American Depositary Receipt (ADR)
American Depositary Receipt (ADR) refers to a stock issued by a bank that represents securities of a foreign company. The certificate allows US investors to invest in non-US companies on local exchanges.
In simple terms, ADRs were created to enable US investors to easily buy shares of foreign companies. The receipt represents shares of a non-US company owned by a bank on the local stock exchange. Investors can access ADRs through major stock exchanges like the NYSE or NASDAQ or trade them over the counter (OTC). Listed ADRs can be bought, sold, and held just like ordinary shares of US companies.
ADRs can be sponsored and unsponsored. A sponsored ADR is issued by a bank or a broker on behalf of a non-US company, which usually covers the issuance costs and gains control over the ADR, while the bank is responsible for transactions with investors.
On the other hand, unsponsored ADRs are also issued by a bank although these are not immediately involved with the foreign company. Therefore, sometimes there can be multiple unsponsored ADRs from the same non-US company issued by different American banks.
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