An American Depositary Receipt (ADR) represents a specified number of shares in a foreign company, typically one share, and is issued by a U.S. bank to facilitate trading of the foreign company's stock on U.S. stock exchanges12.
- Understanding ADRs: ADRs are negotiable securities that allow investors to buy and sell shares of foreign companies on U.S. stock exchanges without the complexities of trading on foreign exchanges or converting currencies12.
- Sponsored and Unsponsored ADRs: ADRs can be issued as sponsored or unsponsored. Sponsored ADRs are issued with the involvement and approval of the foreign company, while unsponsored ADRs are issued without such involvement34.
- Dividend Payments and Reporting: The issuing financial institution collects dividend payments and converts them into U.S. dollars for investors. ADRs listed on an exchange must file quarterly results due to their registration with the SEC and adherence to U.S. accounting rules34.
- Tax Considerations: Depending on the country and account type, dividend withholding tax percentages may be lower for ADRs compared to foreign ordinary shares34.
- Trading and Pricing: ADRs trade on U.S. stock exchanges and are priced in U.S. dollars. They can be marginable and may have options34.
In summary, an ADR representing 50 shares means that a U.S. bank has issued a negotiable security that allows investors to trade 50 shares of a foreign company on a U.S. stock exchange.
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