American Depositary Share - ADS

What is an 'American Depositary Share - ADS'

An american depositary share (ADS) is a U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange. American Depositary Shares (ADSs) are issued by depository banks in the U.S. under agreement with the issuing foreign company; the entire issuance is called an American Depositary Receipt (ADR) and the individual shares are referred to as ADSs.

Depending on the level of compliance with U.S. securities regulations the foreign company wishes to follow, the company may either list its shares over-the-counter (OTC) with low reporting requirements or on a major exchange like the NYSE or Nasdaq. Listings on the latter exchanges generally require the same level of reporting as domestic companies, and also require adherence to GAAP accounting rules.

BREAKING DOWN 'American Depositary Share - ADS'

Foreign companies that choose to offer shares on U.S. exchanges gain the advantage of a wider investor base, which can also lower costs of future capital. For U.S. investors, ADSs offer the opportunity to invest in foreign companies without dealing with currency conversions and other cross-border administrative hoops.

Even though ADSs represent real claims to foreign shares (and could be converted if the investor wished to do so), there is currency risk involved in holding them. Fluctuations in the currency exchange rate between the USD and the foreign currency will affect the price of shares as well as any income payments, which must be converted into U.S. dollars.

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RELATED FAQS
  1. Does a company's American depositary share equal one share of common stock?

    American depositary shares (ADS) come into play when a foreign company wants its shares to trade on a major American exchange. ... Read Answer >>
  2. Is there a difference between ADR and ADS?

    American depositary receipts (ADRs) allow foreign equities to be traded on U.S. stock exchanges; in fact, this is how the ... Read Answer >>
  3. What are the differences between global depositary receipts (GDRs) and American depositary ...

    Discover some of the similarities and differences between global depositary receipts and American depositary receipts, and ... Read Answer >>
  4. What parties are involved in the creation of an American depositary receipt?

    An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number ... Read Answer >>
  5. Why would a company choose to use global depositary receipts (GDRs) for financing?

    Learn why a company might choose to utilize global depositary receipts for financing, along with the many other benefits ... Read Answer >>
  6. Why are big foreign companies considering delisting their American depositary receipts?

    American depositary receipts (ADRs) were developed to give investors an easier way to invest in foreign companies. An ADR ... Read Answer >>
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