When a company issues an ADR, there

When a company issues an ADR, there are four different types of issuing programs, or facilities, that a company can choose. Level 1 ADRs are the lowest level of sponsored ADRs that a company can issue. The issuing programs of Level 1 depositary receipts have minimal reporting requirements with the Securities and Exchange Commission (SEC). Investors can only trade Level 1 shares on OTC markets. Issuing programs of Level 2 depositary receipts are more complicated than issuing programs of Level 1 depositary receipts. When a foreign company wants to list the shares on a U.S. stock exchange, it must at least set up issuing programs of Level 2 depositary receipts, which are required to follow the Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB). Issuing programs of Level 3 depositary receipts not only list firms' shares in the U.S. but also issue shares to raise capital. Issuing programs of Level 3 depositary receipts are the highest level that a foreign company can sponsor. The company is required to adhere to rules similar to those followed by U.S. companies. Higher requirements induce higher investor protection. The sequence from highest to lowest issuance standard is Level 3, Level 2, and Level 1.