ADR American Depositary Receipt

What is ADR American Depositary Receipt.?

Simply put, ADR (American Depositary Receipt) can be defined as a negotiable certificate issued by any American bank that states a number of shares from an overseas organization was deposited with them. The receipt can be traded in the US market or alternatively, can also be deposited with the bank.

The ADR makes it possible for US-based investors to purchase shares of foreign companies locally instead of purchasing them directly through much more complicated channels.  ADRs can be traded in New York Stock Exchange.
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Each ADR is usually issued by an American depository bank and it represents a single share, a fraction of a share or multiple shares of foreign stocks. The owner of an ADR is awarded the right to obtain the foreign stock the ADR represents. However, most US investors generally find it much more convenient to simply own the ADR.

The price of an ADR tends to be more or less the same as the foreign stock in the home market and is adjusted exclusively for the ratio of ADRs to foreign company shares. Depository banks are tasked with multiple responsibilities to an ADR holder as well as to the overseas organization that the ADR represents.

The first ever ADR was made available by JP Morgan way back in 1927 for a UK-based retail outfit Selfridges&Co.

ADR American Depositary Receipt is a negotiable certificate issued by an American bank stating that a number of shares in a foreign company has been deposited with them. The receipt can be deposited with them. The receipt can be traded in US markets. Instead of having to buy shares of foreign shares of foreign companies in foreign markets. Americans can buy them in the US in the form of ADRs, which are traded in New York Stock Exchange.

Each ADR is issued by a US depository bank and can represent a fraction of a share, a single share, or multiple shares of foreign stock. An owner of an ADR has the right to obtain the foreign stock it represents, but US investors usually find it more convenient simply to own the ADR. The price of an ADR is often close to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares. In the case of companies incorporated in the United Kingdom, creation of ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government.

Depository banks have numerous responsibilities to an ADR holder and to the non-US company the ADR represents. The first ADR was introduced by JPMorgan in 1927, for the British retailer Selfridges&Co. The largest depositary bank is the Bank of New York Mellon.

Edited and Updated 2nd January 2014

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