I came across a couple of links provided ages ago and are worth a read on the ADR subject.
"Level 2 and Level 3 sponsored ADRsmust register with the SEC, and financial statements must be reconciled to GAAP. A Level 2 ADR requires partial compliance with GAAP, while a Level 3 ADR requires complete compliance. A Level 3 sponsorship is required, if the ADR is a primary offeringand is used to raise capital for the company. Only Level 2 and Level 3 sponsored ADRs can be listed on the New York Stock Exchange, the American Stock Exchange, or NASDAQ."
"The price of ADRs in the secondary market are, of course, determined by supply and demand, but the price will not deviate too much from the price of the underlying stock. If the ADR is trading at a higher price than the equivalent foreign shares of the company, then more shares of the company will be bought and held in the custodian bank, and more ADRs will be created. If the ADR trades below the equivalent price, then some ADRs will be canceled, and the corresponding shares of the company will be released by the custodian bank. This maintains parity between the price of the ADR and the foreign shares, after accounting for the currency exchange rate.
When dividends are paid, the custodian bank receives it and withholds any foreign taxes, exchanges it for U.S. dollars, then sends it to the depositary bank, which then sends it to the investors. The depositary bank, being a U.S. bank, handles most of the interaction with the U.S. investors, such as rights offerings, stock splits, and stock dividends, but sponsored ADR investors may receive communications, such as financial statements, directly from the company. The largest United States depositary banks are the Bank of New York, J.P. Morgan, and Citibank.
Note, however, that although ADR transactions are in U.S. currency, there still is a currency exchange risk. If the dollar falls, for instance, then the amount of dividend in U.S. dollars will be reduced, and the market price of the ADR will drop. There is also political risk because the ADR still derives its value from the foreign stock, which could be adversely affected by unfavorable changes in the politics or the law of the country".
