American Depositary Receipts (ADR's)

The stocks of most foreign companies that trade in the U.S. markets are traded as American Depositary Receipts (ADRs) issued by U.S. depositary banks.


Each ADR represents one or more shares of a foreign stock or a fraction of a share. If you own an ADR you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient to own the ADR. The price of an ADR corresponds to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares.

Owning ADRs has some advantages compared to owning foreign shares directly:

1) When you buy and sell ADRs you are trading in the U.S. market. Your trade will clear and settle in U.S. dollars.

2) The depositary bank will convert any dividends or other cash payments into U.S. dollars before sending them to you.

3) The depositary bank may arrange to vote your shares for you as you instruct.

On the other hand, there are some disadvantages:

1) It may take a long time for you to receive information from the company because it must pass through an extra pair of hands. You may receive information about shareholder meetings only a few days before the meeting, well past the time when you could vote your shares.

2) Depositary banks charge fees for their services and will deduct these fees from the dividends and other distributions on your shares. The depositary bank also will incur expenses, such as for converting foreign currency into U.S. dollars, and usually will pass those expenses on to you.

Note: Although most foreign stocks trade in the U.S. markets as ADRs, some foreign stocks trade here in the same form as in their local market. For example, Canadian stocks trade in the same form in the United States as they do in the Canadian markets, rather than as ADRs. You can purchase ADRs and other foreign stocks that trade in the United States through your broker. There are different trading markets in the United States, and the information available about an ADR or foreign stock will depend on where it trades.

You may also want to learn International Stock Market Investing

Although all information has been written in good faith and reviewed, please email us at help@stockmarketbeginnersguide.com to report any inaccuracies.