depositary reciepts, page-2

Trade of ADRs will initially impact the Australian market directly (and basically at the same time at the ADR quotation) if there is a trade.

In a nutshell, an investor in the US can request depositary receipts in NMS on the "over the counter" market in the US; at which time, the depositary bank (Bank of New York) instructs the custodian bank (ANZ in Australia, from memory) to buy NMS shares on the open Australian market. Once bought, the custodian bank holds the shares and instructs the depository bank in the US to issue DR's to the US investor based on the buy price. (Price adjusted by ratio 1:10 (for NMS) and US exchange rate)

ADRs makes the purchase of a "holding" in NMS far simpler for US investors in general. In time, once there is a worthwhile interest and volume of ADR's bought and sold in the US, it is possible for the depositary bank to trade ADRs separately without the need to buy or sell the actual stock on the market at the same time in Australia through the custodian. This allows the depositary bank to get the best bargain out of fluctuating currently rates and quoted ADR prices vs actual custodian held shares. (ie: the bank decides whether to trade the stock that is already locked up with the custodian bank or the DRs only, depending on which option gives the bank the better deal at the time).

Level I ADRs can be upgraded to Level II, at which time they can be exchange traded in the US (or other potentially countries too). This usually attracts a lot of extra interest. Level III ADR's can be used to raise US capital for the company and attracts a stack of interest.

ADRs generally help to cut the red tape and make it easier for US investors wanting to buy and sell "interests" in non-US companies.

At this stage I am extremely surprised, as I would have thought there would a lot of interest in the ADRs already. Apparently not yet. It definitely won't be long before they catch on in the US investor market.