Glossary › American Depositary Receipt (ADR)
What is American Depositary Receipt (ADR)?
An American Depositary Receipt (ADR) is a certificate traded in the US that represents shares of a foreign company held by a depositary bank.
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An American Depositary Receipt (ADR) lets investors in the United States buy exposure to a foreign company’s shares in US dollars, through a US broker, during US trading hours. A depositary bank holds the underlying foreign shares and issues the receipts. Each receipt is technically an American Depositary Share (ADS), although the terms are often used interchangeably.
How ADRs work
- Ratio: one ADR may represent one share, several shares, or a fraction of a share. The ratio is set by the depositary and disclosed in its documents.
- Currency: prices and dividends are in US dollars. Dividends paid in the home currency are converted, and fees may be deducted.
- Sponsored vs. unsponsored: a sponsored ADR is set up with the company’s cooperation; an unsponsored one is created by a bank without it.
Levels
- Level I ADRs trade over the counter (OTC) and carry the lightest US reporting requirements.
- Level II and III ADRs list on an exchange such as the NYSE or Nasdaq; the company files annual reports with the SEC (Form 20-F for most foreign private issuers). Level III also allows raising new capital in the US.
ADRs and Korean companies
Several Korean companies have exchange-listed ADRs, while many others are reachable only through OTC tickers or directly on the Korea Exchange through a broker that offers international trading. Before buying, check whether a US ticker is an exchange-listed ADR or an OTC line, what the ratio is, and how liquid it is.
Things to check
- The depositary’s documents for the ratio and fees.
- Whether the company files with the SEC, and where to read its reports.
- How dividends are taxed and converted for your situation.
This glossary entry is general information, not investment advice.