Investor Bulletin: 

American Depositary Receipts

The SEC’s Office of Investor Education and Advocacy 

is issuing this Investor Bulletin to educate investors 

about American Depositary Receipts (“ADRs”). An 

ADR is a security that represents shares of non-U.S. 

companies that are held by a U.S. depositary bank 

outside the United States (“U.S.”). 

What is an ADR?

ADRs allow U.S. investors to invest in non-U.S. 

companies and give non-U.S. companies easier access 

to the U.S. capital markets. Many non-U.S. issuers use 

ADRs as a means of raising capital or establishing a 

trading presence in the U.S. The non-U.S. company 

may sometimes be referred to as a “foreign private 

issuer.” The first ADR was created in 1927 by a U.S. 

bank to allow U.S. investors to invest in shares of a 

British department store. Today, there are more than 

2,000 ADRs available representing shares of companies 

located in more than 70 countries. 

An ADR is a negotiable certificate that evidences an 

ownership interest in American Depositary Shares 

(“ADSs”) which, in turn, represent an interest in 

the shares of a non-U.S. company that have been 

deposited with a U.S. bank. It is similar to a stock 

certificate representing shares of stock. The terms 

ADR and ADS are often used interchangeably by 

market participants. ADRs trade in U.S. dollars 

and clear through U.S. settlement systems, allowing 

ADR holders to avoid having to transact in a foreign 

currency. 

An ADR may represent the underlying shares on 

a one-for-one basis, or may represent a fraction of 

a share or multiple shares. For example, for one 

company, an ADR may represent several shares of 

the underlying security, while for another company, 

an ADR may represent a fraction of the underlying 

security. The use of a ratio allows ADRs to be priced 

at an amount more typical of U.S. market share prices. 

ADRs are created by a depositary bank when the 

non-U.S. company, or an investor who already holds 

the underlying non-U.S. securities, delivers them to 

the bank or its custodian in the non-U.S. company’s 

home country. The bank will issue ADRs to the 

investor in the U.S. and the investor will be able to 

re-sell the ADRs on a U.S. exchange or the over-thecounter market. ADR holders may also surrender 

ADRs in exchange for receiving the shares of the 

non-U.S. company. These transactions are generally 

performed by brokers and other types of investors 

who are active in foreign securities markets. 

 ADRs may be “sponsored” or “unsponsored.” 

Sponsored ADRs are those in which the non-U.S. 

company enters into an agreement directly with the 

U.S. depositary bank to arrange for recordkeeping, 

Investor Assistance (800) 732-0330 www.investor.gov

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forwarding of shareholder communications, payment 

of dividends, and other services. An unsponsored 

ADR is set up without the cooperation of the nonU.S. company and may be initiated by a brokerdealer wishing to establish a U.S. trading market. An 

ADR, however, may not be established unless the 

non-U.S. company is either subject to the reporting 

requirements under the Securities Exchange Act of 

1934 or is exempt under the Act. 

ADRs are always registered with the SEC on a Form

F-6 registration statement. Disclosure under Form 

F-6 relates only to the contractual terms of deposit 

under the deposit agreement and includes copies of 

the agreement, a form of ADR certificate, and legal 

opinions. A Form F-6 contains no information about 

the non-U.S. company. If a foreign company with 

ADRs wishes to raise capital in the United States, it 

would separately file a registration statement on Form

F-1, F-3, or F-4. If a foreign private issuer seeks to list 

ADRs on a U.S. stock exchange, it would separately 

file with the SEC a registration statement on Form

20-F. Registration statements used to raise capital 

or list ADRs on an exchange are required to contain 

extensive financial and non-financial information 

about the issuer. 

Market participants have generally categorized ADRs 

into three “levels,” depending on the extent to which 

the foreign company has accessed the U.S. markets: 

Level 1 ADR programs establish a trading presence 

but may not be used to raise capital. It is the only 

type of facility that may be unsponsored and, as a 

result, may be traded only on the over-the-counter 

market. Form F-6 would be the only form 

required to be filed. No information about the 

issuer would be available on the SEC’s EDGAR 

system; information should be available on the 

issuer’s website. 

Level 2 ADR programs establish a trading presence 

on a national securities exchange but may not be 

used to raise capital. Again, Form F-6 would be 

used to register the ADRs. The non-U.S. company 

is required to register and file annual reports on 

Form 20-F with the SEC.

Level 3 ADR programs may be used not only to 

establish a trading presence, but also to raise capital 

for the foreign issuer. A registration statement 

on Form F-1, Form F-3, or Form F-4 would be 

filed in order to offer the ADRs. The non-U.S. 

company would be required to also file annual 

reports on Form 20-F.

What fees are charged to ADR 

investors? 

As a matter of course, an ADR depositary bank may 

be authorized under the deposit agreement relating 

to the ADRs to charge a fee, called a custody fee, for 

the work it performs on the ADR. ADR depositary 

banks charge holders of ADRs custody fees, sometimes 

referred to as Depositary Services Fees, to compensate 

the depositary banks for inventorying the non-U.S. 

shares and performing registration, compliance, 

dividend payment, communication, and recordkeeping 

services. 

A common practice for collection of the custody 

fee is for the ADR depositary bank to subtract the 

amount of the fee from the gross dividends paid by 

the bank to ADR holders. Typically, the Depository 

Trust Company, (DTC) will announce both the gross 

dividend rate and the net dividend rate after deduction 

of the ADR custody fee. The ADR depositary banks 

pay DTC the net dividend, and DTC allocates the 

net dividend to its users. However, a number of ADR 

issues do not pay periodic dividends, which prevents 

the fees from being collected through the abovedescribed mechanism. In this case, DTC charges the 

fee to its users (i.e., banks and broker-dealers) who pass 

them on to their customers. 

Depositary banks may charge other fees, such as 

relating to the distribution of dividends, foreign 

currency exchange, voting of shares, and other matters. 

Investor Assistance (800) 732-0330 www.investor.gov

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What should investors do before 

investing in ADRs?

Like any other investment, you should learn as 

much as you can about a company before you 

invest. Research the political, economic, and social 

conditions in the company’s home country so you 

will understand better the factors that affect the 

company’s financial results and stock price. You should 

understand that non-U.S. companies are subject 

to financial and other disclosure requirements that 

differ from those required of U.S. public companies. 

Except for the annual report on Form 20-F, non-U.S. 

companies are generally only required to disclose what 

is required in their home country. Any disclosure may 

also not be as extensive or comparable to that of U.S. 

public companies. 

Prior to investing in an ADR, investors should ask 

their broker-dealer what fees are charged to them as 

ADR investors. Typically, fees are assessed per ADR. 

For example, 1000 ADRs could be assessed a fee 

ranging from $20 to $50. Investors should review the 

fees reported in the Form F-6 registration statement 

under the Securities Act of 1933 available through 

the SEC’s web site at www.sec.gov/edgar.shtml at 

no charge.  Fees can be viewed in the section of the 

registration statement typically titled, “Description 

of American Depository Shares” or “Description 

of American Depository Receipts.” The websites 

of depositary banks that are active in the U.S. also 

contain information about investing in ADRs and 

serve as a source of information for investors.

RELATED INFORMATION

For more information on ADRs and 

international investing, please visit the SEC’s 

ADR Fast Answer and read our publication

on the basics of international investing, which 

covers the risks of investing internationally and 

how to get more information about foreign 

companies and markets.

The Office of Investor Education and Advocacy 

has provided this information as a service to 

investors. It is neither a legal interpretation nor 

a statement of SEC policy. If you have questions 

concerning the meaning or application of a 

particular law or rule, please consult with an 

attorney who specializes in securities law.

Investor Assistance (800) 732-0330 August 2012

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