22.2         ndian    onom
                                                                 ADRs can be sponsored or unsponsored.
        Abuse of DominAnce
                                                            Sponsored ADRs are those in which the company
     A situation when a dominant firm/company               actively participates in the process. The ADRs were
     (or a group of firms) is engaged in promoting          first offered in the US in the 1920s. A number
     its market position through ‘anti-competitive’         of Indian companies have issued ADRs. Infosys
     business practices, such as—predatory pricing,         Technologies was the first Indian company to use
     price squeezing, charging unreasonable prices,         the ADR route.
     etc. Such practices hamper healthy competition              The terms ADR and ADS are often
     in the economy and non-dominant firms face             used interchangeably. The individual shares
     difficulties in their growth—they finally may shut     representeted by an ADR are called American
     down their operations. In recent times, it was in      Depositary Shares (ADs). To the company issuing
     news globally—the US company Microsoft was             ADRs, it provides access to the American market.
     facing litigation (under ‘anti-trust’ provision) for   A company can, therefore, raise additional
     its Windows Operating System.                          resources. To an American investor, it provides
          Though India used to regulate/restrict several    the opportunity to invest in stock of companies
     such practices (under the MRTP Act, 1969), exact       not listed in the US. Huge operational, custodial,
     use of the term ‘abuse of dominance’ was not in        and currency conversion issues can come into play
     practice. But the Competiton Act, 2002 (which          if the ADR route is not used.
     replaced the MRTP Act) has clear use of it—it
     defines such situation in clear terms.                     ADs conversion offer
        Activity rAte                                       Conversion of local shares into American
                                                            Depository Shares (ADS) of a company is called an
     The labour force of a country is known as the          ADS conversion offer. It is managed by investment
     activity rate or participation rate. It is in per cent bankers, mainly large investment banks familiar
     and always a proportion of the total population of     with Indian and global markets The offer allows
     the country—the economically active population.        local investors to convert their shares into ADS
     This rate varies from one country to another           and then sell it in US markets. The proceeds of
     depending upon several factors such as school          the sale in the US markets is distributed to Indian
     leaving age, retirement age, popularity of higher      investors in rupees after deduction of expenses
     education, social customs, opportunities, etc.         incurred in the process. The company does not
                                                            issue any new shares. Existing shares are converted
        ADrs                                                into ADS. The scheme obviously can only be
     ADR stands for American Depository Receipt,            offered by companies listed on the Indian and US
     which enables investors based in the USA to invest     markets which is the case for many large Indian
     in stocks of non-US companies trading on a non         corporates.
     US stock exchange. ADRs are denominated in                  This allows companies to have new investors
     dollars. Simply put, US brokers purchase shares        and creates visibility on the US stock exchanges.
     of a foreign company, say Infosys (on behalf of        They also satisfy the local investor by offering an
     their clients). ADRs are subsequently listed on US     opportunity to sell their shares at a higher price
     stock exchanges.                                       than available locally on the Indian bourses.