What is an American depositary receipt (ADR)?

American depositary receipts (ADRs) are certificates issued by a depositary bank representing a specified number of shares of a foreign company's stock. The depositary receipt (DR) trades on stock markets as any domestic shares would.

DRs offer foreign investors a way to purchase stock in overseas companies that would otherwise not be available. Foreign firms also benefit, as DRs enable them to attract investors and capital without the hassle and expense of listing on international stock exchanges.

Specifics:

• DRs often pay out their dividends in a foreign currency.
• Most DRs are liable for pass through fee, which are fees payable to the issuing company of the DRs. These fees will be passed through without mark up to the client.
• DRs can open investors to double taxation and alternative ways of performing corporate actions than on the local shares.
• DRs can be listed in alternate ratios than 1 DR for 1 ordinary share. Please check the issuer's website to find out the correct ratio. 
• DRs can be sponsored or unsponsored:
  • Sponsored means the bank has issued the DRs on behalf of the foreign company.
  • Unsponsored means that there is no direct involvement of the foreign company and there are never voting rights.

You can refer to the prospectus and/or other documents issued by the custody bank for more information on these depositary receipts.

For American depositary receipts specifically, you can find more information here.