ADR Fees and Your International Stock Investments

American depositary receipts, or ADRs, are stocks that trade on U.S. exchanges but represent shares in a foreign corporation. That means they give American investors a simple way to invest in potentially international companies. This article will give you the basics of investing in ADRs without making rookie mistakes.

  • Depositary receipts are more convenient and less expensive than purchasing stocks in foreign markets.
  • They can trade over-the-counter (OTC) or on a major exchange such as the New York Stock Exchange (NYSE) or the Nasdaq (Nasdaq), depending on how much the foreign company is willing to comply with U.S. regulations.
  • Non-sponsored ADRs are traded in US over-the-counter markets without requiring registration with the Securities and Exchange Commission (SEC).
  • Below you’ll learn more about what ADRs are, how they’re created, and how they’re different from “regular” stocks.

With these, an issuer floats apublic offeringof ADRs on a U.S. exchange. They can be used to establish a substantial trading presence in the U.S. financial markets and raise capital for the foreign issuer. First, it allows the American investor to buy or sell the ADR in U.S. dollars. That’s a lot more convenient than having to open a global trading account with an international brokerage firm. It also makes it possible, due to the economies of scale of the ADR itself, to acquire smaller investments in a cost-effective manner.

What Is an ADR, and How Is It Different From a Regular Stock?

For example, if you’re buying stock, the commission would be a percentage of the total purchase price. On the other hand, a fee is a flat rate that is charged for services rendered. In the US, dividends are taxed at the investor’s ordinary income tax rate, which can be as high as 37% for some taxpayers. These taxes are withheld by your zulutrade forex broker review investment broker, so you wouldn’t need to file a separate US tax return (since you don’t ‘owe’ the IRS anything; they’re paid directly by your broker). Also, the company must file Form-20-F in accordance with the GAAP or IFRS standards. Form 20-F is the equivalent of Form-10-K, which is submitted by US publicly traded companies.

Further, ADSs can “gap” up or down outside of U.S. trading hours, when trading is happening in the company’s home country and U.S. markets are closed. An ADR is a negotiable certificate issued by a U.S. bank, under an agreement with a foreign company, and is evidence of ownership of ADSs, much the same way a stock certificate denotes ownership of equity shares. Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital.

Advantages of Depositary Receipts

ADRs are issued only by U.S. banks for foreign stocks that are traded on a U.S. exchange, including the American Stock Exchange (AMEX), NYSE, or Nasdaq. The receipt is listed in U.S. dollars when an investor purchases an American depositary receipt. A U.S. financial institution overseas rather than a global institution holds the actual underlying security. Company or an investor who holds the underlying foreign securities delivers them to either a “depositary” bank in the U.S. or a custodian in the foreign company’s home country. From there, I can trade my ADR shares on a U.S. stock exchange or in the over-the-counter market just like I could trade the stocks of a U.S.-based company.

Review of a series of guidance on the treatment of incentive payments for sponsored American Depositary Receipts (ADR) programs. It is the combination of a predominant mindset, actions (both big and small) that we all commit to every day, and the underlying processes, programs and systems supporting how work gets done. When a company establishes an ADR program, it must decide what exactly it wants out of the program, and how much time, effort, and other resources they are willing to commit.

Level 3 ADRs have stricter reporting requirements than level 2 ADRs. Level 3 ADRs represent an initial public offering (IPO) on U.S. exchanges. An “IPO” is when a company’s stock first becomes available to be purchased on major U.S. stock exchanges.


If ADR fees is charged by the custodian to ADR holders, the brokerage will pass on this fee directly to a client’s account. If an ADR does not pay a dividend then this fee will deducted from the client’s cash account. A commission is a percentage of the total transaction amount that is paid to the broker as compensation for their services.

Overall, foreign companies with a Level 3 program set up are the easiest on which to find information. Examples include Vodafone, Petrobras, and China Information Technology, Inc. (CNIT). Likewise, ADRs of foreign companies, even if traded on the New York stock exchange, would not be subject to U.S. estate tax.

Use the RFP submission form to detail the services KPMG can help assist you with. KPMG has market-leading alliances with many of the world’s leading software and services vendors. Investguiding is a website that writes about many topics of interest to you, it’s a blog that shares knowledge and insights useful to everyone in momentum day trading strategies many fields. The most common types of ADR for civil cases are mediation, settlement conferences, neutral evaluation, and arbitration. Alternative dispute resolution (ADR) refers to the different ways people can resolve disputes without a trial. Common ADR processes include mediation, arbitration, and neutral evaluation.

ADRs and Exchange Rate Risk

If the issuer fails to comply with these requirements, it may be delisted or downgraded to Level I. Level II ADRs have more requirements from the SEC than Level I, and the company gets an opportunity to establish a higher trading presence on the US stock markets. For a vast majority of people living in the United States, it doesn’t do a lot of good to find yourself on the receiving end of Australian dollars, South Korean won, or Mexican pesos.

An American depositary share (ADS) is an equity share of a non-U.S. Company that is held by a U.S. depositary bank and is available for purchase by U.S. investors. Using a real company in another example, China Online Education Group (COE), a provider of online English language education services in China, has ADS that represents 15 Class A ordinary shares. The company issued 2,400,000 ADS on the NYSE in its public offering on June 10, 2016. Usually up to one year after the effective date of the termination, the depositary bank will liquidate and allocate the proceeds to those respective clients. Many US brokerages can continue to hold foreign stock, but may lack the ability to trade it overseas.

An ADR may represent the underlying shares on a one-for-one basis, a fraction of a share, or multiple shares of the underlying company. ADRs per home-country share at a value that they feel will appeal to investors. Conversely, if it is too low, investors may think the underlying securities resemble riskier penny stocks. Let’s say you heard that Adidas is creating a network for 50,000 college athletes to be paid endorsers for its brand, and want to buy shares of the company because of the potential that brings for profits. Then you discover that Adidas stock is traded in Frankfurt, and you’re in the US.Enter American depositary receipts, more commonly known as ADRs.

Pros and cons of American depositary receipts

Each ADR is issued by a domestic custodian bank when the underlying shares are deposited in a foreign depositary bank, usually by a broker who has purchased the shares in the open market local to the foreign company. An ADR can represent a fraction of a share, a single share, or multiple shares of a foreign security. In the case of companies domiciled in the United Kingdom, creation of ADRs attracts a 1.5% creation fee; this creation fee is different than stamp duty reserve tax charge by the UK government. Depositary banks have various responsibilities to DR holders and to the issuing foreign company the DR represents. American Depositary Receipts (ADR) are negotiable security instruments that are issued by a US bank that represent a specific number of shares in a foreign company that is traded in US financial markets. ADRs pay dividends in US dollars and trade like regular shares of stock.

Typically, broker-dealers initiate unsponsored ADRs when they wish to establish a U.S. trading market. In this example, I also could give back my ADRs to the depositary bank and receive shares of the foreign company’s stock again. Technically, securities of a foreign company that are represented by an ADR are called “American depositary shares” (ADS), but typically, the terms ADR and ADS are used interchangeably. Fluctuations introduction to intraday trading and intraday channels in the exchange rate between the U.S. dollar and the foreign currency will have some effect on the price of shares as well as on any income payments, which must be converted into U.S. dollars. Level III is the highest and most prestigious level that a foreign company can sponsor. A foreign company at this level can float a public offering of ADRs to raise capital from American investors through US exchanges.