American Depositary Receipts – The functional Way To Trade Foreign Stocks In the US
American Depositary Receipts (ADRs) are instruments that allow U.S. – based investors/traders to buy shares in foreign (non – U.S.) corporations in U.S. Dollars and in a form that is tradable on U.S. exchanges in the same way as domestic stocks. For the U.S. – based investor the advantage of ADRs is the convenience of not having to deal with the additional complexities of foreign exchanges and the varied proportion registration requirements of foreign jurisdictions. Companies based in other countries are motivated to have their shares listed in the U.S. in this way because it deepens their investor base in a capital market that is the deepest and most complex in the world.
Most typically foreign corporations making use of this facility issue so-called sponsored ADRs. One designated depositary institution holds the the inner stock in the country of origin and issues the negotiable securities called American Depositary Receipts that represent ownership of the inner foreign securities. Three New York banking institutions rule this market; Bank of New York Mellon, Citibank and JPMorgan Chase. observe that investment in ADRs nevertheless involves exchange risks as the U.S. Dollar proportion price of the ADR will always be based on the price of the inner shares translated into U.S. Dollars at prevailing exchange rates.
Well-known foreign companies traded as ADRs include BP Plc (stock symbol BP) and GlaxoSmithKline (GSK) of the U.K.; Bayer (BAY) and Deutsche Bank (DB) of Germany; Novartis (NVS) and Credit Suisse (CS) of Switzerland; Sony (SNE) and Toyota Motor (TM) of Japan; Nokia (NOK) of Finland; and Grupo Televisa (TV) and Coca-Cola FEMSA (KOF) of Mexico.