Glossary
A
American Depositary Receipts (ADRs)
A negotiable instrument issued by a U.S. depositary bank evidencing ownership of shares in a non-U.S. company. Each ADR denotes American Depositary Shares (ADSs), representing a specific number of underlying shares on deposit with a custodian in the issuer’s home market. ADRs are quoted and traded in U.S. dollars in the U.S. securities market, and the associated dividends are paid to investors in U.S. dollars. ADRs were specifically designed to facilitate the purchase, holding and sale of non-U.S. securities by U.S. investors and to provide a corporate finance vehicle for non-U.S. issuers.
American Depositary Shares (ADSs)
A security issued in the U.S., representing shares on deposit with a custodian in the issuer’s home market. An American Depositary Receipt (ADR) evidences one, a fraction of one, or more than one American Depositary Share. The term "ADR" is often used to mean both the certificates and the securities themselves.
American Depositary Warrants (ADWs)
Warrants typically entitle the holder to purchase a specified number of shares for a specified price over a specified period of time in the local market. ADWs issued against deposited warrants generally entitle the holders to purchase a corresponding specified number of ADSs representing the issuer’s shares deposited in its DR facility for a specified price in U.S. dollars over the same specified period of time provided under the terms of the issuer’s warrants.
American Stock Exchange (AMEX)
Formerly the third largest stock exchange in the U.S. as measured by trading volume, the AMEX was acquired by NYSE Euronext in 2008 and rebranded NYSE Alternext US. The AMEX traditionally dealt with mostly small cap stock, derivatives and exchange-traded funds, and handled about 10% of all the securities traded in the U.S.
B
Bear Market
A declining market where investment prices fall accompanied by widespread pessimism.
Beneficial Owner
Person entitled to the rights and privileges that derive from ownership of a security (including income, voting rights and power to transfer), regardless of who has physical possession of the security or the name in which the security is registered.
Bifurcated GDR
DR structure in which the securities of a non-U.S. issuer are offered simultaneously but as separate and distinct classes: (i) in the form of Rule 144A DRs, to investors who satisfy the definition of QIB, and (ii) in the form of Reg S DRs, to investors who are located outside of the U.S.
Blue Sky Securities Laws
Securities laws of the individual states within the U.S., designed to protect investors from fraud or "blue sky" (worthless) securities. The federal securities laws in most instances override the individual state’s securities laws.
C
Cede & Co.
The nominee name for DTC. Physical securities underlying ownership positions and transactions by participating banks and brokers in the U.S. that are safekept at DTC (or at a custodian designated by DTC) are registered under the name Cede & Co.
Clearstream
An international clearing organization, located in Luxembourg, responsible for clearing and settling international securities transactions.
Convertible Security
A security that, at the option of the holder and/or issuer, may be converted for another security of the same issuer. Convertible securities are frequently securities such as debentures and notes.
CUSIP Number
A unique identification number assigned to a security issuance to facilitate clearing and settlement. The numbering system is used primarily in the U.S. and is established by the ABA Committee on Uniform Security Identification Procedures (CUSIP).
Custodian
An agent that safekeeps securities for its customers and performs related corporate action services such as dividend and interest collections. With regard to DRs, the custodian may be the overseas branch, affiliate or correspondent of the depositary bank and is responsible for safekeeping the ordinnary shares underlying the DRs.
D
Debenture
A certificate of indebtedness representing the issuer's promise to pay a certain sum at a specified time.
Depositary
A bank which issues DRs, facilitates cross border settlement through DRs and administers the DR facility. Aspects of administration include maintenance of DR program records, corporate actions processing, interaction with custodians for deposited securities, distribution of dividends in U.S. dollars, and consultations regarding investor relations efforts.
Depositary Receipt (DR)
A negotiable certificate representing ownership of shares in a non-U.S. company that is quoted and traded in the currency of the market in which it trades. DRs facilitate the purchase, holding and sale of securities by investors outside the issuer’s home market.
Depositary Share (DS)
A security, evidenced by a DR, representing shares on deposit with a custodian in the issuer’s home market. The term "DR" is often used to mean both the certificates and the securities themselves.
Depository Trust & Clearing Corporation (DTCC)
DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, and Over-the-Counter credit derivatives. DTCC’s depository (DTC) also provides custody and asset servicing for more than two million securities issuers from the United States and one hundred other countries and territories.
Depository Trust Company (DTC)
A subsidiary of DTCC, DTC is the primary national depository and clearing and settlement system in the U.S. for book-entry securities of participant institutions that records, maintains and transfers securities electronically. Participant institutions include securities brokers and dealers, banks, trust companies and clearing corporations. DTC provides the primary book-entry transfer facility for non-U.S. government securities.
Dividend Reinvestment Plan (DRIP)
A plan whereby stockholders may automatically reinvest dividend payments in shares of the company’s stock, or in DRs representing shares of the company’s stock.
DTC/Euroclear/Clearstream Bridge
An electronic settlement link between DTC, Euroclear and Clearstream.
E
Embedded Restricted Securities (ERS)
Restricted securities embedded into an exchange-listed program. This structure is used when an existing exchange-listed issuer needs to issue restricted ADRs. The restricted securities are listed on the exchange, but they are segregated from the registered ADRs for securities law purposes.
Employee Stock Ownership Plan (ESOP)
Employer sponsored plan pursuant to which companies contribute funds to a tax-deferred compensation plan for the purpose of purchasing employer shares/ADRs for ESOP participants in accordance with a compensation-based allocation.
Employee Stock Purchase Plan (ESPP)
Employer sponsored plan that enables participating employees to purchase employer shares/ADRs with after-tax income. ESPPs typically enable the participating employees to purchase the shares/ADRs at a discount from market value.
Euroclear
An international clearing organization, located in Brussels, responsible for holding, clearing and settling international securities transactions.
Euroclear/Clearstream Bridge
An electronic settlement link between Euroclear and Clearstream.
Exchange Agent
The bank providing the agency services of accepting presentations from investors of one security in the market in exchange for a different security or cash consideration.
Exchangeable Bonds or Notes
Debt instruments issued by a company (not necessarily an ADR issuer) which may convert into an ADR of that issuer or another issuer, usually an affiliate of the issuing company.
F
Fiduciary
An individual or institution responsible for acting on behalf of another in specified matters or for holding funds in trust.
Financial Industry Regulatory Authority, Inc./The (FINRA)
The successor to the National Association of Securities Dealers, Inc. (NASD), FINRA was formed in 1997 by a consolidation of the enforcement arm of the New York Stock Exchange, NYSE Regulation, Inc., and the NASD. FINRA focuses on regulatory oversight of all securities firms that do business with the public; professional training, testing and licensing of registered persons; arbitration and mediation; market regulation by contract for the NASDAQ Stock Market, the Chicago Climate Exchange, and the International Securities Exchange, LLC; and industry utilities, such as Trade Reporting Facilities and other over-the-counter operations. FINRA is the largest independent regulator for all securities firms doing business in the U.S.
Flowback
The cancellation of outstanding DRs and delivery of corresponding securities in the issuer’s home market.
G
Global Depositary Notes (GDNs)
A Global Depositary Note (GDN) is a debt instrument created by a depositary bank that evidences ownership of a local currency-denominated debt security. GDNs emulate the terms (interest rate, maturity date, credit ratings) of particular local currency-denominated bonds; however, they trade, settle, and pay interest and principal in U.S. dollars. GDNs are assigned a dedicated debt CUSIP and are typically made available to institutional investors privately, through Rule 144A and Regulation S tranches.
Global Depositary Receipts (GDRs)
A Global Depositary Receipt (GDR) is a negotiable instrument issued by a depositary bank in international markets — typically in Europe and generally made available to institutional investors both outside and within the U.S. — that evidences ownership of shares in a non-U.S. company, enabling the issuer to access investors in capital markets outside its home country.
I
Institutional Investor
An entity, such as an insurance company, investment company, mutual fund, employee benefit plan or charitable organization, that invests large sums in the securities markets.
International Security Identification Number (ISIN)
An identification number designed by United Nation’s International Organization for Standardization commonly used to identify securities traded and settled in non-U.S. markets.
Issuer
The non-U.S. company that establishes or maintains a DR program or a NY Registry Share program.
L
Listed Securities
Securities of an issuer designated for trading on a national stock exchange or association in the U.S. In order to be designated for trading on a national stock exchange or association, an issuer must meet certain eligibility criteria, file an application with the stock exchange or association and register the securities to be designated with the SEC under the Securities Exchange Act of 1934.
Listing Agent
A financial institution appointed by an issuer to arrange for the listing of securities on an exchange typically outside the U.S.
M
Market Makers
A firm that maintains a firm bid and offer price in a given security by standing ready to buy or sell at publicly quoted prices. Market Makers process orders for their own customers and for other broker-dealers. Market Makers also buy securities from issuers for resale to customers or other broker-dealers.
N
N Shares
The N Share structure was created to assist issuers in developing markets in accessing international investors while retaining control over ownership in the home market. N Shares are not listed in the home market and cannot be purchased by local investors. N Shares are created by the issuer to provide a means of raising capital among international investors.
NASDAQ Capital Market
A tier of the NASDAQ Stock Market consisting of over 550 companies that have met and continue to meet certain qualifying financial and liquidity listing requirements, as well as specific corporate governance standards. This market, previously called The NASDAQ SmallCap Market, was renamed in 2005.
NASDAQ Global Market
A tier of the NASDAQ Stock Market consisting of over 1,450 companies that have met and continue to meet certain qualifying stringent financial and liquidity requirements, as well as specific corporate governance standards. Formerly called The NASDAQ National Market, this market was renamed in 2006.
NASDAQ Global Select Market
A tier of the NASDAQ Stock Market consisting of approximately 1,200 companies that have met and continue to meet the highest level of qualifying stringent financial and liquidity listing requirements, as well as the highest level of corporate governance requirements.
NASDAQ National Market System (NMS)
The market for Nasdaq’s largest and most actively traded securities.
NASDAQ Stock Market
Owned and operated by NASDAQ OMX Group, Inc., the NASDAQ Stock Market is a major national and international stock market that uses computers and telecommunications for the trading and surveillance of thousands of securities. Built on a system of competing Market Maker firms, the NASDAQ Stock Market is unique in its use of a computer-screen trading system that enables people to trade by computer from wherever they are located.
New York Registry Shares (NYRSs)
Shares of non-U.S. companies that trade and settle in the U.S. in USD without the need for the issuance of DRs. In order to enable the issuance of NYRSs, non-U.S. issuers appoint a U.S. bank to provide shareholder registration, certificate transfer, dividend payment and proxy services in the U.S. In order to establish a NYRS program, the issuer needs to ensure that the legal environment in the issuer’s home market enables the issuance of shares in the manner generally required in the U.S. (i.e. including registered shares, transfer of ownership and register of shareholders). The structure is typically used by Dutch issuers, as local law allows share registration to occur outside of the Netherlands.
New York Stock Exchange (NYSE)
Owned and operated by NYSE Euronext, the NYSE is the largest organized securities exchange in the US measured by the dollar value of the securities of its listed companies. On the trading floor, the NYSE trades in a continuous auction format, where traders can execute stock transactions on behalf of investors: a specialist broker, who is employed by an NYSE member firm, acts as an auctioneer in an open outcry auction market environment to bring buyers and sellers together. As of 2007, virtually all NYSE stocks can be traded via its electronic Hybrid Market, allowing customers to send orders for immediate electronic execution.
Nominee
Legal entity established solely for the purpose of registration of record ownership of securities. A custodian typically registers customer securities in a nominee name for ease of handling subsequent transfers or denomination changes, interest and dividend collections and other corporate actions. Notwithstanding registration in a nominee name, the customer of the custodian remains the beneficial owner.
O
OTC Bulletin Board (OTCBB)
An electronic, dealer-driven quotation system in the U.S. that displays real-time quotes, last sale prices, and volume information for many unlisted securities. Companies listed on the OTCBB are required to maintain SEC filings and certain minimum requirements which are less stringent than those set by the national exchanges.
Over-the-Counter Market (OTC)
A network of securities dealers that bring together buyers and sellers in many different securities via telephone or computer negotiations. OTC equity securities can be quoted on the Pink Sheets or on the OTC Bulletin Board and are issued by companies that choose not to list or are unable to comply with the standards for listing on the NYSE or Nasdaq. However, some OTC securities are not quoted on either the Pink Sheets or the OTC Bulletin Board. Virtually all government and municipal bonds, and most corporate bonds are traded in the OTC market.
P
Pink Sheets
A centralized quotation service that collects and publishes market maker quotes for OTC securities in real time. Pink Sheets is neither a Securities and Exchange Commission (SEC) Registered Stock Exchange nor a Broker-Dealer. Because the Pink Sheets is not an issuer listing service and has no "listing requirements," OTC issuers are not required to provide financial information to the Pink Sheets, though some do so on a voluntary basis. Issuers are not required to register securities with the SEC or be current in their reporting requirements to be quoted on the Pink Sheets.
PORTAL
An automated trading system providing security descriptions and pricing information for Rule 144A securities. Initally developed by the NASD, PORTAL was relaunched by NASDAQ in 2007 to support the distribution of private placements and to facilitate liquidity in the secondary trading of Rule 144A securities by QIBs.
Private Placements
A securities offering in the U.S. that is exempt from registration under the Securities Act of 1933, and therefore is not available to the general public. Private placements are sold to sophisicated investors with resales to Qualified Institutional Buyers (QIBs) permitted by Rule 144A.
Proxy
The instrument authorizing transfer of a shareholder’s voting rights to an agent of the shareholder. Proxy may also mean the person empowered to act as the agent to vote in place of the shareholder. Additionally, the proxy process represents a communication opportunity between an issuer and its shareholders. The primary vehicle used in proxy voting is the proxy statement, the information given to stockholders in conjunction with the solicitation of proxy.
Q
Qualified Institutional Buyers (QIBs)
Investors eligible to purchase and trade in Rule 144A securities on PORTAL. QIBs are institutions that manage on a discretionary basis at least $100 million in securities of issuers that are not affiliated entities, including banks, savings and loans, insurance companies, investment companies, public employee benefit plans, and employee benefit plans under ERISA. QIBs also include registered broker-dealers owning and investing, on a discretionary basis, $10 million in securities of non-affiliates.
R
Ratio
The number of underlying shares (whether multiple or fractional) represented by a single DR. While many DR programs are established with a 1:1 ratio (one underlying share equals one depositary share) current DR programs have ratios ranging from 100,000:1 to 1:100.
Registered Holders
Shareholders who elect to hold their DRs directly with the depositary or the transfer agent of the depositary, rather than through a bank or broker-dealer. DR positions for registered owners appear on the books of the depositary's transfer agent.
Registered Owner
An individual or organization to whom certificates are directly issued and who, as a result, is recorded on the corporation’s security holder records.
Regulation Fair Disclosure (Reg FD)
U.S. regulation providing that whenever an issuer selectively discloses material non-public information to persons expected to purchase or sell securities, the issuer must make public disclosure either simultaneously or promptly.
Regulation S (Reg S)
A Reg S DR program is a private placement in global markets other than the U.S. market. Reg S clarifies conditions of exemption from registration under the Securities Act of 1933 for offers and sales of securities outside the U.S. Reg S was adopted by the SEC in 1990 in conjunction with the adoption of Rule 144A, which has a similar structure.
Restricted Securities
A security subject to certain transfer restrictions as a result of a sale by the issuer in a transaction not registered under the Securities Act of 1933, such as a Private Placement. Rights Offering Distribution to existing shareholders of rights to purchase additional shares. In a rights offering, a company raises capital by selling new shares to existing shareholders rather than to the entire investment community. The number of rights a shareholder receives is based on the number of shares the holder owns. Rights offerings are required to be registered under the Securities Act of 1933 unless an exemption is available.
Rights Offering
A distribution to existing shareholders of rights to purchase additional shares as part of a primary offering. A company uses a rights offering when it raises capital by selling new shares to existing shareholders rather than to the entire investment community. The number of rights a shareholder receives is based on the number of shares the holder owns. Rights offerings are generally public offerings unless offered only to sophisticated investors or QIBs in a private placement.
Rule 144A
SEC rule adopted in 1990 permitting QIBs to sell Restricted Securities to other QIBs without the need to comply with the holding requirements applicable to Restricted Securities. Rule 144A greatly increases the liquidity of privately placed securities.
Rule 144A DRs (RADRs)
ADRs issued and sold as Restricted Securities by non-U.S. issuers to QIBs without SEC registration. RADRs are traded Over-the-Counter over the PORTAL system among QIBs.
S
Sarbanes-Oxley Act of 2002
U.S. securities law requiring additional disclosure, stricter corporate governance standards, more timely reporting deadlines, increased regulation of the audit process, creation of audit oversight committees, audit firm registration, and stronger violation penalties. While there is no provision in the Sarbanes-Oxley Act itself that universally exempts non-U.S. issuers, the SEC has applied certain exemptions for non-U.S. companies.
Secondary Market
The market where existing securities are traded among investors through an intermediary such as an organized exchange like the NYSE or NASDAQ.
Securities Act of 1933
Under the Securities Act of 1933 (sometimes referred to as the "Securities Act" or "33 Act"), any issuer – including private corporations, foreign governments and political subdivisions – is required to sell or register its securities with the SEC, unless an exemption is available. The Securities Act was passed to improve the flow of information to potential investors in new security issues, and to prohibit certain selling practices relating to those issues.
Securities and Exchange Commission (SEC)
A U.S. governmental agency created by the Securities Exchange Act of 1934 to regulate the securities industry and the capital markets of the U.S.
Securities Exchange Act of 1934
The Securities Exchange Act (sometimes referred to as the "Exchange Act") is a statute which established the SEC and regulates the trading of securities by requiring issuers to disclose information in annual and periodic reports to the SEC. An objective of the Exchange Act is to enable investors to accurately appraise securities.
Side-by-Side Facilities
A facility established when an issuer has raised capital in the U.S. private markets using RADRs or GDRs, and wishes to make the same class of shares available to all investors in the U.S. through publicly traded DRs. The issuer establishes a Level I DR program that trades concurrently (or side-by-side) with the privately placed shares in compliance with SEC rules that prevent "leakage" of 144A securities into the Level I program.
Specialist
A member of a securities exchange who is a market maker in one or more securities listed on the exchange. The specialist is the person on the exchange floor to whom other members go when they wish to purchase or sell a security covered by such a specialist. Specialists must maintain a fair and orderly market in securities in which they make a market.
Sponsored DR
A DR program established at the direction of the issuer and in accordance with a deposit agreement between the issuer, the depositary bank and the holders of the DRs.
Stock
An equity security issued by a corporation that represents ownership.
U
Unitary GDR Structure
A DR structure in which the securities of a non-U.S. issuer are offered simultaneously as a single class of Restricted Securities to investors that satisfy the definition of QIB or who are located outside of the U.S.
Unrestricted Securities
Securities that are registered with the Securities and Exchange Commission, and therefore may be sold publicly in the U.S.
Unsponsored ADR Program
An ADR program for which no deposit agreement is entered into between a depositary bank and the issuer. An unlimited number of depositary banks may issue the depositary receipts evidencing ownership of the underlying ordinary shares held in custody in the issuer’s home market.