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An '''American depositary receipt''' (abbreviated '''ADR''', and sometimes spelled ''deposit'''o'''rydepository'') is a [[Negotiable instrument|negotiable security]] that represents securities of a non-U.S.foreign company and allows that tradescompany's shares to trade in the U.S. [[financial markets]].<ref>[{{cite web|url=http://www.investopedia.com/terms/a/adr.asp |title=American Depositary Receipt (- ADR)|first=Investopedia|last=Staff|date=18 Definition],November [[Investopedia]]2003|access-date=17 June 2017}}</ref>

Shares of many non-U.S. companies trade on U.S. [[stock exchange]]s through ADRs, which are denominated and pay [[dividend]]s in [[U.S. dollars]], and may be traded like regular shares of stock.<ref>{{cite news |author = Sikonathi Mantshantsha |title = American Depositary Receipts: Foreign investment made easy| work= [[Financial Mail]] |date=22 March 2013}}</ref> ADRs are also traded during U.S. [[List of stock exchange opening times|trading hours]], through U.S. [[broker-dealer]]s. TheyADRs simplify investing in foreign securities by havingbecause the depositary bank "manage[s] all custody, currency and local taxes issues".<ref>{{cite web|title= How an ADR Works and the Value for Companies & Investors |url = http://www.otcmarkets.com/learn/american-depositary-receipts | publisher= [[OTC Markets Group]]| accessdateaccess-date=18 March 2015}}</ref>

The first ADR was introduced by [[J.P. Morgan]] in 1927 for the British retailer [[Selfridges]] on the New York Curb Exchange, the [[American Stock Exchange]]'s precursor.<ref>{{cite news |title= JPMorgan Celebrates 80th Anniversary of the ADR| url= http://investor.shareholder.com/jpmorganchase/releasedetail.cfm?ReleaseID=239889 |work= =JPMorgan Chase & Co.| date= April 27, 2007|access-date= March 18, 2015|archive-url= https://web.archive.org/web/20150402125707/http://investor.shareholder.com/jpmorganchase/releasedetail.cfm?ReleaseID=239889|archive-date= April 2, 2015|url-status= dead}}</ref>

They are the domesticU.S. equivalent of a [[global depository receipt]] (GDR). Securities of a foreign company that are represented by an ADR are called '''American depositary shares''' ('''ADSs''').

ADRs are one type of [[depositary receipt (disambiguation)|depositary receipt]] (DR), which are any [[Negotiable instrument|negotiable securities]] that represent securities of companies that are foreign to the market on which the DR trades. DRs enable domestic investors to buy securities of foreign companies without the accompanying risks or inconveniences of cross-border and cross-currency transactions. Companies may choose to issue depository receipts in another jurisdiction for a host of commercial reasons including signalling to their investors and clients about their enhanced corporate governance standard.<ref name=JGLR>See Datta, Pratik, [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2725763 Intermediaries as Arbitrageurs: Revisiting the Motivations Behind Overseas Listing], Jindal Global Law Review (2015) 6(2): 193-205.</ref>

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. The holder of a DR has the right to obtain the underlying foreign security that the DR represents, but investors usually find it more convenient to own the DR. The price of a DR generally tracks the price of the foreign security in its home market, adjusted for the ratio of DRs to foreign company shares. 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 in the United Kingdom|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.

Unsponsored shares trade on the [[overOver-the-counter (finance)|over-the-counter]] (OTC) market. These shares are issued in accordance with market demand, and the foreign company has no formal agreement with a depositary bank. Unsponsored ADRs are often issued by more than one depositary bank. Each depositary services only the ADRs it has issued. Since the company is not formally involved in an unsponsored issue, the motivation of the company to list overseas is irrelevant for unsponsored programs. Instead, the dynamics of this market is determined by the incentive structure of three types of players: holders of the securities on-shore, the investors in depository receipts off-shore and the intermediaries (depository banks and exchanges).<ref name=JGLR/>

Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the [[U.S. Securities and Exchange Commission]] (SEC). The company is not required to issue quarterly or [[SEC filings|annual report]]s in compliance with [[Generally Accepted Accounting Principles (United States)|U.S. GAAP]]. However, the company must have a security listed on one or more stock exchangeexchanges in a foreign jurisdiction and must publish in English on its website its annual report in the form required by the laws of the country of incorporation, organization, or domicile.

While listed on these exchanges, the company must meet the exchange’sexchange's [[Stock exchange#Listing requirements|listing requirements]]. If it fails to do so, it may be delisted and forced to downgrade its ADR program.

Setting up a Level 3 program means that the foreign company is not only taking steps to permit shares from its home market to be deposited into an ADR program and traded in the United States; it is actually issuing shares to raise capital. In accordance with this offering, the company is required to file a [[SEC filings|Form F-1]], which is the format for ana [[prospectus (finance)|prospectus]] for the shares. They also must file a [[SEC filings|Form 20-F]] annually and must adhere to U.S. GAAP standards or IFRS as published by the IASB. In addition, any material information given to shareholders in the home market, must be filed with the SEC through [[SEC filings|Form 6K6-K]].

#* It is a secured security .

#* A fixed rate of interest is paid .

#* Can be converted into multiple shares.

Regulation S shares cannot be held or traded by any “U"U.S. person”person" as defined by SEC Regulation&nbsp;S rules. The shares are registered and issued to offshore, non-U.S. residents.

Most ADR programs are subject to possible termination. Termination of the ADR agreement will result in cancellation of all the depositary receipts, and a subsequent delisting from all exchanges where they trade. The termination can be at the discretion of the foreign issuer or the depositary bank, but is typically at the request of the issuer. There may be a number of reasons why ADRs terminate, but in most cases the foreign issuer is undergoing some type of [[reorganization]] or [[merger]].

Owners of ADRs are typically notified in writing at least thirty days prior to a termination. Once notified, an owner can surrender their ADRs and take delivery of the foreign securities represented by the Receipt, or do nothing. If an ADR holder elects to take possession of the underlying foreign shares, there is no guarantee the shares will trade on any U.S. exchange. The holder of the foreign shares would have to find a broker who has trading authority in the foreign market where those shares trade. If the owner continues to hold the ADR past the effective date of termination, the depositary bank will continue to hold the foreign deposited securities and collect dividends, but will cease distributions to ADR owners.

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.

In 2013 a [[China]]-based company composed of various [[Offshore company|offshore]] [[holding companies]] called Autohome (ATHM) offered 7,820,000 American depositary shares (ADSs) representing its 7,820,000 Class&nbsp;A Ordinary Shares from its [[initial public offering]].<ref>{{cite web|url=http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001193125-13-469670.txt&FilePath=\2013\12\11\%5C2013%5C12%5C11%5C&CoName=AUTOHOME+INC.&FormType=424B4&RcvdDate=12%2F11%2F2013/11/2013&pdf=|title=NASDAQ - SEC Filing|website=secfilings.nasdaq.com|access-date=17 June 2017}}</ref> Details can be found from its prospectus dated December 16, 2013, under Registration No. 333-192085 filed pursuant to Rule 424(b)(4) of the [[Securities Act of 1933|U.S. Securities Exchange Act of 1933]].

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* [httphttps://www.sec.gov/pdfinvestor/pubs/ininvest.pdfhtm SEC guide to foreign investing for U.S. citizens(PDF)]

* [httphttps://www.sec.gov/investor/alerts/adr-bulletin.pdf Investor Bulletin: American Depositary Receipts (from 2012, includes info about fees) (PDF)]

[[Category:StockDepositary marketreceipts]]