In Morrison v. National Australia Bank Ltd.,1 the Supreme Court, per the majority opinion of Justice Antonin Scalia, announced a new two-pronged test, to describe transactions that could be the subject of a claim under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. Under the first prong, “Section 10(b) reaches the use of a manipulative or deceptive device only in connection with the purchase or sale of a security listed on an American stock exchange”; under the second prong, Section 10(b) reaches “the purchase or sale of any other security in the United States.”2
There has been considerable focus on the first prong, particularly in a number of recent cases involving American Depositary Receipts (ADRs). Many foreign issuers have sponsored ADR programs where, in addition to registering and listing the ADRs for trading on a U.S. exchange, the issuers register the underlying common shares with the Securities and Exchange Commission and list such shares on a U.S. exchange, although not for trading.3 These common shares are held by a depositary bank to support any conversion of the ADRs into common shares; but those common shares are tradable only on one or more foreign exchanges.
