What Are American Depositary Receipts?

The investment known as ADR stands for American Depositary Receipts, which is a tool used to make it easier for investors to invest in foreign markets. Instead of having to find a broker with capabilities in the foreign markets where the securities trade, an investor can just receive ADR’s from a depositary bank that collects the foreign company’s shares.

These ADR’s can be then represent shares in that foreign market. There are many advantages to using ADR’s that we have talked about in class such as the liquidity of these assets. Since the whole process of investing in foreign markets has become easier, the market has become far more liquid. The annual dollar volume of ADR’s has increased from $75 billion dollars in 1990 to $550 billion in 2002. Instead of having to different brokers and red tape to sell foreign investment we can simply trade ADR’s.

As technology advances it has become easier to invest in foreign companies and we can see this through the use of depositary receipts. Not only are depositary receipts issued in America but they are also issued in other countries as well such as Euro DR’s, Singapore DR’s and China DR’s. In the Wall Street Journal on 2/24/06 there is an article, “Bank of Communications Seeks Listing” where we can see that Hong Kong-listed Bank of Communications Co. has gained approval to offer shares on China’s stock exchange and are willing to offer China depositary receipts (CDR’s). By issuing CDR’s, the bank is better able to sell shares to foreign investors.

For more information on American Depositary Receipts, try checking out some of the Wall Street Journal articles in their online database. Just go to their webpage at www.wallstreetjournal.com. It is a great resource. I would also try checking out some of the other articles you may find in a google search.