American Depositary Receipts (ADRs) were introduced in 1927 as an easier way to invest in foreign companies through the US share markets.
What’s an ADR?
An ADR is a certificate issued by a US depositary bank. The bank buys shares in the foreign company listed on a foreign share market and repackages them to list on the US share markets as ADRs.
Are they at risk of being delisted?
Lawmakers in the US are currently considering the Holding Foreign Companies Accountable Act (HFCAA) and proposes that foreign companies that fail to meet several strict criteria (audits, US regulatory oversight) be barred from trading on the US share markets. If passed, the law could impact foreign companies already listed on US share markets, especially those from China. The US Securities Exchange Commission (SEC) made a statement in April that foreign companies not answerable to US oversight could put investors at risk with greater potential for loss.
Luckin Coffee's recent troubles may have been the final straw that resulted in the proposed legislation. The Chinese coffee company announced in early April that an internal investigation found evidence of fraud in its financial statements. Trading of Luckin shares was halted in early April, and the Nasdaq is now preparing to delist the company.
If Chinese or other foreign ADRs are delisted, they could move to be traded only on US over-the-counter (OTC) markets rather than the NYSE or Nasdaq exchanges, or potentially barred from trading in the US entirely.
What should I do?
Currently, shares are removed from the Hatch platform if they fall below our US broker criteria ($1b market capitalisation, share price over $1). If they are delisted and moved to another market exchange like the OTC, they can still be sold through our US broker, but not through the Hatch site. Investors who own shares in this situation will need to contact our team ([email protected]) and we will facilitate the sale with DriveWealth.
We can’t guarantee what will happen with ADRs that are delisted as a result of this legislation and ask that Hatch investors stay up to date with news in this space. You'll want to make informed decisions about your current or future investments in Chinese or other foreign countries’ ADRs.