American Depositary Receipt (ADR)

American Depositary Receipt (ADR)

The physical certificate for an American Depositary Share. American Depositary Shares trade electronically, but only American Depositary Receipts can be delivered to an investor. American Depositary Shares and their companion American Depositary Receipts always exchange on a one-for-one basis. Although American Depositary Receipts and American Depositary Shares are different, the terms are frequently used interchangeably. See also sponsored American Depositary Receipt, unsponsored American Depositary Receipt.

Are foreign securities traded in U.S. markets?

Stocks of some, especially large, foreign companies traded in the U.S. markets are traded as American Depositary Receipts (ADRs). ADRs are receipts for the shares of a foreign corporation held by a U.S. depositary bank. The receipts are traded openly on the U.S. markets, and the owner (shareholder) is entitled to all dividends and capital gains. Each ADR represents a determined ratio of the foreign stock, and the price of the ADR corresponds to the price of the stock in the home market adjusted for this ratio.

ADRs traded in the U.S. markets will clear and settle in U.S. dollars. The depositary bank will also convert, for a small fee, any dividends to U.S. dollars.

Thomas M. Tarnowski, Senior Business Analyst, Global Investment Banking Division, Citigroup, Inc.Salomon Smith Barney, New York, NY, and London, UK