ADRs and Foreign Listings
A way of holding a foreign company through a US-listed security. The wrapper introduces a ratio, a fee, a currency exposure and a sponsor.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- An ADR is a receipt for shares held by a depositary bank abroad.
- The ratio between the receipt and the underlying shares is set by the sponsor.
- Sponsored and unsponsored programmes differ in disclosure and in level.
- Currency exposure passes through whether or not it is visible.
- Depositary fees are deducted, frequently from dividends.
MAD Academy Training Video · 0:46
A Receipt, Not the Share
An ADR is a claim on foreign shares held by a bank, which adds a currency effect, a custody fee and a tax layer between you and the company.
This lesson is part of a Stock Alerts + Tools plan.
What the receipt is
A depositary bank holds shares of a foreign company in its home market and issues receipts against them that trade in the United States. The receipt is a claim on those shares, and its price tracks the underlying adjusted for the ratio and the exchange rate.
ADR price ≈ (underlying local price / shares per ADR) x exchange rate
- the ratio is set by the sponsor and can be changed
- arbitrage between the two listings keeps the relationship close
The ratio exists so that the receipt trades in a familiar price range. A company whose shares trade at the equivalent of a few cents locally can have a receipt priced at twenty dollars, representing hundreds of underlying shares.
The levels
| Level | Trades | Disclosure required |
|---|---|---|
| Unsponsored | Over the counter | None from the company; the bank creates it without involvement |
| Level 1, sponsored | Over the counter | Limited. The company participates but does not register fully |
| Level 2 | On an exchange | Registers with the SEC and files an annual report on Form 20-F |
| Level 3 | On an exchange, with a public offering | Full registration, and capital is raised |
The first row is the one to check for. An unsponsored programme can exist without the company's involvement, which means several competing receipts on the same company can trade at once with different ratios and fees.
The costs that are not obvious
- A depositary service fee, typically a few cents per receipt annually, deducted from dividends or charged directly.
- Foreign withholding on dividends, which the receipt does not remove.
- A conversion spread on dividend payments made in the local currency.
- Wider bid-ask spreads on lower-level programmes, which trade over the counter.
The first item appears on a statement as a small charge with an unfamiliar description and is frequently the only visible sign that the security is a receipt rather than a share.
The currency exposure
The receipt is priced in dollars and the underlying is priced in another currency. A holder is therefore exposed to both the company and the exchange rate, whether or not that was intended.
Scroll the chart sideways to see all of it.
- Local shares
- The currency against the dollar
- The receipt, in dollars
The arbitrage that keeps the two prices together
Nothing enforces the relationship between a receipt and the shares behind it by rule. It holds because the depositary allows receipts to be created and cancelled against the underlying shares, which makes any gap a profit somebody can take.
- 1The receipt trades above the underlyingAdjusted for the ratio and the exchange rate.
- 2A participant buys the local sharesIn the home market, during its trading hours.
- 3They are deposited with the depositary bankWhich issues new receipts against them.
- 4The receipts are sold at the premiumNew supply, and the gap closes.
That is the same creation and redemption mechanism the ETF article describes, applied to a single company. It is also why the relationship is tighter for large, liquid companies whose home market overlaps US hours and looser for those whose does not.
Where the home market is closed, the receipt trades on expectations of where the underlying will open, and the two can diverge substantially within a session. That divergence is not an arbitrage opportunity; it is the absence of a market to arbitrage against.