Surrender of American Depositary Shares: Overview, definition, and example
What is surrender of American Depositary Shares?
Surrender of American Depositary Shares (ADSs) refers to the process by which a holder returns ADSs to the depositary bank in exchange for the underlying foreign shares or cash value. ADSs represent ownership in the shares of a non-U.S. company and trade on U.S. exchanges. When a holder no longer wants to hold ADSs—whether due to sale, conversion, or termination of the ADS program—they may surrender them for cancellation.
Why is surrender of American Depositary Shares important?
Surrendering ADSs is important because it gives investors flexibility in managing their investment. It allows ADS holders to claim the actual foreign shares (or proceeds from their sale) if they prefer to hold them directly or if the depositary arrangement is ending. This process is especially relevant when an ADS program is terminated, or when a shareholder wants to convert ADSs into the underlying local securities for regulatory or strategic reasons.
Understanding surrender of American Depositary Shares through an example
An investor holds 1,000 ADSs in a foreign tech company listed on the NYSE. The company decides to terminate its ADS program. The investor receives notice from the depositary bank and is given a 60-day window to surrender the ADSs. Upon surrender, the investor may receive the equivalent foreign shares or the cash proceeds from their sale, depending on the terms of the program and the investor’s instructions.
Example of how a surrender of American Depositary Shares clause may appear in a contract
Here’s how a surrender of American Depositary Shares clause may appear in a deposit agreement:
"Upon surrender of American Depositary Shares to the Depositary, together with appropriate instructions and documentation, the Holder shall be entitled to receive the underlying securities represented by such ADSs, or the net proceeds from the sale thereof, in accordance with the terms of this Agreement."
Conclusion
Surrender of American Depositary Shares is a key feature of ADS programs that allows investors to exit their position or convert their holdings into the underlying foreign shares. It ensures flexibility, supports regulatory compliance, and provides a clear path for shareholders to recover value when ADS programs are changed or terminated. Understanding the surrender process is essential for ADS holders, especially in cross-border investment scenarios.
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.