American depositary receipt

An American depositary receipt (ADR, and sometimes spelled depository) is a negotiable security that represents securities of a non-U.S. company that trades in the U.S. financial markets.

Shares of many non-U.S. companies trade on U.S. stock exchanges through ADRs, which are denominated and pay dividends in U.S. dollars and may be traded like regular shares of stock. ADRs are also traded during U.S. trading hours, through U.S. broker-dealers. They simplify investing in foreign securities by having the depositary bank "manage all custody, currency and local taxes issues".

The first ADR was introduced by J.P. Morgan in 1927 for the British retailer Selfridges on the New York Curb Exchange, the American Stock Exchange's precursor.

They are the domestic equivalent of a global depository receipt (GDR). Securities of a foreign company that are represented by an ADR are called American depositary shares (ADSs).

Depositary receipts

ADRs are one type of depositary receipt (DR), which are any negotiable securities that represent securities of companies that are foreign to the market on which the DR trades. DRs enable domestic investors to buy securities of foreign companies without the accompanying risks or inconveniences of cross-border and cross-currency transactions.

Depositary receipt

A depositary receipt (DR) is a negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. The depositary receipt trades on a local stock exchange. Depositary receipts facilitates buying shares in foreign companies, because the shares do not have to leave the home country.

Depositary receipts that are listed and traded in the United States are American depositary receipts (ADRs). European banks issue European depository receipts (EDRs), and other banks issue global depository receipts (GDRs).

How it works

A depositary receipt typically requires a company to meet a stock exchange’s specific rules before listing its stock for sale. For example, a company must transfer shares to a brokerage house in its home country. Upon receipt, the brokerage uses a custodian connected to the international stock exchange for selling the depositary receipts. This connection ensures that the shares of stock actually exist and no manipulation occurs between the foreign company and the international brokerage house.