American Depositary Receipts (ADRs)

What this video covers

• How an ADR is created: foreign shares held by a custodian overseas, then certificates issued by a U.S. depositary bank for trading in U.S. dollars
• The difference between sponsored ADRs (company involvement, higher transparency, voting rights) and unsponsored ADRs (no company participation, OTC only, minimal disclosure)
• The three ADR program levels: Level 1 trades OTC with minimal SEC registration, Level 2 lists on exchanges with annual reports, Level 3 adds full registration and the exclusive right to raise new capital
• Why a foreign issuer using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) does not need to reconcile to U.S. Generally Accepted Accounting Principles (GAAP)
• Why currency risk is never eliminated in an ADR, even though the certificate trades in U.S. dollars, and how exchange rate moves affect both share value and dividend payments
• Why unsponsored ADRs carry no voting rights and trade OTC only, never on a major exchange
• How foreign tax withholding on ADR dividends may qualify for U.S. foreign tax credit