ADR vs. ADS: An Overview

American depositary receipts (ADRs) allow foreign equities to be traded on U.S. stock exchanges. In fact, this is how the stock of most foreign companies trades in U.S. sto♌ck markets. Meanwhile, an American depositary share (ADS) is the actual U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange. 

What Is an ADR?

American depositary receipts (ADRs) are issued by U.S. depositary banks, and each one represents one or more shares of a foreign stock or a 澳洲幸运5官方开奖结果体彩网:fraction of a share. When you own an ADR, you have🦂 the right to obtain the foreign equity it represents, although most U.S. investors find it easier to own the ADR.

For example, let's say that the shares of CanCorp (a fictitious Canadian company) sell on the 澳洲幸运5官方开奖结果体彩网:Toronto Stock Exchange for C$5.75 (US$5). A U.S. bank buys a number of shares and sells ADRs at a ratio of 2:1. Therefore, each ADR repr💖e♔sents two shares of CanCorp and thus should sell for US$10.

ADRs are held in the vaults of the U.S. banks that issue them. However, the shares they represent are actually held in the home country of the 澳洲幸运5官方开奖结果体彩网:foreign-based corporation by a representative of the U.S. depositary bank. ADRs simplify the process of exchanging foreign shares: since it is only the receipts that are traded, investors do not need to worry about any 澳洲幸运5官方开奖结果体彩网:exchange rate differences or the need to open special brokerage accounts. Furthermore, ADRs entitle investors to all 澳洲幸运5官方开奖结果体彩网:dividends and 澳洲幸运5官方开奖结果体彩网:capital gains.

What Is an ADS?

An American depositary share (ADS), on the other hand, is the actual 澳洲幸运5官方开奖结果体彩网:underlying share that t🐽he ADR represe෴nts. In other words, the ADS is the actual share available for trading, while the ADR represents a bundle of ADSs.

ADRs are typically the units investors buy and sell on U.S. exchanges. ADRs represent the ADS units held by the custodian bank in the foreign company's home country. ADRs can be issued against ADS at any ratio the company chooses.

For instance, XYZ Company could have ADR trading available on the 澳洲幸运5官方开奖结果体彩网:New York Stock Exchange (NYSE). These ADRs could be issued at a rate of five ADRs equal to one American Depository Share (5:1), or any other ratio the company chooses. However, the underlying ADS most often corresponds directly to the foreign company's common shares. In other words, the ratio of ADS to common shares is usually one, while the ratio of ADR to ADS can be whatever a company decides to issue them at. Sometimes firms can issue ADS to represent more than one common share each, but usually the ratio is one-to-one.

Example of the ADR/ADS Distinction

For example, if a U.S. investor wanted to invest in CanCorp, the investor would need to go to their broker and purchase a number of ADRs that are equal to the amount of CanCorp shares that they want. In this case, the ADRs are the receipts that the inves𒈔tor has to purchase, whereas the ADSs represent the underlying shares (CanCorp) that were🌱 invested in.

Using a real company in another example, China Online Education Group (COE), a provider of online English language education services in China, has ADS that represents 15 Class A ordinary shares. The company issued 2,400,000 ADS on the NYSE in its public offering on June 10, 2016.

The Bottom Line

ADRs (American Depositary Receipts) are a broader category representing ownership of foreign shares, while ADSs (American Dep🐈ositary Shares) specifically denote owne❀rship by indicating a set number of ADRs. In essence, ADSs are a more granular representation of ownership within the larger scope of ADRs.