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The Developing countries equity markets have undergone immense changes in recent years International investors have purchased emerging-market equity shares at exceptional rates tripling the value of their emerging-market equity portfolios between 1989 and 1992 Bigger foreign investment in rising markets has tightened their price linkages to the international financial centers Partly as a result of these changes emerging markets have matured considerably achieving increased market size and an increased capacity to support equity issuance A notable feature of the recent increase in equity portfolio investment in developing countries has been a large increase in international equity market placements by developing-economy companies The vast majority of these placements have taken the form of ADRs An ADR is essentially a claim issued by a US depository institution to an underlying share of stock in a foreign-based company wwwcitibankcom In what is essentially a custodial arrangement the US depository institution backs the ADR by holding shares of the underlying stock on behalf of the owner of the ADR In exchange for a fee the depository institution provides the service of converting dividend receipts denominated in a foreign currency into dollars and distributing them to ADR holders Owners of ADRs are entitled at any time to redeem their ADRs for shares of the underlying stock A particular advantage of the ADR instrument is that settlement of trades between US investors can be handled by the depository institution without recourse to the home equity market of the non-US company that issued the equity wwwcitibankcom In this way the ADR mechanism avoids the risks and transaction costs associated with settlement and clearance in foreign markets Developing-country companies can place ADRs in the United States by two means Greene 2001 The first is a public ADR offering To offer an ADR publicly in the United States the company must obtain a listing on a US exchange-the NYSE AMEX or NASDAQ In several recent cases developing-country officials have modified domestic accounting and underwriting
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