American depositary receipt

The Jolly Contrarian’s Glossary The snippy guide to financial services lingo.™ →Go uptown Top Trumps®Financial Weapons of Mass Destruction® ADR “It’s not synthetic equity. Just calm the hell down.” Docs The Full American: US bond docs, plus security and custody. Lots of it, all dull. 6 Amendability Nope, but why would you? 5 Collateral Fully, and delta-one. 0 Transferability Seeing as that’s the point, yes. Safely transferable. 0 Leverage Zippo the Hippo. 0 Fright-o-meter Disney grade only. Suitable for all the family — Unless the issuer is in a scary foreign jurisdiction in which case OMEN GRADE 8 Index — Click the ᐅ to expand: Glossary Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Not to be confused with synthetic equity derivatives.

An American depositary receipt, or “ADR”, is a way of getting synthetic exposure to securities in hard-to-access markets. They were introduced in 1927 as an easier way for U.S. investors to buy foreign stock. Before ADRs came along, US persons wanting to buy non-U.S. listed shares had to buy the shares on international exchanges in the local currency, with all the FX and regulatory hair that entails.

ADRs are issued by a US custodian bank evidencing an entitlement to the stock purchased by the bank which the bank has bought through a broker in the open local market in the local currency are deposited in a foreign depositary bank. ADR holders realise any dividends and capital gains in U.S. dollars converted from their local currency net of conversion expenses and foreign taxes. They can be listed or unlisted.

ADRs can be “sponsored” — where the underlying issuer lined up the custodian directly — or “unsponsored” where it didn’t, and the custodian set it up off its own bat without the issuer’s help.

Conversion of real underliers into ADRs and back again: A hobbit’s tale

Holders of the underlying ordinary shares may ask the custodian to “convert” these shares into an ADR, by delivering them to the custodian in exchange for an ADR certificate. Similarly, holders of an ADR may request to convert to the underlying ordinary shares if they want to take the shares back out of the American market.

See also

• GDR - former communist East Germany - or - a global depositary receipt.
• Alternative dispute resolution