The majority of British blue chip companies operate sponsored ADR
programmes via one of the leading Depositary
Banks. Shareholders in the UK (primary)
listing can convert their ordinary shares
into American Depositary Receipts (ADRs) by
paying 1.5% Stamp Duty Reserve Tax (SDRT) to
the UK Inland Revenue and up to 5c per ADR
to the Depositary Bank. Conversely,
holders of ADRs can convert their ADRs back
to ordinary shares for a fee up to 5c per
ADR (without recovering the 1.5% SDRT).
ADRs can also be traded in the open market (either on exchange or
over-the-counter). An increasing
percentage of ADR trades are now carried out
on a crossbook swap basis: two
counterparties agree to swap ADRs for
ordinary shares at a given premium
(quoted in %) over the ordinary shares.
Both legs of the swap are traded in the same
currency and then settled on a DvP basis via
Crest for the UK leg and DTC for the ADRs.
These swaps are free of the 1.5% SDRT as
there is no creation of new ADRs.