American Depositary Receipt
An American Depositary Receipt (ADR) is a negotiable security issued by a US bank that represents shares in a company based outside the United States. These receipts trade on American stock exchanges in US dollars, and provide a way for investors (including those in the UK) to gain exposure to overseas companies without directly buying shares through a foreign market.
Instead of dealing directly with different currencies, foreign tax rules or unfamiliar exchanges, ADRs allow investors to trade international stocks in a more accessible way. Each ADR may represent one or more underlying shares of the foreign company, depending on how the bank sets it up.
There are different types of ADRs, depending on how the company chooses to list and the level of regulatory disclosure and reporting requirements involved.
Note: ADRs are subject to their own risks, including foreign exchange rate fluctuations, foreign dividend withholding taxes, limited liquidity, and differences in accounting, auditing and financial reporting standards between jurisdictions.
Why ADRs matter for investors
ADRs help investors:
- Access global markets without the need to trade directly on foreign exchanges
- Diversify portfolios beyond UK and European equities
- Trade international shares using familiar platforms and in US dollars
However, like all investments, ADRs carry risks and may not be suitable for every investor. You should consider your individual objectives and circumstances before investing. Understanding how they work(and what they represent) is key to making informed decisions.