Unsponsored ADR
Categories: Forex
See: ADR.
So...what's a protected ADR? Or a sponsored one? Well, when an American Depositary Receipt is sponsored, it's acknowledged and backed by the underlying company and/or the government governing the company the ADR is pegged to.
An ADR is just a U.S. placeholder, managed through a bank, so that U.S. investors can buy shares in U.S. dollars in shares of a foreign company. Not all companies get sponsorship to sell their shares in the U.S., so a third party steps up and says, "I'll back this baby." They then bridge the gap between the U.S. share buyer and the foreign share seller in an unsponsored manner.
There is counterparty risk then: if that gap bridger should evaporate, how would the U.S. investor really have any meaningful relationship to get their money back from the (likely) private foreign company in which they invested? Yeah...not bloody likely.
So there's risk. Which means that the allure of higher reward has to be there...or the deal doesn't happen.
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