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4000 - Advisory Opinions

The Status of American Depository Receipts


June 14, 1994

Claude Rollin, Senior Counsel

Thank you for your letter of February 7, 1994 inquiring as to the status of American Depository Receipts ("ADR") issued by a bank which may establish an ADR facility to hold foreign equity securities if the bank is closed by its regulator. It is my understanding that ownership of ADRs is similar to owning shares of stock, subject to market conditions and price fluctuations. ADRs represent an ownership interest in a specific number of securities that have been deposited with a depository (usually a bank or trust company) by the holder of such securities. In compliance with the securities laws, the depositary establishes an ADR facility and issues a negotiable certificate representing the ADRs. The contractual relationship among the issuer of the deposited securities, the depositary and the holders of the ADRs is set forth in the deposit agreement which the holders of the ADRs are deemed to have agreed to by their purchase and holding of ADRs.

In as much as ADRs represent a contractual interest in foreign securities held by the depositary, ADRs are not deposits as defined by Section 3(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(1) and therefore are not insured by the FDIC. Generally, when a bank regulator closes a bank, the Federal Deposit Insurance Corporation attempts to have another financial institution assume the business and contractual obligations of the failed bank, which would presumably continue the ADR facility. If the FDIC is not successful in finding an acquirer or the acquirer elects to discontinue the ADR facility, the ADR facility would most likely be terminated in accordance with the depository contract.

We trust this explanation is responsive to your concerns and apologize for any inconvenience this delayed response may have caused.

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