Anyone who saw “The Wolf of Wall Street” is familiar with the shady reputation of over-the-counter (OTC) stock trading. The small size and lack of disclosure associated with many Pink Sheet companies exposes investors to the risk of deception and fraud.
However, stereotypical “penny stocks” are not the only companies that trade OTC in the U.S. Ever heard of Nintendo Co Ltd NTDOY 0.97%? What about Samsung Electronics Co Ltd SSNLF? You won’t find either of these companies listed on the NYSE or the Nasdaq. For Americans that are unwilling or unable to trade these stocks in foreign markets, buying shares OTC might be the only option.
ADRs
Americans may be familiar with Nestle SA NSRGY 0.44%’s delicious products, but the $200 billion company’s primary stock listing is on the Swiss market.
An American depository receipt (ADR) is a certificate issued by an American bank that represents shares of a foreign publicly-traded company. The ADRs of many foreign companies trade on major U.S. exchanges, including Baidu Inc BIDU 2.94%, Vale SA VALE 8.66% and Toyota Motor Corp TM 1.46%. So why doesn’t Nestle’s ADR trade on a U.S. exchange?
SEC Standards
In order for an ADR to list on an American exchange, the company it represents must…
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