UK Accounting Glossary
An American Depository Receipt (ADR) is a negotiable, registered certificate representing specific number of corporate stocks in a non-U.S. company. An ADR documents the holder’s beneficial ownership of foreign stock held in trust by a foreign branch or correspondent of an American bank. Introduced in 1927, an ADR provides the American investor with the opportunity for diversification into select global securities without the usual hassles like foreign currency conversions and safekeeping charges. An ADR is quoted in US dollars on the major US exchanges or over-the-counter and pays dividends in US dollars.
ADR is offered as:
(1) Sponsored ADR, issued by a US Bank as depository for a foreign company. Level I Sponsored ADR requires less financial disclosures and is traded over the counter only. Levels II and III are subject to stricter financial and accounting standards.
(2) Unsponsored ADR, offered direct by the depository institution without any involvement by the company and is the least regulated.
Potential risks to investing in an ADR include foreign currency risk, lower liquidity, and foreign tax withholding.
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This glossary post was last updated: 4th February 2020.