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. ADSs represent a specified number of shares in the foreign company, held by a U.S. financial institution, known as the depositary bank. When investors buy ADSs, they gain ownership of the underlying foreign shares, but in a form that can be traded easily in U.S. markets.
Key Points about American Depositary Shares (ADS):
- Underlying Foreign Shares:
- An ADS represents a specific number of shares in a foreign company, which are held in custody by a depositary bank in the U.S. These shares are typically issued by companies from outside the United States.
- American Depositary Receipts (ADRs):
- ADSs are often used interchangeably with American Depositary Receipts (ADRs). However, technically, the ADR is the physical certificate that represents the ownership of ADSs. ADRs provide proof of ownership and are traded on U.S. exchanges just like regular stocks.
- Trading in U.S. Markets:
- ADSs allow U.S. investors to buy and sell shares of foreign companies in U.S. dollars on American exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ, without dealing with the complexities of foreign markets, currencies, or regulations.
- Dividends and Voting Rights:
- Investors holding ADSs are entitled to dividends and may have voting rights, similar to owning regular shares. However, the specific rights and obligations can vary based on the terms set by the depositary agreement.
- Convenience for Investors:
- ADSs simplify the process of investing in foreign companies for U.S. investors by eliminating the need to trade in foreign markets or deal with currency conversion.
- Examples:
- Major international companies, such as Alibaba Group (BABA) and Toyota Motor Corporation (TM), offer their shares as ADSs in the U.S., making it easier for American investors to buy shares in these companies.
- Types of ADR Programs:
- Sponsored ADRs: These are issued in cooperation with the foreign company, which typically provides financial statements in English and complies with U.S. securities regulations.
- Unsponsored ADRs: These are created without direct involvement from the foreign company, usually by one or more depositary banks. They may have fewer rights and less transparency than sponsored ADRs.
Summary:
An American Depositary Share (ADS) is a U.S.-traded equity share that represents a specific number of shares in a foreign company. ADSs are a convenient way for U.S. investors to invest in foreign companies without dealing with the complexities of foreign markets and currencies. These shares are often represented by American Depositary Receipts (ADRs) and can be traded on U.S. stock exchanges, providing investors with the benefits of dividends and potential voting rights.
