Such a practice makes it easy for US investors to invest in a foreign company without worrying about currency exchange rates. The foreign bank pays dividends in the native currency, and the dealer/broker distributes the dividends in US dollars after factoring in currency conversion costs and foreign taxes. Investors who purchase the ADRs are paid dividends in US dollars. The decision to create an ADR depends on the pricing, availability, and demand. The bank then issues ADRs that are equal to the value of the shares deposited with the bank, and the dealer/broker takes the ADR to US financial markets to sell them. Already-issued ADR can be obtained from the NASDAQ or NYSE.Ĭreating a new ADR involves buying the stocks of the foreign company in the issuer’s home market and depositing the acquired shares in a depository bank in the overseas market.

The brokers and dealers obtain ADRs by buying already-issued ADRs in the US financial markets or by creating a new ADR. Investors willing to invest in American Depositary Receipts can purchase them from brokers or dealers. However, with ADRs, investors can diversify their portfolio by investing in foreign companies without having to open a foreign brokerage account. They needed to familiarize themselves with different rules and risks related to investing in companies without a US presence. American investors could purchase the shares on international exchanges only, and that meant dealing with currency exchange rates and regulatory differences in foreign jurisdictions. ADRs are listed on the NYSE, NASDAQ, AMEX and can be sold over-the-counter.īefore the introduction of ADRs in 1927, investors in the US faced numerous hurdles when attempting to invest in stocks of foreign companies. Companies can now purchase stocks of foreign companies in bulk and reissue them on the US market. ADRs pay dividends in US dollars and trade like regular shares of stock. Updated FebruWhat are American Depositary Receipts (ADR)?Īmerican Depositary Receipts (ADR) are negotiable security instruments that are issued by a US bank that represent a specific number of shares in a foreign company that is traded in US financial markets.

Receipts meaning