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ADR (American Despository Receipt)

ADR (American Despository Receipt)

American Despository Receipt (ADR) represents an entitlement to a share or a fraction of a share.  ADRs are therefore not stocks, but only financial products , more precisely they are certificates . ADRs are issued by US credit institutions so that foreign companies can also be traded directly on the domestic stock exchange. The Chinese group Alibaba can be mentioned here as an example. For Alibaba, this now has the advantage that it does not have to undergo the full approval process, which would be necessary for a regular listing on the stock exchange. In the case of Alibaba, it should be added that the Chinese government is struggling to allow foreigners to buy shares in certain Chinese companies. Geostrategic interests certainly play a major role here, but there can also be other reasons for creating such ADRs.


Since the beginning of July 2019, the EU has not granted Switzerland any exchange equivalence. In the past, this made it possible for all trading players in the EU as well as in Switzerland to trade all Swiss stocks. In this case, these ADRs are also used as an alternative to shares.


But be careful! There are several risks here. Since the ADR is only a documented right to a share, you have to trust that the issuing bank can actually deliver the associated original shares. This can be difficult, for example, if the bank issues more ADRs than are actually deposited in the original shares (settlement risk). ADR are also not traded in the company's home currencies, which can lead to currency losses. There are also disadvantages with dividends, since the issuing bank withholds part of the dividends as fees.

If a share or an emerging market is trendy, it is not uncommon for the ADRs to be traded at a significant premium compared to the original shares. Surcharges of around ten percent are often the rule, depending on the market situation it can be as much as 30 percent and more.

Stock market profits are compensation for pain and suffering.
First comes the pain, then the money.
(André Kostolany)


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