Discussion

Answer: B

Correct answer: Does not wish its ADR to be listed on an exchange.

An American Depositary Receipt is a certificate issued by a US bank representing shares in a foreign company, so that the shares can be traded in dollars under US settlement rules. They come in three levels, and the level records how far the issuer is willing to go in meeting US requirements.

Level 1 is the most basic. The receipts trade over the counter rather than being listed on an exchange, and because of that the company escapes full registration with the SEC and does not have to restate its accounts to US GAAP. It is the cheapest and quickest way for a foreign company to give US investors access to its shares, and it is often set up without the company’s active involvement at all - a bank can create an unsponsored Level 1 programme on its own.

Level 2 requires an exchange listing, full SEC registration and reporting on Form 20-F. Level 3 goes further still and allows the company to raise fresh capital by issuing new shares to US investors, which Levels 1 and 2 do not.

The wording of the options is loose - a Level 1 ADR is unlisted anywhere, and so it is also true that it is not listed on a US exchange - but the keyed option is the standard formulation of the definition.