A depositary receipt (DR) is a tradable security that represents shares of a company held by a depositary bank or its local custodian in the company’s home market. An ordinary share is the underlying equity security itself. The distinction affects what you own, where and in which currency it trades, how dividends and voting are handled, what fees apply, and whether you can exchange the receipt for the underlying shares.
An American Depositary Receipt (ADR) is a U.S.-available form of depositary receipt. It may make a foreign company’s shares easier to access through a U.S. broker, but it does not remove foreign-company, country, currency, or program-specific risks.
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What a depositary receipt represents
A depositary receipt is a negotiable instrument issued under a depositary arrangement. The depositary bank holds a specified number of a foreign company’s shares—directly or through a custodian in the issuer’s home market—and issues receipts that represent an interest in those deposited shares.
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You therefore do not simply own “the same share in another market.” You hold the receipt, while the underlying ordinary shares remain in custody. The receipt-to-share ratio is set by the individual program. One receipt can represent one ordinary share, several shares, or a fraction of a share.
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J.P. Morgan’s depositary-receipts glossary distinguishes the receipt certificate from the depositary share that is actually traded, while noting that “DR” and “DS” are commonly used interchangeably. In everyday investing language, both terms generally refer to the tradable instrument backed by deposited foreign shares.
ADR is a type of DR
An American Depositary Receipt is a depositary receipt made available in the United States. Investor.gov explains that an ADR can represent one or more shares of foreign stock or a fraction of a share. ADRs are commonly bought through a U.S. broker, trade in U.S. dollars, and clear through U.S. settlement systems.
Other depositary-receipt programs can be designed for different markets. The important question is not the label alone but the specific deposit agreement: which shares back the receipt, what ratio applies, where it trades, what rights are passed through, and what charges the depositary may collect.
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An ordinary share is the issuer’s underlying equity security in its home market. Its rights and administration are governed by the company’s terms, local company law, and home-market procedures. A depositary receipt is a separate market instrument whose value is linked to those shares through the depositary arrangement.
| Dimension | Depositary receipt | Ordinary share |
|---|---|---|
| What the investor holds | A receipt representing an interest in deposited underlying shares | The issuer’s underlying equity security |
| Typical trading setting | May trade in a market outside the issuer’s home country; an ADR trades in U.S. dollars through U.S. settlement systems | Usually trades in the issuer’s home market and local currency |
| Ratio | Can represent one share, multiple shares, or a fraction of a share | Normally represents one unit of the issuer’s own share class |
| Rights administration | Voting, dividends, notices, and other services are processed through the depositary and the program terms | Handled directly under the share’s terms, issuer law, and home-market processes |
| Conversion | Surrender and withdrawal of underlying shares may be available, subject to the deposit agreement, fees, taxes, and operational requirements | No depositary conversion step is needed; selling or transferring follows the home-market system |
| Costs | Depositary or custody charges may apply in addition to brokerage, market, tax, or currency costs | Direct-market brokerage, local taxes, currency conversion, and other jurisdiction-specific charges may apply |
These are structural differences, not guarantees for every security. A particular receipt can have unusual terms, and an ordinary share can be accessible through international market infrastructure. Read the documents for the exact program before treating the table as a trading or legal rule.
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How the depositary arrangement works
- Shares are deposited. The issuer or an investor places the relevant foreign shares with the depositary bank or its local custodian under the program’s terms.
- Receipts are issued. The depositary creates receipts corresponding to the number of deposited shares and the published receipt-to-share ratio.
- Receipts trade. Investors buy and sell the receipts in the market where the program is available. For ADRs, that means dollar-denominated trading and U.S. settlement infrastructure.
- Corporate services are administered. The depositary keeps records, processes dividends, forwards company communications, and may collect voting instructions or other elections. The exact services depend on the deposit agreement.
- Underlying shares may be withdrawn. Subject to the program’s procedures, fees, taxes, and any market or regulatory requirements, a holder can surrender receipts and request delivery of the represented foreign shares.
The depositary arrangement changes the route by which you exercise ownership-related rights. It does not turn the foreign company into a domestic company or guarantee that every right attached to an ordinary share will be available in precisely the same form.
Why the receipt-to-share ratio matters
The ratio is the bridge between the receipt’s quoted price and the home-market share price. Investor.gov notes that an ADR’s price corresponds to the foreign share price adjusted for the ratio; it is not necessarily equal to the ordinary-share price.
One receipt for one share
If one receipt represents one ordinary share, the prices may look broadly similar after allowing for currency conversion, trading hours, fees, taxes, and market supply and demand. “Similar” does not mean identical: the instruments trade in different markets and can diverge temporarily.
Several shares for one receipt
Suppose a program sets two ordinary shares per receipt. If each ordinary share converts to the equivalent of $18, the receipt’s share-value component is about $36 before other adjustments. Comparing a $36 receipt directly with an $18 ordinary share without checking the ratio would be misleading.
A fraction of a share per receipt
If one receipt represents one-quarter of an ordinary share, a $40 home-market share would imply roughly $10 of share value per receipt before currency, fees, and market effects. Fractional ratios can make a receipt’s quoted price easier to fit the target market’s normal trading range.
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These calculations are illustrations of the ratio mechanism, not price forecasts. Exchange rates, different market hours, liquidity, transaction costs, and corporate actions can all affect the observed relationship.
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Dividends, voting, and shareholder communications
Depositary holders generally receive economic and information services through the depositary rather than directly through the issuer’s home-market registry. When the company declares a dividend, the depositary receives the underlying payment, converts it when required by the program, deducts applicable charges or taxes, and distributes the resulting amount according to the deposit agreement.
Voting is also program-specific. A depositary may solicit instructions from receipt holders and submit votes for the deposited shares, but the procedures, deadlines, eligible resolutions, and consequences of giving no instruction are set by the program documents. Do not assume that every ADR or DR holder has the same voting rights as a holder of an ordinary share.
Company notices, tender offers, rights offerings, and other corporate actions can require a response by a depositary deadline that differs from the issuer’s home-market deadline. A broker may impose an earlier cutoff so it can transmit instructions. Missing that cutoff can mean losing the opportunity to participate, even when ordinary shareholders in the home market have more time.
Sponsored and unsponsored programs
The U.S. Securities and Exchange Commission describes a sponsored program as one created through a direct agreement between the foreign issuer and the depositary. That agreement covers recordkeeping, forwarding shareholder communications, dividend payments, and other services.
An unsponsored program can be established without the issuer’s cooperation. Because the issuer is not the contracting party, the information available, services provided, and treatment of corporate actions can differ. The name of a receipt alone does not tell you which arrangement applies; check the program’s registration statement and deposit agreement.
ADR program levels
The SEC’s investor bulletin of August 17, 2012, describes three broad ADR levels:
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- Level 1: An over-the-counter trading presence.
- Level 2: Exchange-listed trading presence, but not a capital-raising program.
- Level 3: A program that can establish a trading presence and raise capital for the foreign issuer.
These categories explain the historical framework in that 2012 bulletin. They should not be treated as a current statement of every listing, filing, disclosure, or eligibility requirement. For a live program, verify the current filings, exchange rules, and deposit agreement.
Fees and the cost of convenience
A receipt can simplify access to a foreign company, but the convenience is not free by definition. A depositary bank may charge custody or depositary-service fees. Other charges can relate to dividend processing, currency exchange, voting, or specific corporate-action services. Your broker may pass these amounts through as a per-receipt charge or deduct them from a cash distribution.
Brokerage commissions, bid-ask spreads, exchange fees, taxes, and currency-conversion costs are separate questions. The cost structure for an ordinary share can instead include local-market brokerage, local taxes, and the expense of converting your money into the home currency. Neither instrument has a universally cheaper fee schedule.
Before trading, ask your broker which charges apply to the specific symbol and read the depositary’s fee schedule and deposit agreement. Historical fee examples should not be used as today’s prices.
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Foreign-company disclosure
Non-U.S. companies may follow home-country disclosure requirements that are different from those for U.S. public companies. The SEC has noted that, apart from annual reporting requirements described in its bulletin, disclosures may follow home-country rules and may not be as extensive or directly comparable to U.S. filings.
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Currency exposure
An ADR may trade in U.S. dollars, but the underlying business and shares remain connected to the foreign currency. A change in the exchange rate can affect the dollar value of the receipt even when the company’s local-currency share price is unchanged.
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Political, economic, and social conditions in the issuer’s country can affect operations, access to markets, share prices, and the ability to move money or process corporate actions. Trading in a U.S. market does not remove those conditions.
Liquidity and trading-hour differences
The receipt and the ordinary share trade on different schedules and may have different liquidity. When one market is closed, the other can continue moving, so the receipt may open at a price that reflects news or currency changes accumulated while the home market was shut.
Program and conversion risk
Withdrawal of ordinary shares is subject to the deposit agreement, operational steps, fees, taxes, and any applicable restrictions. A theoretical right to convert is not the same as an instant, cost-free exchange at any time.
Checks to complete before buying a DR or ADR
- Identify the instrument. Confirm whether it is a receipt, an ordinary share, or another security, and identify the issuer’s home country and share class.
- Find the ratio. Record how many ordinary shares one receipt represents, or what fraction it represents. Use that ratio when comparing prices.
- Read the deposit agreement. Look for dividend treatment, voting procedures, corporate-action deadlines, conversion and withdrawal rules, termination provisions, and dispute procedures.
- Review fees. Ask the broker about depositary, custody, dividend, currency, voting, transaction, and tax charges for that specific program.
- Check disclosure sources. Compare the issuer’s available reports and announcements with the information you normally require before buying an equity security.
- Assess country and currency exposure. Consider how home-market conditions and exchange rates could affect the company and the receipt.
- Confirm broker protection and access. Investor.gov says ADRs can be purchased through a U.S. broker. If you deal directly with a foreign broker that is not registered with the SEC, you may not receive the same protections and may need to rely on remedies in the company’s home country.
- Verify current status. Check current filings and the broker’s trading details rather than relying on an old program description or historical listing.
What the historical ADR count does—and does not—tell you
The SEC Office of Investor Education and Advocacy said in its August 17, 2012, bulletin that there were more than 2,000 ADRs representing companies located in more than 70 countries. That is a dated 2012 figure, not a current market count. Program availability, listings, fees, and regulatory requirements can change, so use current filings and program documents for present-day decisions.
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A depositary receipt may be practical when your broker and account are already set up for its market, you prefer the quoted currency and settlement system, and the program’s fees and rights are acceptable. An ordinary share may be preferable when you can access the home market efficiently, want the direct security, or find the receipt’s conversion and administration terms unsuitable.
The choice is therefore not “safe receipt versus risky ordinary share.” Both represent exposure to the same underlying company, while the receipt adds an intermediary layer with its own ratio, fees, procedures, and operational risks. Compare the complete cost and rights package—not just the ticker or displayed price—before deciding.
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