What you should know about ADRs
ADRs are a type of investment that you can find listed on Nasdaq and the New York Stock Exchange (NYSE).
An ADR is a certificate (or ‘receipt’) that represents shares in a foreign company that’s listed on an exchange outside of the US, like the Tokyo Stock Exchange (TYO) or London Stock Exchange (LSE).
ADRs trade on US exchanges like other companies or exchange-traded funds (ETFs), but they can have different fees, taxes, and elements of risk. It’s important that you consider these, and do your due diligence before investing in ADRs. We’ve written a deep dive into ADRs over on our blog.
The ADR ratio tells you how many shares a single ADR represents. Ratios vary between companies. For example, a ratio could be 1:1 (one share for one ADR) for one company, but you could also see a ratio of 6:1 (six shares for one ADR).
You can find an ADR’s ratio in its prospectus. ADR prospectuses can be found on the SEC website by searching the name of the ADR under ‘Search for Company Filings’. It may be worth checking out the ‘Quick EDGAR Tutorial’ to get your bearings on the site!
Sharesies charges a transaction fee when you buy and sell shares in companies and exchange-traded funds (ETFs). This is also known as a ‘brokerage fee’.
When you invest in an ADR, you may be charged depositary fees. These are charged by the depositary bank that issued the ADR, not Sharesies. The fees cover the depositary bank’s costs for managing the ADR, and are based on how many receipts you hold. Generally, the fees are less than $0.10 USD per receipt annually.
If the ADR pays dividends
Generally, the depositary fee will be deducted from your dividends on the ex-dividend date before they’re paid into your Wallet.
If the ADR doesn’t pay dividends
We’ll deduct the fee from your Sharesies Wallet when the depository bank charges it at some point during the year. Usually this will be annually, but the depository bank could also split the fee throughout the year.
There are also instances where the bank could do a mix of both—they could take a small amount from your dividend, and ask for the rest during the year. In any case, we’ll let you know when we deduct the fee from your Sharesies Wallet.
You can find the maximum amount an ADR can charge in the ADR’s prospectus. To find an ADR’s prospectus, go to the SEC website and search the name of the ADR under the ‘Search for Company Filings’ option. It may be worth checking out the ‘Quick EDGAR Tutorial’ to get your bearings on the site!
Currency exchange fee
ADRs trade on US exchanges in US dollars (USD). Sharesies charges a currency exchange fee when you exchange money. We calculate the fee on the amount to exchange, and deduct it from the order amount you enter.
Tax on ADR dividends works similarly to other US investments. But the difference is that the depositary bank may subtract foreign withholding tax (WHT) from your dividend to pay the government of the company’s home exchange, instead of this being paid to the US government.
Through the platform you can invest in sponsored ADRs that are either level II or level III—this means they follow regulatory requirements outlined by the US Securities and Exchange Commission (SEC).
ADRs can be cancelled (or ‘terminated’) by the depositary bank that issued them. If this happens, the ADR will be removed from the US exchange they were listed on. For example, an ADR might be cancelled if the foreign company goes through a merger. In most cases you’ll receive some sort of compensation for your investment.
ADRs are affected by three currencies—the currency of the country you’re in (AUD), the currency of the US exchange (USD), and the local currency of the company’s home exchange. This means that your investments may be exposed to foreign exchange risk.
There are other risks to consider, such as political risk (wherein politics or regime changes in the issuing company’s country can impact exchange rates or affect the company and its earnings), or inflation risk (when inflation in the issuing company’s country erodes value of that currency). Make sure you do your due diligence before investing in ADRs.
Find ADRs on Sharesies
Log in to Sharesies.
Type ‘ADR’ in the search bar. Or, type in a company name or its ticker symbol if you know which specific ADR you’re searching for. For example, NIO (NIO) or Alibaba (BABA).
Request an ADR you’d like to see on Sharesies
If there’s an ADR you can’t find on Sharesies but would like to see, flick the team an email at email@example.com. We’ll pass it onto our Product team for consideration!