What Are American Depositary Receipts?

The stocks of most foreign companies that trade in the U.S. markets are traded as American Depositary Receipts (“ADRs”).

An ADR is basically a stock that trades in the United States representing a specified number of shares in a foreign corporation. ADRs are traded on US markets just like stock in domestic companies, and are issued and sponsored in the U.S. by a bank or brokerage.

An ADR represents one or more shares of foreign stock or a fraction of a share. If an investor owns an ADR, he or she has the right to obtain the foreign stock it represents.  However, most U.S. investors find it more convenient to own the ADR instead. The trading price of an ADR corresponds to the price of the foreign stock in its home country’s market, which is adjusted to the ratio of the ADRs to foreign company shares.

ADRs were introduced beginning in 1927 to make it easier for US investors to counter the the difficulties involved with purchasing foreign stock trading at different prices and currency values. To counter this inherent difficulty, U.S. banks purchase bulk lots of shares from the foreign company, and bundle the shares into ADRs for trading.