Some of the world’s largest companies are not traded on a U.S. stock exchange. If you want to buy shares of BMW, Samsung or Shell Oil Company, for example, you must purchase the foreign company’s American depository receipts, or ADRs, instead. ADRs are issued by U.S. depository banks, which first purchase shares of a foreign company’s stock, then hold the shares as inventory and finally issue ADRs for trading on the U.S. exchanges. If you buy ADR shares, the depository bank holds your shares electronically unless you decide to convert them into ordinary stock shares.
Online Conversion
If you invest through an online brokerage firm, you may be able to convert your ADR shares into ordinary shares through your trading platform. Your broker must trade the ADR shares for you to make the conversion online. After you have entered your trade order, it is forwarded to a processing agent, who can usually complete the conversion within one to three business days. You should see the shares listed in your brokerage account once the conversion is confirmed.
Initiating the Conversion
You can call your broker or speak with a representative at the depository bank and request that your ADRs be converted into ordinary stock shares. You must provide the name of the ADR’s parent company, the number of shares you own and the Committee on Uniform Securities Identification Procedures, or CUSIP, number. You can find this information on your statement or on the depository bank’s website. The depository bank representative or your broker will provide you with the conversion form you must complete and return. This gives the broker or bank representative the authority to act on your behalf.
Converting your ADR shares into stock shares is a two-step process. The processing agent sells your ADR shares through a U.S. exchange. The processing agent then contacts a licensed broker on the foreign exchange to purchase the company’s stock shares. Depending on the stock’s liquidity, the purchase takes place immediately or shortly afterward. The foreign broker may enter the buy as a limit order to try to get a better price. Once the transaction is complete, the foreign broker notifies the processing agent. The stock shares may be electronically placed in your account, or the company may send you a paper stock certificate.
Conversion Fees
Be prepared to pay a variety of costs and fees to have your ADRs converted. In addition to the stock’s purchase price, your broker or depository bank changes a fee for its part of the transaction. The foreign broker gets a fee for purchasing the shares and may tack on a processing fee as well. You will pay another fee if the company issues a paper stock certificate and has to mail the shares to you or your broker. The costs and fees are automatically charged to and withdrawn from your brokerage account.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.
The most common ratio is 1:1 where each ADR represents one common share of the company. If an ADR is listed on an exchange, you can buy and sell it through your broker like any other share.
As long as there are no sanctions, Russian ADRs (GDRs) can be transferred or converted into local shares with the help of brokerage accounts in Russia. The conversion procedure involves opening an account, using a valid passport, proof of address, main financial profile, and information about the tax ID.
Voluntary Election Tool for American Depository Receipt (ADR) Conversions. An ADR trades like a stock but is composed of ordinary shares of a foreign corporation. ADRs provide a convenient and cost-effective way to buy foreign shares without incurring foreign tax obligations on each transaction.
Each ADR represents one or more shares of foreign stock or a fraction of a share. If you own an ADR, you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient to own the ADR.
The forced conversion may be used for ADRs, the rights to which are recorded in foreign organizations and whose holders cannot receive the underlying Company's shares due to foreign restrictive measures or unfriendly actions.
How to convert your Alibaba ADRs to Hong Kong shares? If you prefer to hold regular shares rather than an ADR, you must request the conversion through your broker. The conversion process might take up to two business days (depending on Hong Kong and US working hours) following your submission.
ADR investors are not subject to non-US stock transaction taxes. And for those countries that maintain tax treaties with the US, dividends are paid without foreign withholding.
ADS are common stocks of a foreign company trading in the US market. In contrast, ordinary shares belong to US-based domestic companies. An investor can convert their ADS into ordinary shares, but the ordinary shares of a US-based company cannot be converted into ADS.
Termination of the ADR agreement will result in cancellation of all the depositary receipts, and a subsequent delisting from all exchanges where they trade. The termination can be at the discretion of the foreign issuer or the depositary bank, but is typically at the request of the issuer.
Once a stock is delisted, stockholders still own the stock. However, a delisted stock often experiences significant or total devaluation. Therefore, even though a stockholder may still technically own the stock, they will likely experience a significant reduction in ownership.
While the two most known forms of ADR are arbitration and mediation, negotiation is almost always attempted first to resolve a dispute. Negotiation allows the parties to meet in order to settle a dispute.
ADR holders who receive a cash dividend will be charged a fee, which will be deducted by the Depositary from interim and final cash dividends prior to distribution of the cash dividend.
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