Introduction

Through a so-called “sponsored Level 1 ADR program,” listed companies in Romania and from around the world can make their shares available to US investors on the over-the-counter market in the form of depositary receipts. To date, few Romanian listed companies have taken advantage of the new possibilities in the US equity markets, possibly as a result of unfamiliarity with the new regulatory regime. This article provides Romanian entrepreneurs with an summary of what they need to know in order to capitalize on the opportunity to raise equity capital in the US markets through this new regulatory regime.

Overview

Sponsored depositary receipts (called “ADRs”, or American Depositary Receipts) are securities issued by a US depository bank that has been contracted by the company for such purpose. The ADRs represent the common stock of the Romanian (or any other non-US) listed company. A “Level 1” ADR program, as distinguished from a Level 2 or Level 3 program, does not require compliance with numerous requirements of the US Securities and Exchange Commission (the “SEC”). Thus,

no filings are required to be made with the SEC;

the issuer is not required to provide US GAAP or reconciled financial statements; and

the issuer is not required to comply with the Sarbanes-Oxley Act, which has increased the regulatory compliance burden for US-listed companies.

The main drawback of a Level 1 ADR program, compared to the Level 2 or Level 3 programs, is that the ADRs are traded over-the-counter rather than being listed on a stock exchange in the United States, and therefore trading volumes and liquidity in the US are likely to be lower.

Establishing a sponsored Level 1 ADR program can be a cost-effective means of introducing a company to the US equity market, and can pave the way for a US listing at a later date