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Back to Those Inexplicably Appealing ADRs

Despite this week's focus on overseas-based stocks, this column's name <I>still</I> isn't spoken with a French accent.

Take a look around the globe. Europe is flat, and eurozone interest rates aren't going any lower. Economist Paul Krugman has called Japan the most dangerous economy in the world. And don't even start with China. Face it, you won't break much of a sweat arguing that the U.S. is still the only game around for most investors.

Still, for some reason, all you guys want to talk about is ADRs.

First up this week is

Ramdas M. Rao

, who writes: "As a follow-up to your

article on American depositary receipts on April 1, I had a few questions on how the daily 'share value' of ADRs are calculated. Is an ADR's price just the value in the 'home country' multiplied by the U.S. exchange rate?"

While simple exchange rates don't determine ADR prices on their own, they certainly guide issuers when determining the share value of ADRs. These issuers' foremost concern is getting the ADR price in line with those of U.S. equities.


Telefonos de Mexico

(TMX) - Get Free Report

. Telmex's local shares lately have been trading at around 38 pesos. That's a little more than US$4 a share, a pretty paltry sum for a company with 1997 sales of about $7.5 billion. To bring foreign companies' ADRs in line with U.S. stock prices, issuers make each receipt represent a multiple number of underlying shares. In Telmex's case, each receipt is a claim on 20 shares, which explains why its

New York Stock Exchange

ADRs closed Thursday at 80 13/16, 20 times the value of a single share of the company.

In a similar vein,

Ray Watson

wants to know what kind of information foreign companies with ADRs trading on U.S. exchanges must provide: in general, pretty much the same information that U.S. companies provide. Only Level II and Level III ADRs can trade on U.S. exchanges. To gain that privilege, issuers first must file a Form F-6 registration statement. They also have to comply with the periodic reporting requirements of the Securities Exchange Act of 1934, which includes information on ownership changes and operations summaries. In particular, these companies need to file Form 20-F, which is the foreign equivalent of a 10-Q, at least once yearly -- or twice yearly if they want to trade on the NYSE. All filings must be reconciled with U.S. generally accepted accounting principles.

The difference between Level II and Level III programs is that only the latter can go directly to the U.S. capital markets through a public offering of its ADRs. Such an offering requires the Level III issuer to file Form F-1, the ADR version of the S-1 prospectus.

That's the good news. Now for the horrifying news: The

Securities and Exchange Commission

doesn't require foreign issuers to file electronically, so you won't find much on Telmex at or

EDGAR Online. If you want to see foreign SEC filings, you'll have to do it the way your great-grandparents did way back in the early 1990s: by mail. It takes about two weeks and will cost you about 30 cents a page. Contact the Public Reference branch of the SEC.

Message Center

Memo to

John Glynn

, an Irishman who wonders if only American citizens can participate in U.S. IPOs: You don't need to know the significance of the Stamp Act to play the U.S. equity markets -- a good thing, since such stringent requirements would

de facto

bar all publicly educated Americans, myself included. If you have an account with a broker with access to the syndicate, and you don't mind dealing with the foreign exchange market and local tax issues, go for it.

Memo to

David Bryce

, who wants to know why Internet IPOs start trading so late in the day: A stock can't trade on the NYSE or the

Nasdaq Stock Market

until a fair and orderly market has been established. And when a hot Net stock hits the market, things are anything but orderly. It's like

Toys R Us


on Christmas Eve; imagine what that lady who blacked your eye for a Furby would do for 1,000 shares of


(ETYS:Nasdaq). Ensuring fair and orderly market conditions is the job of the stock's specialist or market makers, who have to match bids and asks that are often widely disparate at first. Narrowing them to a manageable spread -- that is, making a market -- can take hours.

Also, to

Robert Benson

, who wonders if there's a source that will tell him when IPOs will start trading: You can find that information right here in


newly revised

Tools and Quotes section. Just see what day an IPO is scheduled to price -- the stock will start trading the next day.

Memo to everyone who thinks the title of this column is French in any way: It's not. If it were, I'd call it

Mon email sac.

Let me know if you've got a better name for the column.

Memo: Have a dumb question relating to finance? Great. Have a problem with something I've written? Let me know at, and I'll do my best to answer every Saturday. Include your full name, and please, no questions seeking personal financial advice or regarding personal brokerage disputes. And this reminder: Because of the volume of mail, personal replies can't be guaranteed.