American depositary receipt(ADRS)

Most US investors who own shares in foreign corporations do so via American depositary receipts (ADRS). There is nothing to stop them buying overseas shares directly (although they may technically infringe the 1933 Securities Act when they come to sell them). ADRS, however, are much more convenient. Basically, they are tradable receipts which say that the underlying shares represented by the ADRS are held on deposit by a bank in the corporation's home country. The depository bank collects dividends, pays local taxes and distributes them converted into dollars. Additionally, holders of ADRS usually have all the rights of shareholders who own their stock directly. The vast majority of overseas corporations that list their shares on a US exchange use ADRS; at the end of 2002 there were over 1,000 such listings. ADRS have spawned imitators and nowadays there are global depositary receipts, basically ADRS which are traded on over-the counter markets in both the United States and the euro market, and European depositary receipts, which are traded on European exchanges.