Glossary term
American Depositary Receipt (ADR)
An American depositary receipt, or ADR, is a U.S.-traded certificate that represents shares of a foreign company held by a depositary bank.
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What Is an American Depositary Receipt?
An American depositary receipt, or ADR, is a U.S.-traded certificate that represents shares of a foreign company held by a depositary bank. ADRs let U.S. investors buy exposure to certain foreign companies through U.S. markets rather than trading directly on a foreign exchange.
An ADR is not the same as the foreign ordinary share itself. It is a depositary receipt that represents an interest in underlying foreign shares.
Key Takeaways
- ADRs give U.S. investors access to certain foreign companies through U.S. trading channels.
- An ADR represents shares held by a depositary bank.
- ADRs can trade in U.S. dollars, but investors can still face foreign-company and currency-related risks.
- ADR investors may pay depositary fees.
- Sponsored and unsponsored ADRs can differ in disclosure, company involvement, and trading venue.
How ADRs Work
A depositary bank holds shares of a foreign company and issues ADRs in the United States. Each ADR can represent one share, multiple shares, or a fraction of a share of the foreign company. Investors then buy and sell the ADR through U.S. market channels.
ADRs can make foreign investing more convenient, but they do not remove all foreign-investment risk. The underlying company still operates under foreign laws, foreign accounting practices, currency exposure, and country-specific risks.
ADR Versus Foreign Ordinary Share
Security | Main idea |
|---|---|
ADR | U.S.-traded receipt representing foreign shares |
Foreign ordinary share | The company's ordinary share traded in its home or foreign market |
Many U.S. investors find ADRs easier to access. That convenience should be weighed against fees, liquidity, disclosure, and the quality of the ADR program.
Why ADRs Matter
ADRs can help investors diversify globally without opening foreign brokerage accounts or trading directly in foreign currencies. They can also make it easier to hold international companies inside a familiar brokerage platform.
The risk is that convenience can make the investment seem more domestic than it really is. An ADR may trade in dollars, but the company's business, financial statements, political exposure, and currency translation can still be international.
The Bottom Line
An ADR is a U.S.-traded receipt representing shares of a foreign company. It can simplify access to international stocks, but investors still need to review fees, liquidity, currency exposure, disclosure, and country-specific risks.