Series 7 practice questionmediumEquity Securities — ADRs — Sponsored vs Unsponsored
What is a key difference between sponsored and unsponsored ADRs?
- ASponsored ADRs can only be purchased by institutional investors
- BUnsponsored ADRs are issued with the cooperation of the foreign company, while sponsored are not
- CSponsored ADRs are created with the foreign company's involvement and typically trade on major exchanges, while unsponsored ADRs trade over-the-counter✓ Correct answer
- DThere is no meaningful difference between them
Explanation
Why C — Sponsored ADRs are created with the foreign company's involvement and typically trade on major exchanges, while unsponsored ADRs trade over-the-counter
Sponsored ADRs are created with the direct participation and cooperation of the foreign company, which enters into an agreement with the depositary bank. They typically trade on major US exchanges and provide shareholders with voting rights. Unsponsored ADRs are created without the foreign company's involvement, usually by broker-dealers, and trade over-the-counter with limited shareholder rights.
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