American Depositary Receipt

American Depositary Receipt (ADR)

Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR. "Unsponsored" ADRs do not receive such assistance. ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares, adjusted for the SDR/ordinary ratio essentially equal. American depository shares (ADS) are a similar form of certification.

American Depository Receipt

A certificate issued by an American bank representing a share of a foreign stock that the bank holds in trust but that is traded on an American stock exchange. An American depository receipt is dollar-denominated and entitles the bearer to any dividends and other benefits associated with the stock underlying it. ADRs can be traded like any other security. ADRs shield investors from foreign exchange risk and any applicable tariffs they would have had to pay if they had bought the stock outright. They also exempt the investor from any other requirements the foreign exchange authority might have levied. See also: International Depository Receipt.

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

American depositary receipt (ADR).

Shares of hundreds of major overseas-based companies, including names such as British Petroleum, Sony, and Toyota, are traded as ADRs on US stock markets in US dollars.

ADRs are actually receipts issued by US banks that hold actual shares of the companies' stocks. They let you diversify into international markets without having to purchase shares on overseas exchanges or through mutual funds.