American depositary receipt

3.1 Why securities need "completions" at all

Two frictions keep forcing financial engineers to invent new flavours of what looks, at heart, like a plain equity share. The first is cross-border friction: a US mutual fund's mandate may not permit it to settle trades in rupees through an Indian depository, hold custody in India, or navigate India's foreign-investment rules directly, yet it may badly want exposure to an Indian company. The second is control friction: a founder who has sold most of the economic interest in a company to public shareholders may still want to retain decision-making control, reasons ranging from genuine long-term-vision protection to plain entrenchment, and a single class of one-share-one-vote stock cannot deliver that. Both frictions are solved by re-engineering the security itself, and both solutions are exactly the precise, checkable mechanics this module exists to teach.

3.2 ADRs and GDRs: the depositary mechanics

An American Depositary Receipt (ADR) is a US-dollar-denominated, US-exchange-tradable certificate issued by a US depositary bank, each representing a stated number of shares of a non-US company held in custody by a local bank in the company's home market. The company's own shares never leave India (or wherever); what trades in New York is the receipt, and the depositary bank is the plumbing keeping receipt and underlying share matched, converting dividends into dollars, and processing corporate actions on both sides.

Programmes come in a hierarchy of increasing US disclosure and capital-raising ability. A Level I ADR trades only over-the-counter, requires the least SEC disclosure, and cannot raise new capital, the cheapest way for a foreign issuer to get some US visibility. A Level II ADR lists on a national exchange (NYSE/Nasdaq), requiring fuller SEC reporting (effectively a 20-F filing), still without raising capital. A Level III ADR is a full US public offering, raising new capital under the fullest disclosure burden, the route a company takes when it wants to sell new shares to US investors, not merely list existing ones. Separately, a programme is sponsored (the foreign company contracts with a single depositary bank, controls the programme, typically bears the costs. Levels I–III above) or unsponsored (a depositary bank sets up receipts unilaterally, without the company's involvement, usually OTC at Level-I-equivalent disclosure). A Global Depositary Receipt (GDR) is the same mechanism aimed at investors outside the US, typically listed in London or Luxembourg, structured under an exemption (Regulation S, sometimes paired with a Rule 144A placement to US qualified institutional buyers) rather than full US registration. GDRs were the primary route Indian companies used to raise foreign capital in the Euro-issue wave following India's 1991–92 capital-account liberalization, before India's own markets had the depth for large domestic follow-on offerings.

3.3 Ratio and parity: the arithmetic that keeps two listings honest

A depositary receipt's ratio states how many underlying shares one receipt represents, sometimes 1:1, sometimes a multiple or a fraction, chosen historically to make the receipt trade at a "normal" dollar price range for US investors regardless of the home-market share price. Infosys's own investor-relations FAQ states the ratio plainly: one Infosys equity share traded in India is equivalent to one ADS traded on the NYSE, a 1:1 ratio (a real, verified fact, confirm it is still current before relying on it, since ratios can and do change via periodic ADS ratio adjustments). Given a ratio, a home-market price, and the prevailing exchange rate, you can compute the receipt's fair (parity) value and compare it to the receipt's actual quoted price. Worked Example 6 does exactly this. In principle, any persistent gap is arbitrageable (short the rich side, buy the cheap side, converting between them via the depositary's conversion mechanism); in practice the arbitrage is real but not frictionless, currency conversion costs, custody/conversion lag (typically a business day or more), and India's foreign-exchange rules (administered under FEMA, which governs two-way fungibility of ADRs/GDRs into and out of underlying domestic shares) all limit how tightly the gap closes and how fast.

3.4 Share classes and dual-class structures

A company can issue more than one class of common stock with identical or near-identical economic rights but different voting rights, most commonly, a class held by founders/insiders carrying multiple votes per share, alongside a publicly-traded class carrying one vote (or, in some structures, none at all). The purpose is explicit: let founders raise substantial public capital, diluting their economic share of the company sharply, while retaining effective control over it. Alphabet (Google's parent) is a widely cited, real, stable example of the structure's variety: Class A shares (one vote each, publicly traded as GOOGL), Class B shares (ten votes each, held overwhelmingly by founders and insiders, not publicly traded), and Class C shares (no vote at all, publicly traded as GOOG), three classes, three vote-per-share allocations, one underlying economic claim on the business. Berkshire Hathaway's two-class structure illustrates exactly how large the voting-versus-economic gap can be engineered to be: Berkshire's own investor documentation states that one Class B share carries 1/1,500th of the economic (dividend and liquidation) rights of one Class A share, but only 1/10,000th of a Class A share's voting rights. Class B holders are diluted roughly 6.7 times more heavily in voting power than in economic value, relative to Class A. Worked Example 7 computes this gap precisely.

Because the structure concentrates control disproportionately to capital contributed, many jurisdictions and exchanges attach conditions to it, increasingly standard for newer dual-class listings is a sunset clause: the super-voting class automatically converts to ordinary one-vote shares after a stated number of years, or on a triggering event such as the founder's death, departure, or a stated ownership threshold being crossed. Whether a specific company's dual-class structure carries a sunset clause, and on what terms, is exactly the kind of precise, checkable, individually-varying fact to trace to the company's own charter or listing prospectus rather than assume from a general pattern.

3.5 India's DVRs: and a lesson in staleness, live

India's historical answer to the same control problem ran in the opposite direction from a US dual-class structure. A Differential Voting Right (DVR) share, as historically issued in India (Tata Motors' DVR being the most widely known example), carries fewer votes per share than an ordinary share (typically a small fraction, such as one-tenth of a vote) compensated by a mandated additional dividend paid to DVR holders above what ordinary shareholders receive, as the trade-off for the reduced voting say. The instrument was aimed at retail and institutional investors happy to accept less voting influence in exchange for a higher cash yield, rather than at concentrating founder control, the reverse of the US dual-class logic, which grants insiders more votes per share, not the public less.

Here is the staleness lesson, live rather than hypothetical. Tata Motors' DVR shares (for years the most liquid, most-cited real Indian DVR) were converted into ordinary shares and delisted as a distinct instrument as part of Tata Motors' broader restructuring; exchange listing pages now show the erstwhile DVR ticker as merged into ordinary shares. Anyone (an AI assistant included) asserting today that "Tata Motors DVR trades on the NSE at such-and-such a discount" is repeating a fact that used to be true and now isn't. Before citing any specific company's DVR as a live, tradable instrument, check its current listing status directly on NSE/BSE rather than relying on a remembered example. Worked Example 8 runs the underlying arithmetic (the voting-versus-economic gap a DVR creates, and the discount at which DVR shares have historically tended to trade) on a fully synthetic company instead, so the mechanics are learned without asserting a live fact about a real, currently-listed instrument.

A newer, structurally opposite India mechanism deserves a name-check, precisely because it shows the same regulatory framework evolving the other direction. SEBI has permitted Superior Rights (SR) equity shares, shares carrying more votes than ordinary shares, issued to founders of certain technology companies going public, letting them retain control after listing dilutes their economic stake, conceptually closer to a US-style dual-class structure than to a classic DVR, subject to promoter-shareholding and governance conditions and a mandatory sunset. Treat the specific vote multiple, eligibility thresholds, and sunset period as provisions to verify against SEBI's current ICDR regulations, this is precisely the newer corner of the framework most likely to have moved since any given source, including this one, was written.

3.6 A comparative summary

{
  "skill": "Checking whether a specific security's structure (ADR ratio, DVR status, dual-class sunset terms) is still current",
  "use": "Use a document or research tool to pull a specific company's current depositary ratio, share-class structure, or DVR/SR-share status directly from its own investor-relations page or exchange listing, rather than from general knowledge of 'how these instruments usually work.'",
  "tools": ["Research/browsing-enabled assistants", "The company's own investor-relations site (ratio/FAQ pages, as Infosys publishes)", "NSE/BSE listing search, or the SEC's EDGAR full-text search for a 20-F/6-K disclosing the ratio"],
  "prompt": "Find the CURRENT depositary ratio (or share-class voting structure, or DVR/SR-share status) for <COMPANY>, and cite exactly where you found it (the company's own investor page, or a specific exchange filing) with the date that page or filing was last updated.",
  "verify": "Confirm the source is the company's own current disclosure, not a cached summary or a general description of 'how ADRs/DVRs typically work' - the whole point of this drill is that structures like Tata Motors' DVR have changed status entirely. Cross-check the date on the source page (Guardrail #4, Date-check) before using the figure for anything.",
  "diy": "You must be able to compute a parity check or a voting-power gap from a GIVEN ratio by hand (Worked Examples 6-8) - what you must not do is assume any specific company's ratio or structure without checking it fresh, because this is precisely the category of fact proven, in this section, to change.",
  "market": "IN"
}