American Depositary Receipts (ADRs)
Learn what ADRs are, how they trade on Frec, and how depository bank custody fees are calculated and charged.
Understanding ADRs
An ADR is a certificate that represents shares of a foreign company held by a U.S. depository bank. A U.S. depository bank buys and holds the foreign shares, then issues dollar-denominated certificates against them. Those certificates are what you actually buy and sell.
One ADR might equal a single foreign share, a fraction of one, or several shares bundled together, depending on how the bank sets it up.
Some ADRs trade on major exchanges like the NYSE or Nasdaq. Others trade over-the-counter (OTC) instead. Either way, owning an ADR works a lot like owning the foreign stock itself: you can receive dividends, and any gains or losses are measured in U.S. dollars. Keep in mind your dividend may already reflect tax withheld by the foreign company's home country.
Frec supports trading a subset of ADRs. OTC ADRs come with a couple of extra rules: you can't buy them in a self-managed portfolio, and they can't be used as collateral for borrowing.
The cost of holding an ADR
Depository banks typically charge a small recurring fee, often called a custody or service fee, to cover the cost of managing the ADR. This usually runs between $0.01 and $0.03 per share. The exact amount depends on the specific ADR. Check the issuing bank's website or the ADR's prospectus for details.
Two dates matter for this fee:
|
Date |
What happens |
|
Record date |
The bank checks who currently holds the ADR. Holding it on this date means you owe the fee. |
|
Process date |
The fee is actually deducted from your account. This can happen on a different day than the record date. |