American Depositary Receipt

An American depositary receipt is a certificate representing shares of foreign securities. It is a form of indirect ownership of the foreign securities that are not traded directly on a national exchange in the United States. Financial institutions purchase the underlying securities on foreign exchanges through their foreign branches, and these foreign branches remain the custodians of the securities. Through these foreign branches, the financial institutions hold legal title to the underlying stock.

Many American depositary receipts are registered with the U.S. Securities and Exchange Commission and traded on national exchanges; however, some American depositary receipts are not registered and traded on national exchanges. Investors have to purchase these non-registered American depositary receipts directly from their issuers or through other private trades (i.e., “over the counter”). 

An “American depositary share” corresponds to a single share of the underlying security. An American depositary receipt may confer ownership rights to a specified number of American depositary shares, representing the investor’s indirect interest in the underlying foreign security that the issuing institution holds in its foreign branch.

 

This guide is not intended to provide investment advice, and you should not rely on statements in this guide when making investment decisions.

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