ADR programs are sorted into levels, and the level is the best single shortcut to understanding what kind of ADR you hold. It tells you whether the ADR can sit on the NYSE or only trade over the counter, whether the company files annual reports with the SEC, and whether the company can sell new ADRs to raise capital. A fourth category, Rule 144A ADRs, sits outside the public market entirely.
What every ADR has in common
Every ADR, at every level, is registered with the SEC on Form F-6. That filing covers the ADR itself: the deposit agreement, the form of receipt, and the fee terms. It says nothing about the foreign company's business or finances. What changes from level to level is how much the company must register and report on top of that. For a refresher on the basic mechanics, start with what is an ADR.
Level I: over-the-counter, minimal SEC reporting
A Level I program establishes a U.S. trading presence and nothing more. The ADRs trade over the counter, not on a national exchange, and the company cannot use the program to raise capital.
The company typically does not file annual reports with the SEC. Instead it relies on the exemption in Exchange Act Rule 12g3-2(b). As amended in 2008, that exemption is available when:
- the company's shares are listed on one or more foreign exchanges that make up its primary trading market, meaning at least 55% of worldwide trading in the shares took place in one or two foreign jurisdictions in the last fiscal year;
- the company publishes its material home-market documents, such as annual reports, interim reports, and press releases, in English on its website or a public electronic system; and
- the company has no SEC reporting obligations already.
The exemption is self-executing; no application is filed. Because the company files nothing on EDGAR, investors read its English disclosures on its own website. The SEC bulletin on ADRs notes that Level I is the only level that can be unsponsored; sponsored Level I programs also exist. See sponsored vs. unsponsored ADRs.
Level II: exchange listing without new capital
A Level II program lists on a U.S. national securities exchange such as the NYSE or Nasdaq. It still cannot raise new capital; the ADRs represent existing shares deposited with the custodian.
The price of a listing is SEC registration. The company registers under the Exchange Act and files an annual report on Form 20-F, the foreign-issuer counterpart to a U.S. company's 10-K. Financial statements must be prepared under U.S. GAAP or IFRS as issued by the IASB, or reconciled to U.S. GAAP. The company also furnishes current reports on Form 6-K when it publishes material information at home. And it must satisfy the exchange's own listing standards.
For investors, Level II usually means better liquidity than OTC programs, plus a standardized annual report on EDGAR.
Level III: a full public offering
Level III is the top tier. The company lists on a U.S. exchange and sells newly issued ADRs to the public to raise capital. That makes it a registered public offering, so the company files a registration statement, usually on Form F-1 for an initial offering (Forms F-3 or F-4 are used in other situations), alongside the F-6. It then files annual reports on Form 20-F like a Level II company.
Most foreign IPOs in New York are Level III ADR offerings. The disclosure burden is closest to that of a U.S. public company, although foreign private issuers still enjoy some accommodations, such as filing an annual report rather than quarterly 10-Qs.
Rule 144A restricted ADRs
A company that wants to raise U.S. money without a public offering can place ADRs privately under Rule 144A. These ADRs are restricted securities: they can be bought and resold only by qualified institutional buyers (QIBs). A QIB is generally an institution that owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers.
Rule 144A ADRs do not trade on an exchange or on the public OTC market, and individual investors generally cannot hold them. They matter to retail investors mainly as background: a company with a 144A program is reaching U.S. institutions, but not you. Some companies pair a 144A placement with a Level I program so that retail investors have a public line too.
Side-by-side comparison
| Feature | Level I | Level II | Level III | Rule 144A |
|---|---|---|---|---|
| Where it trades | U.S. OTC market | NYSE, Nasdaq, or other national exchange | NYSE, Nasdaq, or other national exchange | Private resale among QIBs |
| Raises new capital? | No | No | Yes, public offering | Yes, private placement |
| SEC registration of ADRs | Form F-6 | Form F-6 | Form F-6 | Not registered |
| Company registration | None; Rule 12g3-2(b) exemption | Exchange Act registration | Securities Act registration (usually F-1) plus Exchange Act | None for the offering |
| Annual report on EDGAR | No; English disclosure at home | Form 20-F | Form 20-F | No |
| Can be unsponsored? | Yes | No | No | No |
| Open to retail investors? | Yes | Yes | Yes | Generally no |
What this means for you as an investor
Use the level as a quick filter, not a verdict on the company:
- Exchange-listed (Level II or III): expect a Form 20-F on EDGAR, tighter spreads, and often listed options. Your broker's quote screen will show the NYSE or Nasdaq as the market.
- OTC (Level I or unsponsored): plan on reading the company's own English reports, which may follow IFRS or local accounting rules. Check volume and spreads before trading; our guide to OTC foreign stocks covers what to look for.
- Level changes: companies sometimes delist a Level II program and drop to Level I to cut compliance costs. The ADRs keep trading, but now OTC, and SEC filings stop. We cover that and full terminations in ADR terminations and delistings.
Key point
Higher level means more SEC disclosure and usually more liquidity, not a better company. A large, well-run firm can choose Level I simply because it does not need U.S. capital.
For any level, the financial statements you read will often follow IFRS rather than U.S. GAAP. Our primer on reading foreign financial statements explains the main differences.
Common questions
Which ADR level is best for an individual investor?
No level is a recommendation in itself. Level II and III programs list on a U.S. exchange and come with annual Form 20-F reports filed with the SEC, which usually means better liquidity and more accessible disclosure. Level I programs trade over the counter and rely on home-market disclosure.
Can I buy a Rule 144A ADR in my brokerage account?
Generally no. Rule 144A ADRs are restricted securities that may be held and resold only among qualified institutional buyers, which are large institutions that own and invest at least $100 million in securities of unaffiliated issuers.
Can an ADR move from one level to another?
Yes. A company can upgrade a Level I program to Level II or III by registering with the SEC and meeting exchange listing standards, and it can also move down or terminate. A change in level is announced by the company and the depositary.
Sources
Educational content only, not investment, tax or legal advice. The Stateside Report does not recommend buying or selling any security. Tax rules depend on your situation; confirm with a qualified tax professional. Full disclosures.