management firm Cambiar Investors, compared with 909 unsponsored ADRs traded in 2009.
The rise in unsponsored ADRs came after a U.S. Securities and Exchange Commission rule change in 2008 that allowed depository banks such as BNY Mellon and JP Morgan Chase to launch ADRs based on market demand without the consent of a company, according to Cambiar.
Listing fees and SEC disclosure requirements have prompted major companies to bypass sponsored ADRS as well. Swiss food and beverage company Nestle SA, German automaker Daimler AG and British brewer SABMiller Plc are among global companies that trade on the Pink Sheets. Investors who purchase these shares in dollars still take on the same risk of currency fluctuations as owning foreign shares in the company's home market.
Even so, there are reasons why small investors might take the risk and buy Samsung over-the-counter shares rather than go to the home market of an overseas company. Some brokerages require a minimum purchase of $5,000 or more to place trades on a foreign market and an investor also has to wait until that foreign market opens.
Investors who want to take smaller positions could consider the over-the-counter shares, said John Wightkin, director of equity research applications at Charles Schwab.
The cost to buy companies listed on the Pink Sheets tends to vary, based on an investor's account size and trading frequency. And investors would not be able to trade those shares on the South Korean market.
Larger investors, meanwhile, might want to opt to buy foreign shares directly in the target company's home market because of the liquidity.
While brokerage houses such as Schwab are expanding services that allow retail investors to trade international stocks directly in local markets, South Korea is typically not among the offerings. Instead, customers must place orders through brokers, meet minimum order sizes and pay additional fees that can include exchange fees, foreign currency fees and local tax withholding. Customers typically cannot trade on margin and must trade during foreign market hours as well.
"If you have a big enough account that they care about you, then it's easier to go with a broker with access to foreign exchanges," said Nichols, the Morningstar analyst. Investors who opt for over-the-counter shares should use limit orders, rather than market orders, because of the bid/ask spreads, he said.
Another, albeit watered-down, option for investors is an exchange-traded fund such as the $3.4 billion iShares MSCI South Korea Index fund,