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?
If foreign companies don't comply with US regulations, then they may be. In May, the senate passed a bill that would give Chinese companies and their auditors three years to comply with inspector arguments-or face delisting from Nasdaq and NYSE. 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 delisted the company in June 2020.
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 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@example.com) and we will facilitate the sale with DriveWealth.
If a company is removed from all US exchanges (including the OTC), then you will be able to sell your shares through Hatch up until the day it is delisted. If you still hold shares after the company has been delisted from all US markets, it may be difficult to sell or transfer your shares.
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.