example, we'd need to determine if the per-share data is based on the one share of ABC Corp. The per-share data can be determined based on the underlying common stock or the ADR. Investors need to keep the conversion ratio in mind when analyzing per-share data such as earnings per share or the price-to-earnings (P/E) ratio, which has earnings per share in the denominator.
For example, if an ADR's conversion ratio were 100 to 1, then a single ADR share would represent 100 shares of the underlying security. Be sure to look at the ADR's "conversion ratio," which indicates the number of shares of the underlying foreign security that are equivalent to one ADR share.
If you don't look carefully, you may not realize that the underlying foreign stock is actually "worth" $0.25 per share, not $25. is made into an ADR, it could have 100 shares packaged into the ADR. Assume company ABC Corp.'s stock trades on country A's exchange for one unit per share (or $0.25 per share in U.S. of $0.25, meaning one foreign currency unit is worth $0.25 in U.S. This is an important consideration, so let's go through an example.Īssume country A (the foreign country) has an exchange rate with the U.S. This is one major way in which traditional U.S. trading market.ĭifferences between ADRs and "regular" stocksĪn ADR can represent a one-for-one exchange with the foreign shares, a fraction of a share, or multiple shares. Typically, broker-dealers initiate unsponsored ADRs when they wish to establish a U.S. Unsponsored ADRs, on the other hand, are set up without the non-U.S. Technically, securities of a foreign company that are represented by an ADR are called "American depositary shares" (ADS), but typically, the terms ADR and ADS are used interchangeably.ĪDRs can be "sponsored" or "unsponsored." Sponsored ADRs are those for which the foreign company has negotiated directly with the U.S. In this example, I also could give back my ADRs to the depositary bank and receive shares of the foreign company's stock again. stock exchange or in the over-the-counter market just like I could trade the stocks of a U.S.-based company. From there, I can trade my ADR shares on a U.S. depositary bank (through a custodian in my home country), and I told them I'd like to exchange my foreign shares for ADRs, the bank would give me an ADR certificate that represents my foreign shares. For example, if I were an investor with shares of a European company (purchased on a European stock exchange), and I contacted a U.S. or a custodian in the foreign company's home country. company or an investor who holds the underlying foreign securities delivers them to either a "depositary" bank in the U.S. Institutional Distribution IntelligenceĪDRs are created when a non-U.S.Non-Traditional Exchanges & New Markets.Directors’ and Officers’ Questionnaires.