Relief Therapeutics Holding AG (RLFTF)

[changes_iv]

An ADR is not a Reverse Split ~ posted by haffernem @ redd1t

Discussion

An American Depository Receipt (ADR) is not a reverse split. Rather, it is more easily thought of as an “IOU,” and allows foreign companies to more-or-less* be traded on US markets, such as the NYSE, via a quote-unquote “loophole” without going through the traditional, lengthy process of up-listing. The process involves a third party, who is eligible to trade on US markets, purchasing shares of the company on foreign markets. This company then writes and lists a receipt (the “IOU”) representing a predetermined certain number of shares, which are traded on the US markets in stead of the actual shares directly. Since the company isn’t being traded directly, the reporting standards are a bit different and somewhat relaxed, although there are still considerable auditing requirements in place. Usually the ADR designation reduces the mandatory filings required with the SEC, although they still have to give at least an annual report. It’s not really a loophole, as the SEC is well aware of it happening and provides support or endorsement. It helps foreign companies, who often have different reporting/listing requirements, have an easier time, and quicker time, being listed in the US.

*As the US markets are buying and selling these IOUs, they aren’t really trading the shares directly, but given as the receipts are standardized (ie: always 5-for-1 or always 50-for-1) they pretty much always represent the actual share price overseas, accounting for exchange rate. For example, if a company has a 5-for-1 ADR receipt, and is selling for the equivalent of $10 overseas, the ADR would be trading at $50 in the US, as it represents 5 shares. I am not aware of any widespread or meaningful arbitrage occurring with ADRs, but this does not necessarily mean it’s impossible - I have relatively limited experience.

A good example of ADRs in practice is the Taiwan Semiconductor Manufacturing Company. (TSMC) While most people think it’s traded directly as TSM on the NYSE, it’s actually trades as a 5:1 (5-for-1) ADR, with the sponsor being CIT Bank. (Not Citi Bank, which can be confusing!) You can see more detailed info about this ADR here:

https://www.adr.db.com/drwebrebrand/dr-universe/dr_details.html?identifier=1228

IIRC, their reports are audited by Deloitte. TSMC is a powerhouse company, literally supporting the modern world through their manufacturing. ADRs, while uncommon, aren’t necessarily a 4-letter word.

However, I do not know the details of Relief’s ADR plans. In fact, I just saw some commotion about it for the first time today on the various message boards, and figured I’d take a quick break from work to chime in. There is some uncertainty, and I felt as though I could provide some useful information. This is not professional advice, I am not a professional trader nor advisor. I do not know if this will make or break Relief’s chances, and only wanted to provide some background info on ADRs. Make sure to do your own research.