AMERICAN DEPOSITARY RECEIPT Meaning and
Definition
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An American Depositary Receipt (ADR) is a financial instrument that represents ownership in shares of a non-U.S. company. It is issued by a U.S. bank as a means to enable domestic investors to invest in foreign securities without the need to trade directly on overseas exchanges.
ADRs are designed to facilitate the trading and investing of foreign stocks in the U.S. They are traded on U.S. stock exchanges and denominated in U.S. dollars, making them easily accessible and understandable for American investors. Each ADR represents a specific number of foreign company shares, with the ratio typically being one ADR to a fixed number of underlying foreign shares.
ADRs allow U.S. investors to gain exposure to foreign companies and diversify their portfolios geographically. They provide a convenient way to invest in companies that may not be listed on U.S. exchanges or whose shares are not readily available to U.S. investors. Additionally, ADRs enable investors to avoid some of the administrative complexities and currency exchange issues associated with investing directly in foreign stocks.
ADRs are subject to U.S. securities regulations and are backed by the deposits of the underlying foreign shares held by the issuing U.S. bank. Dividends paid by the foreign company are typically passed on to ADR holders in U.S. dollars after deducting any applicable fees. However, it's important to note that ADRs do not grant shareholders the same voting rights as the underlying foreign shares.
