ADRS

ADR stands for American Depository Receipt, which enables investors based in the USA to invest in stocks of non-US companies trading on a non US stock exchange. ADRs are denominated in dollars. Simply put, US brokers purchase shares of a foreign company, say Infosys (on behalf of their clients). ADRs are subsequently listed on US stock exchanges.

ADRs can be sponsored or unsponsored. Sponsored ADRs are those in which the company actively participates in the process. The ADRs were first offered in the US in the 1920s. A number of Indian companies have issued ADRs. Infosys Technologies was the first Indian company to use the ADR route.

The terms ADR and ADS are often used interchangeably. The individual shares representeted by an ADR are called American Depositary Shares (ADs). To the company issuing ADRs, it provides access to the American

market. A company can, therefore, raise additional resources. To an American investor, it provides the opportunity to invest in stock of companies not listed in the US. Huge operational, custodial, and currency conversion issues can come into play if the ADR route is not used.