What is an ADR?

Keyword: ADR, shares of foreign company

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Written by Stockpile Support
Updated over a week ago

When a foreign company such as Nintendo(NTDOY), Alibaba(BABA), or Baidu(BIDU) wants to be listed in the US, without directly listing on a US-based exchange, they must go through a US depository bank, and this bank is responsible for issuing the shares to US investors. The US depository bank ensures the following for US investors:

  • The shares will be denominated in US Dollars (no currency exchange will be needed by investors)

  • They can be bought and sold just like any other domestic stock.
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ADRs also come in 2 varieties: Sponsored and Unsponsored.

Sponsored is when the foreign company actually reaches out to a US depository bank and works with them to issue shares such as BABA works directly with JP Morgan to issue their shares.

Unsponsored when a US depository bank issues stock of a foreign company with no interest in being listed in the US. As a result, multiple US depository banks can issue an ADR for the same company, leading to confusion since they are priced differently and pay dividends at a different rate. An example of this would be Volkswagen with an ADR under VWAGY issued by JP Morgan, but Volkswagen did not formally make this arrangement.


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Be mindful that ADR's may have additional fees:

All of the work previously mentioned done by the US depository bank comes with a fee, and this fee is forwarded to the investor.

  • ADR fees are typically charged annually at 1 to 3 cents per share

  • If investing in ADRs, please be sure to have a small amount of cash in the account to cover any ADR fees and avoid any account disruptions.

  • ADRs dividends are subject to foreign tax withholding. The amount of withholding is based on the ADR's home country's tax treaty with the US.

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