An American Depositary Receipt (abbreviated ADR) represents ownership in the shares of a non-U.S. company that trades in U.S.

financial markets. The stock of many non-US companies trade on US stock exchanges through the use of ADRs. ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border & cross-currency transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies. Each ADR is issued by a U.S. depositary bank and can represent a fraction of a share, a single share, or multiple shares of the foreign stock. An owner of an ADR has the right to obtain the foreign stock it represents, but US investors usually find it more convenient simply to own the ADR. The price of an ADR often tracks the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares. In the case of companies incorporated in the United Kingdom, creation of ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government.Depositary banks have various responsibilities to an ADR shareholder and to the non-US company the ADR represents. The first ADR was introduced by JPMorgan in 1927, for the British retailer Selfridges&Co. There are currently four major commercial banks that provide depositary bank services - JPMorgan, Citibank, Deutsche Bank and the Bank of New York Mellon.Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADS A Global Depository Receipt or Global Depositary Receipt (GDR) is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. GDRs represent ownership of an underlying number of shares.Global Depository Receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets.Prices of GLOBAL DEPOSITARY RECEIPT are often close to values of related shares, but they are traded and settled independently of the underlying share.Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and in the London Stock Exchange, where they are traded on the International Order Book (IOB). Normally 1 GDR = 10 Shares, but not always Securities and Exchange Board of India [ Images ] proposal to tighten the rules for purchase of shares and bonds in Indian companies through the participatory note route took the breath away of the Indian stock market and it suffered its biggest fall in history.So what are these participatory notes? And why do they have this huge impact on the Indian securities markets? P-NotesParticipatory Notes -- or P-Notes or PNs -- are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India. Financial instruments used by hedge funds that are not registered with Sebi to invest in Indian securities. Indian-based brokerages to buy India-based securities / stocks and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors. Why P-Notes?Since international access to the Indian capital market is limited to FIIs. The market has found a way to circumvent this by creating the device called participatory notes,

which are said to account for half the $80 billion that stands to the credit of FIIs. Investing through P-Notes is very simple and hence very popular. What are hedge funds? Hedge funds, which invest through participatory notes, borrow money cheaply from Western markets and invest these funds into stocks in emerging markets. This gives them double benefit: a chance to make a killing in a stock market where stocks are on the rise; and a chance to make the most of the rising value of the local currency. Who gets P-Notes? P-Notes are issued to the real investors on the basis of stocks purchased by the FII. The registered FII looks after all the transactions, which appear as proprietary trades in its books. It is not obligatory for the FIIs to disclose their client details to the Sebi, unless asked specifically. What is an FII? An FII, or a foreign institutional investor, is an entity established to make investments in India.However, these FIIs need to get registered with the Securities and Exchange Board of India. Entities or funds that are eligible to get registered as FII include pension funds; mutual funds; insurance companies / reinsurance companies; investment trusts; banks; international or multilateral organisation or an agency thereof or a foreign government agency or a foreign central bank; university funds; endowments (serving broader social objectives); foundations (serving broader social objectives); and charitable trusts / charitable societies. The following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs:

Asset Management Companies Investment Manager/Advisor Institutional Portfolio Managers Trustees

How does Sebi regulate FIIs? FIIs who issue/renew/cancel/redeem P-Notes, are required to report on a monthly basis. The report should reach the Sebi by the 7th day of the following month. The FII merely investing/subscribing in/to the Participatory Notes -- or any such type of instruments/securities -- with underlying Indian market securities are required to report on quarterly basis (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec). FIIs who do not issue PNs but have trades/holds Indian securities during the reporting quarter (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec) require to submit 'Nil' undertaking on a quarterly basis.

FIIs who do not issue PNs and do not have trades/ holdings in Indian securities during the reporting quarter. (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec): No reports required for that reporting quarter. Who can invest in P-Notes? a) Any entity incorporated in a jurisdiction that requires filing of constitutional and/or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction; b) Any entity that is regulated, authorised or supervised by a central bank, such as the Bank of England [ Images ], the Federal Reserve, the Hong Kong Monetary Authority, the Monetary Authority of Singapore or any other similar body provided that the entity must not only be authorised but also be regulated by the aforesaid regulatory bodies; c) Any entity that is regulated, authorised or supervised by a securities or futures commission, such as the Financial Services Authority (UK), the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Securities and Futures Commission (Hong Kong or Taiwan), Australia [ Images ]n Securities and Investments Commission (Australia) or other securities or futures authority or commission in any country , state or territory; d) Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange (Sub-account), London [ Images ] Stock Exchange (UK), Tokyo Stock Exchange (Japan [ Images ]), NASD (Sub-account) or other similar self-regulatory securities or futures authority or commission within any country, state or territory provided that the aforesaid organizations which are in the nature of self regulatory organizations are ultimately accountable to the respective securities / financial market regulators. e) Any individual or entity (such as fund, trust, collective investment scheme, Investment Company or limited partnership) whose investment advisory function is managed by an entity satisfying the criteria of (a), (b), (c) or (d) above. Sebi not happy However, Indian regulators are not very happy about participatory notes because they have no way to know who owns the underlying securities. Regulators fear that hedge funds acting through participatory notes will cause economic volatility in India's exchanges. Hedge funds were largely blamed for the sudden sharp falls in indices. Unlike FIIs, hedge funds are not directly registered with Sebi, but they can operate through sub-accounts with FIIs. These funds are also said to operate through the issuance of participatory notes. 30% FII money in stocks thru P-Notes

According to one estimate, more than 30 per cent of foreign institutional money coming into India is from hedge funds. This has led Sebi to keep a close watch on FII transactions, and especially hedge funds. Hedge funds, which thrive on arbitrage opportunities, rarely hold a stock for a long time. With a view to monitoring investments through participatory notes, Sebi had decided that FIIs must report details of these instruments along with the names of their holders. Sebi Chairman M Damodaran has said that the proposals were against PNs but not against FIIs. The procedures for registering FIIs were in fact being simplified, he said. Sebi has also proposed a ban on all PN issuances by sub-accounts of FIIs with immediate effect. They also will be required to wind up the current position over 18 months, during which period the capital markets regulator will review the position from time to time. Sebi chairman M Damodaran, in a recent interview Business Standard, said that the amount of foreign investment coming in through participatory notes keeps changing and is somewhere between 25-30 per cent. "Recent indications are that it has gone up a little but again after the subprime crisis, there have been some exits. But it's a fairly significant percentage, it's not something you can ignore." When asked if he was comfortable with almost one-fourth of the market being held by P-Notes, he said that he wasn't 'entirely uncomfortable.' DUTCH AUCTIONNTPC files FPO papers', REC FPO to take French auction route'. These are just some of the headlines that have been showing up lately as offers to the public pick up pace. While initial public offers have been of the book-built variety, secondary offers have taken the French auction route. Here's throwing a bit more light on some of those terms floating around. Fresh issue and offer for sale To start off, the first time a company taps the public to raise share capital, it is known as the Initial Public Offer (IPO). But once a company has floated an IPO, any further issue of shares to the public is called a Follow-on Public Offer or a Further Public Offer (FPO). In both issue types, shares on offer may be a fresh issue or an offer for sale. In the former, the company issues entirely new shares and its share capital expands to that extent. The holding of existing shareholders will lower to the degree of the capital expansion. For instance, in the IPO of Man Infra, about 56 lakh shares will be freshly issued by the company, resulting in 11 per cent dilution for the promoters. In an offer for sale, existing shareholders put up their shares for sale, or, in other words, the shareholders sell their shares to the public. Here, the capital of the company does not change and the company does not stand to receive funds from these shares.

Consider the IPO of Jubilant Foodworks. The issue involved about 2.27 crore shares, with about 1.8 crore of these owned byprivate equity shareholders. So, effectively, of about Rs 328 crore raised (at an issue price of Rs 145 per share), only about Rs 58 crore went to the company. The more recent NTPC's FPO was also an offer for sale. So if you want to gauge the extent to which a company is raising funds for its own purposes, do remember to note the type of offer. The French and Dutch The number of shares issued apart, the success of an issue largely hinges on its pricing. If priced too high, the room to book healthy returns may be limited, and investors may be tempted to give the issue a miss. With multiple issues running during a week, pricing of the offer holds the key to investor participation. Now, the Dutch auction and the French auction have been newsmakers of late. The Dutch auction in a public offering goes like this. Investors put in bids for the quantum of shares and the price they are willing to pay for them. The issuer then assigns the bids starting from the highest price working downwards until all the shares are assigned. The last, or the lowest, price at which all the shares are assigned becomes the issue price. Investors are allotted shares at this issue price. For example, Company A is offering 1,000 shares. It receives bids for 250 shares at Rs 500, a further 350 at Rs 475, another 300 at Rs 400, and 100 shares at Rs 375. At this Rs 375, the 1,000 shares can be wholly assigned, which becomes the issue price. The book-building method is based on the Dutch auction; here, the issuer determines a price band within which bids are placed. In a French auction, the issuing company sets a floor price above which investors will place bids. On a price-priority basis, allotments are made. What is different here is that investors are issued shares at the prices they have indicated, and not the cut-off price as with the Dutch route. Investors are bound to pay the price they have defined. Continuing the above example, assume the floor price was Rs 370. Investors who bid in the first lot of 250 shares would be allotted shares at Rs 500 while the next 350 shares would have Rs 475 as their issue price.

IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below.

IPO grade 1: IPO grade 2: IPO grade 3: IPO grade 4: IPO grade 5: Strong fundamentals

Poor Below-average Average Above-average

fundamentals fundamentals fundamentals fundamentals

IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO. IPO Grading is not a recommendation to invest Even if a Company is Graded 5 (i.e. with strong fundamentals), IPO grading is not a recommendation to invest in the graded instrument. It does not a comment on the price of the graded security or its suitability for a particular investor. It does not comment on issue price, likely price on listing or movement in price post listing. Book Building IPO remains open for 3 to 7 days and may extend for another 3 days in case of revision in price if issue remain unsubscribe in initially decided days. Number of days issue remain open is decided by the issuer company and its issue lead manager. Right issues remain open for minimum 30 day and no longer then 60 days.