American depositary receipt
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.
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.
They were introduced in 1927[1] 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.
See also
- GDR - former communist East Germany - or - a global depositary receipt.
- Alternative dispute resolution
References
- ↑ Fun fact: The first ADR was introduced by J.P. Morgan on Selfridges.