issuer or custodian, delivers the 1,000 ADSs to the investor’s brokerage account. This delivery completes the transaction and gives the investor economic rights to the underlying German shares through the ADS structure.
Example of how a delivery of American Depositary Shares clause may appear in a contract
Here’s how a delivery of American Depositary Shares clause may appear in a deposit agreement:
"Upon receipt of confirmation that the Custodian has received the underlying Deposited Securities, the Depositary shall promptly issue and deliver the corresponding number of American Depositary Shares to the Holder or its designated agent, subject to the terms and conditions set forth herein."
Conclusion
Delivery of American Depositary Shares is a fundamental step in making foreign equities accessible to U.S. investors. It ensures that ADS holders receive the financial and ownership rights associated with the underlying shares in a regulated and efficient way. Whether in initial issuance or ongoing transfers, the delivery process is essential to the functioning and integrity of ADS programs.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.