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Answer Posted / harishchandra sharma
An American Depositary Receipt (or ADR) represents the
ownership in the shares of a foreign company trading on US
financial markets. The stock of many non-US companies
trades on US exchanges through the use of ADRs. ADRs enable
US investors to buy shares in foreign companies without
undertaking cross-border transactions. ADRs carry prices in
US dollars, pay dividends in US dollars, and can be traded
like the shares of US-based companies.
Each ADR is issued by a US depositary bank and can
represent a fraction of a share, a single share, or
multiple shares of foreign stock. An owner of an ADR has
the right to obtain the foreign stock it represents, but US
investors usually find it more convenient simply to own the
ADR. The price of an ADR is often close to the price of the
foreign stock in its home market, adjusted for the ratio of
ADRs to foreign company shares. In the case of companies
incorporated in the United Kingdom, creation of ADRs
attracts a 1.5% stamp duty reserve tax (SDRT) charge by the
UK government.
Depositary banks have numerous responsibilities to an ADR
holder and to the non-US company the ADR represents. The
first ADR was introduced by JPMorgan in 1927, for the
British retailer Selfridges&Co. There are currently four
major commercial banks that provide depositary bank
services - JPMorgan, Citibank, Deutsche Bank and the Bank
of New York Mellon.
Individual shares of a foreign corporation represented by
an ADR are called American Depositary Shares (ADS).
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