Stay on top of global markets with American Depositary Receipts (ADRs) and foreign ordinaries

American Depositary Receipts (ADRs)

Many non-U.S. companies, which might otherwise be unavailable or inconvenient to trade, do trade in the U.S. markets as ADRs (receipts for shares of the foreign stock issued by U.S. banks). ADRs are denominated in U.S. dollars and pay dividends in U.S. dollars. 

ADRs are negotiable securities issued by a bank that represent shares in a non-U.S. company. ADRs can trade in the U.S. both on national exchanges and in the over-the-counter (OTC) market, are listed in U.S. dollars, and generally represent a number of non-U.S. shares to one ADR. This gives investors exposure to non-U.S. equities without having to trade on a local exchange in the local currency. Investors can trade ADRs during the U.S. market sessions. 

ADRs can be issued as unsponsored without any involvement or approval by the foreign company, or they can be issued as sponsored, where the underlying foreign company participates in the issuance of the ADR and also retains a controlling relationship. Only sponsored ADRs may be listed on a national exchange in the U.S., and they must meet certain qualifications; otherwise, they trade in the U.S. OTC market. Unsponsored ADRs only trade in the U.S. OTC market.

Banderas de países

Know the benefits and risks of ADRs.

  • Benefits of ADRs

    • The issuing financial institution will collect any dividend payments and convert them into U.S. dollars for you.
    • ADRs listed on an exchange must file quarterly results because they are registered with the U.S. Securities and Exchange Commission and are subject to U.S. accounting rules. This means investors potentially have access to more information than they would if they'd invested directly overseas.
    • Depending on country and account type, applicable dividend withholding tax percentages may be lower than those applied to foreign ordinary shares.
    • There are some listed ADRs that are marginable and may have options.
  • Risks of ADRs

    • The institutions that issue ADRs may charge quarterly or annual 'ADR Pass-Through Fees,' which consist of custody fees and fees for processing dividends and corporate actions. These fees can add to your investment costs.
    • Liquidity for some ADRs may be low, which may affect bid/ask spreads. Also, not every non-U.S. company has an ADR.
    • While a rare occurrence, the bank offering the ADR may decide to terminate the ADR program for any number of reasons, including lack of interest. This could result in a requirement that the position either be liquidated or converted to the underlying foreign ordinary shares.

U.S. Over-the-Counter (OTC) foreign ordinaries.

If an ADR isn't available, you may be able to trade the company's foreign stock in the OTC market. This is known as trading "foreign ordinaries." Many international companies' foreign ordinary shares trade on the OTC market in the U.S. These companies are listed on a foreign exchange and also trade in the U.S. The foreign ordinaries are priced and settled in U.S. dollars.

Virtually all Canadian stocks can be traded online at Schwab.com or through a broker via phone. Online quotes on most Canadian securities are provided by the Toronto Stock Exchange and are displayed in U.S. dollars. The majority of trades are sent to Canada and are not traded in the U.S. over the counter market, the trades however will use the U.S. 5 letter symbol ending in "F" and will be placed in U.S. dollars. Included in the execution is a dealer fee paid to the Canadian trader.

Gráfico de mercado extrabursátil (OTC)

Know the benefits and risks of foreign ordinaries.

  • Benefits of Foreign Ordinaries

    • Foreign companies that do not offer ADRs have shares that can often be bought as foreign ordinaries via the U.S. OTC market, providing U.S. investors with access to more international companies.
    • Trades are in U.S. dollars and take place during U.S. trading hours. Commissions, while usually higher than ADRs, are generally lower than buying foreign ordinaries directly through the local market.
  • Risks of Foreign Ordinaries

    • Foreign ordinaries in the OTC market may not be as liquid as the ones trading on a local market exchange, which can lead to greater volatility in the U.S. OTC foreign ordinary's price.
    • Wider spreads can exist because of lower liquidity in the U.S. OTC market and the additional costs that may be incurred by market makers. Due to the wider spreads, foreign ordinaries can trade at a premium or a discount compared to the local market shares. 
    • Trades may also be subject to a foreign transaction fee.
    • U.S. OTC markets are subject to fewer regulations and reporting requirements, making it more difficult to research them.

Considerations when investing in ADRs, Foreign Ordinaries, & Canadian Stocks

International stock exchanges operate under different rules and guidelines than those in the U.S. market. Learning about and considering these differences can help you prepare a better investment strategy for your U.S. portfolio.

  • American Depositary Receipts (ADRs)
  • Foreign ordinaries traded in the over-the-counter (OTC) market
  • Foreign ordinaries traded on local exchanges overseas
  • Canadian Stocks
  • Liquidity*
  • American Depositary Receipts (ADRs)
    Varies by ADR
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    Low
  • Foreign ordinaries traded on local exchanges overseas
    Generally high; depends on the security and market
  • Canadian Stocks
    U.S. OTC: Generally low, varies by security 

    Local Canadian: Generally high 
  • Minimum position size
  • American Depositary Receipts (ADRs)
    None
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    None
  • Foreign ordinaries traded on local exchanges overseas
    Generally none
  • Canadian Stocks
     Generally none
  • Trading hours**
  • American Depositary Receipts (ADRs)
    U.S. market hours
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    U.S. market hours
  • Foreign ordinaries traded on local exchanges overseas
    Foreign market hours
  • Canadian Stocks
     U.S. market hours
  • Currency exposure
  • American Depositary Receipts (ADRs)
    Yes
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    Yes 
  • Foreign ordinaries traded on local exchanges overseas
    Yes
  • Canadian Stocks
     Yes
  • Settlement date
  • American Depositary Receipts (ADRs)
    Trade date plus one day (T+1)3
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    Varies by country, but usually T+1
  • Foreign ordinaries traded on local exchanges overseas
    Varies by country/local holidays
  • Canadian Stocks
    T+1 (may vary depending on Canadian market holidays)
  • Online trading
  • American Depositary Receipts (ADRs)
    Yes
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    Yes
  • Foreign ordinaries traded on local exchanges overseas
    No, broker-assisted by phone only
  • Canadian Stocks
     Yes
  • Margin***
  • American Depositary Receipts (ADRs)
    Yes
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    Rarely
  • Foreign ordinaries traded on local exchanges overseas
    Rarely
  • Canadian Stocks
    Rarely
  • Ongoing management expenses
  • American Depositary Receipts (ADRs)
    ADRs have custody fees that are levied on a regular basis, such as annually or quarterly
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    None
  • Foreign ordinaries traded on local exchanges overseas
    None
  • Canadian Stocks
    None
  • Commission at Schwab
  • American Depositary Receipts (ADRs)
    U.S. Listed:
    Online trades: US$01
    Broker-Assisted: US$25

    U.S. OTC:
    Online trades: US$6.95
    Broker-Assisted: US$31.95 (US$6.95 commission + US$25 broker assistance fee) 
  • Foreign ordinaries traded in the over-the-counter (OTC) market
    Online trades: US$50 foreign transaction fee2

    Broker-Assisted: US$75 (US$50 foreign transaction fee and a US$25 broker assistance fee) 
  • Foreign ordinaries traded on local exchanges overseas
    Online trades: Not available, except Canadian Stocks

    Broker-Assisted: The greater of US$100 or 0.75% of principal, with no maximum 
  • Canadian Stocks
    Online trades: $6.95 

    Broker-Assisted: $31.95 ($6.95 commission + $25 broker assistance fee)  

Source: Schwab Center for Financial Research.

View important disclosures about this table

View important disclosures about this table

Common questions

An American Depositary Receipt is a certificate issued by a U.S. bank that represents shares in foreign stock. These certificates trade on American stock exchanges. ADRs and their dividends are priced in U.S. dollars. ADRs represent a simple, liquid way for U.S. investors to own foreign stocks.
 

ADRs are a form of equity security created specifically to simplify foreign investing for American investors. An ADR is issued by an American bank or broker, known as a custodian or depositary. It represents one or more shares of foreign-company stock held by that bank in the home stock market of the foreign company.

Investors who purchase the ADRs are paid dividends in U.S. dollars. The foreign bank pays dividends in the native currency, and the custodian bank distributes the dividends in U.S. dollars after factoring in currency conversion costs, foreign taxes, and any pass-through fees.
 

ADRs are created and issued by both domestic and international banks. These custodian banks or 'ADR agents' will typically charge an ADR 'pass-through fee' to cover administrative or other costs associated with the ongoing management of the particular ADR program. The average fee is one to three cents per share. The actual fee amount charged and the timing of the pass-through fees vary per ADR issuer. Any fees charged to Schwab, like most brokerage firms, are automatically passed on and borne by the ADR investor. 

  • When are the fees collected? Pass-through fees can be charged in two different manners. If the underlying ordinary share pays a dividend, the custodian banks collect the foreign issuer's funds and convert them to U.S. dollars and then forward the dividend payments to ADR holders. Generally, at this time, they also choose to charge the ADR pass-through fee. When the foreign issuer does not offer dividends, the pass-through fee is simply deducted from the investor's account according to the predetermined timing as delineated in the ADR's prospectus.
  • How are the fees collected? To collect the fees owed by ADR investors, the Depository Trust Company (DTC) collects the custody fees on behalf of ADR agents and then charges companies like Schwab that hold ADRs for their clients. Fees charged to Schwab by the DTC are referred to as 'ADR pass-through fees' and labeled as such on client statements. The dividend and the ADR fee will appear as two separate items making it very clear for investors to understand the difference.
  • Where can I find information on the fees? Investors should review each individual ADR's prospectus for specific pass-through fee information. You can search for individual prospectuses online using the U.S. Securities and Exchange Commission's EDGAR Company Search.

The governments of some countries, such as France and Italy, have implemented foreign transaction taxes as a percentage of the purchase amount on certain securities, including ADRs. Executing brokers and market makers pass these foreign transaction taxes on to broker/dealers like Schwab as fees. In turn, Schwab passes these fees on to clients at the time of the purchase and they are reflected on trade confirmations and client statements as an 'Exchange Process Fee.'

Many ADR's can be converted into ordinary shares in the local home market and foreign ordinary shares can sometimes be converted to ADR shares. Occasionally, the underlying ordinary share is actually a Private Placement or the ADR custodian bank's books are closed in anticipation of a dividend, corporate action, or they have reached a foreign ownership limit. In such instances, converting the ADR and holding the asset at Schwab would not be feasible or possible.

It is also important to note there are often fees, taxes, and costs associated with an ADR conversion.

  • Y-shares are five letter stock symbols ending in "Y" which designate ADRs that trade in the U.S. OTC market. Banks or other depositary institutions hold the local foreign shares and issue receipts for them in a ratio of one ADR to X-amount of the foreign shares. They can be sponsored ADRs (the underlying company is sponsoring the listing) or they can be unsponsored. 
  • F-shares are five letter stock symbols ending in "F" that represent an equity traded on a foreign exchange. In some instances, the foreign ordinary shares may be tradable in the U.S. Over-the-Counter market (OTC) through a market maker. In these cases, the market maker purchases and sells the foreign ordinary shares from their own inventory.  It's important to note not all F-shares trade in the U.S. OTC market. Some foreign equities, even with F symbols, must be traded in their respective local home markets only.
  • Currency fluctuation - While currency fluctuation can work in favor of the U.S. dollar, it's always a variable and investors should be prepared for favorable and unfavorable outcomes.
  • Political instability - Investing in international stocks is investing in the people and governments where the foreign shares are located. Political or economic events in a foreign company's home country may harm your investment.
  • Regulatory changes - International stock exchanges have their own rules and regulations for participating countries and organizations. Changes in governance and financial policies can create limitations on the access rights of foreign investors.
  • Taxation - Taxes on international investments are often taxed at different rates than U.S. holdings. Similar to regulatory changes, some foreign nations may also impose additional taxation on foreign investors.

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