Learn about trading American Depositary Receipts (ADRs) and international stock types

American Depositary Receipts (ADRs)

Many non-U.S. companies, that might otherwise be unavailable or inconvenient to trade, do trade in the U.S. markets as ADRs (receipts for shares of the foreign stock issued by U.S. banks). ADRs are denominated in U.S. dollars and pay dividends in U.S. dollars.

ADRs are negotiable securities issued by a bank that represent shares in a non-U.S. company. ADRs can trade in the U.S. both on national exchanges and in the over-the-counter (OTC) market, are listed in U.S. dollars, and generally represent a number of non-U.S. shares to one ADR. This gives investors exposure to non-U.S. equities without having to trade on a local exchange in the local currency. Investors can trade ADRs during the U.S. market sessions.

Country flags

Know the benefits and risks of ADRs.

  • Benefits

    • The issuing financial institution will collect any dividend payments and convert them into U.S. dollars for you.
    • ADRs listed on an exchange must file quarterly results because they are registered with the U.S. Securities and Exchange Commission and are subject to U.S. accounting rules. This means investors potentially have access to more information than they would if they’d invested directly overseas.
    • Depending on country and account type, applicable dividend withholding tax percentages may be lower than those applied to foreign ordinary shares. 
    • There are some listed ADRs that are marginable and may have options.
       

  • Risks

    • The institutions that issue ADRs may charge quarterly or annual 'ADR Pass-Through Fees' which consist of custody fees and fees for processing dividends and corporate actions. These fees can add to your investment costs.
    • Liquidity for some ADRs may be low, which may affect bid/ask spreads. Also, not every non-U.S. company has an ADR.
    • While a rare occurrence, the bank offering the ADR may decide to terminate the ADR program for any number of reasons, including lack of interest. This could result in a requirement that the position either be liquidated or converted to the underlying foreign ordinary shares.
    • Sponsored and Unsponsored ADRs: ADRs can be issued as unsponsored without any involvement or approval by the foreign company, or they can be issued as sponsored, where the underlying foreign company participates in the issuance of the ADR and also retains a controlling relationship. Only sponsored ADRs may be listed on a national exchange in the U.S., and they must meet certain qualifications; otherwise, they trade in the U.S. OTC market. Unsponsored ADRs only trade in the U.S. OTC market.

How ADR Investments Work

Here's the process for purchasing ADRs:

  • Step 1: Purchase of Foreign Shares: A U.S. bank buys shares of a foreign company listed on a foreign exchange.
  • Step 2: Issuance of ADRs: The bank issues ADRs representing those foreign shares to investors.
  • Step 3: Trading: ADRs trade on U.S. exchanges like any other U.S. stock.
  • Step 4: Converting Dividends: The bank handles dividend payments, converting them into U.S. dollars and distributing them to ADR holders.
     

Foreign ordinaries traded in the US over-the-counter (OTC) market  

If an ADR isn't available, you may be able to trade the company's foreign stock in the Over-The-Counter (OTC) market. This is known as trading "foreign ordinaries." Many international companies' foreign ordinary shares trade on the OTC market in the U.S. These companies are listed on a foreign exchange and also trade in the U.S. The foreign ordinaries are priced and settled in U.S. dollars.

Know the benefits and risks of foreign ordinaries.

  • Benefits

    • Foreign companies that do not offer ADRs have shares that can often be bought as foreign ordinaries via the U.S. OTC market, providing U.S. investors with access to more international companies.
    • Trades are in U.S. dollars and take place during U.S. trading hours. Commissions, while usually higher than ADRs, are generally lower than buying foreign ordinaries directly through the local market.

  • Risks

    • Foreign ordinaries in the OTC market may not be as liquid as the ones trading on a local market exchange, which can lead to greater volatility in the U.S. OTC foreign ordinary's price.
    • Wider spreads can exist because of lower liquidity in the U.S. OTC market and the additional costs that may be incurred by market makers. Due to the wider spreads, foreign ordinaries can trade at a premium or a discount compared to the local market shares.
    • Trades may also be subject to a foreign transaction fee.
    • U.S. OTC markets are subject to fewer regulations and reporting requirements, making it more difficult to research them.

Foreign markets and Canadian Stocks

Shares of non-U.S. companies that are not available as ADRs or traded in the U.S. OTC market may be listed on a local exchange in places such as Canada, the U.K., Australia, Hong Kong, and more. These stocks trade in the exchange's local currency and during the local trading hours. In order to place trades in these markets at Schwab, a U.S. investor will need to phone and speak with one of our Global Investing Services specialists, who will work to place the trade on the local foreign exchange. The trade will settle, and the shares held denominated in U.S. dollars. Orders are sent overseas and executed during local market hours; if trades are made after local hours, they are placed in a queue and executed when the market reopens.

Virtually all Canadian stocks can be traded online at the Schwab website or through a broker via phone. Online quotes on most Canadian securities are provided by the Toronto Stock Exchange and are displayed in U.S. dollars. The majority of trades are sent to Canada and are not traded in the U.S. over the counter market, the trades however will use the U.S. 5 letter symbol ending in "F" and will be placed in U.S. dollars. Included in the execution is a dealer fee paid to the Canadian trader.

Know the benefits and risks of local foreign markets

  • Benefits

    • Securities trading in the local market tends to be relatively more liquid and have narrower spreads, resulting in possible better executions than the U.S. OTC market.
    • Many non-U.S. companies that are not available as ADRs or foreign ordinaries on the U.S. OTC market can be bought on local foreign markets, providing investors with a potentially wider inventory of available international equities.
    • You can generally place broker-assisted trades overseas in your Schwab One® brokerage account in U.S. dollars, and many Canadian stocks can be traded in your account online.

  • Risks

    • Trading overseas may involve a variety of transaction fees, and taxes and commission costs can be higher.
    • Some countries impose controls that restrict or delay currency conversions for overseas traders, meaning it can take time to access your funds. Reporting, clearing, and settlement of trades may add additional time. You also may be required to place trades in round lots (standard trading amounts).
    • Some countries may impose a cap on equity holdings by 'foreign investors' (any investor not resident in the foreign company’s country of domicile would be considered a 'foreign investor' in these instances), limiting the number of shares or percentage of outstanding stock the 'foreign investor' is permitted to invest in. Each country operates under its own rules, and these varying regulations may differ from U.S. financial laws and requirements.
    • Research can be difficult since non-U.S. countries have different rules and regulations for reporting. Research reports may not be available in English.
    • Trading in local foreign markets may be subject to geopolitical risks which can include sanctions or other restrictions which can limit or even prohibit opening and closing transactions, position transfers, or valuation of positions (mark-to-market).

Considerations when investing in ADRS, Foreign Ordinaries, U. S. and Canadian stocks.

  • American Depositary Receipts (ADRs)
    American Depositary Receipts (ADRs)
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
  • Foreign ordinaries traded on local exchanges overseas***
    Foreign ordinaries traded on local exchanges overseas***
  • Canadian Stocks
    Canadian Stocks
  • Liquidity* 
  • American Depositary Receipts (ADRs)
    Varies by ADR
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    Low
  • Foreign ordinaries traded on local exchanges overseas***
    Generally high; depends on the security and market
  • Canadian Stocks
    U.S. OTC: Generally low, varies by security 

    Local Canadian: Generally high 
  • Minimum position size
  • American Depositary Receipts (ADRs)
    None
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    None
  • Foreign ordinaries traded on local exchanges overseas***
    Generally none
  • Canadian Stocks
    Generally none
  • Trading hours**
  • American Depositary Receipts (ADRs)
    U.S. market hours
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    U.S. market hours
  • Foreign ordinaries traded on local exchanges overseas***
    Foreign market hours
  • Canadian Stocks
    U.S. market hours
  • Currency exposure
  • American Depositary Receipts (ADRs)
    Yes
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    Yes
  • Foreign ordinaries traded on local exchanges overseas***
    Yes
  • Canadian Stocks
    Yes
  • Settlement date
  • American Depositary Receipts (ADRs)
    Trade date plus one day (T+1)
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    Varies by country, but usually T+1
  • Foreign ordinaries traded on local exchanges overseas***
    Varies by country/local holidays
  • Canadian Stocks
    T+1 (may vary depending on Canadian market holidays)
  • Online trading 
  • American Depositary Receipts (ADRs)
    Yes
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    Yes
  • Foreign ordinaries traded on local exchanges overseas***
    No, broker-assisted by phone only
  • Canadian Stocks
    Yes
  • Ongoing management expenses
  • American Depositary Receipts (ADRs)
    ADRs have custody fees that are levied on a regular basis, such as annually or quarterly
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    None
  • Foreign ordinaries traded on local exchanges overseas***
    None
  • Canadian Stocks
    None
  • Commission at Schwab
  • American Depositary Receipts (ADRs)
    U.S. Listed: 
    Online trades: $01 
    Broker-Assisted: $25 

    U.S. OTC: 
    Online trades: $6.95  Broker-Assisted: $31.95 ($6.95 commission + $25 broker assistance fee)
  • Foreign ordinaries traded in the U.S. over-the-counter (OTC) market
    Online Trades: $50 foreign transaction fee2 

    Broker-Assisted: $75 ($50 foreign transaction fee and a $25 broker assistance fee)
  • Foreign ordinaries traded on local exchanges overseas***
    Online Trades: Not available

    Broker-Assisted: The greater of $100 or 0.75% of principal, with no maximum
  • Canadian Stocks
    Online trades: $6.95 

    Broker-Assisted: $31.95 ($6.95 commission + $25 broker assistance fee)  

Source: Schwab Center for Financial Research.

View important disclosures about this table

*Liquidity refers to the ability to quickly buy or sell an asset without affecting the asset's price in a significant manner, not the ability to receive cash quickly.

**Foreign market hours vary. Broker-assisted order placement hours are different from order execution.

*** Please contact Schwab Hong Kong for details about the local exchange overseas that you can trade foreign ordinaries via your Schwab Hong Kong brokerage account.

1. Standard online US$0 commission does not apply to over-the-counter (OTC) equities, fixed-income investments, or trades placed directly on a foreign exchange or in the Canadian market. Service charges apply for trades placed through a broker (US$25). Exchange process and ADR fees still apply. See the Charles Schwab Hong Kong Pricing Guide for Individual Investors for full fee and commission schedules.

2. Transactions in foreign ordinary shares incur additional custody, clearing, and settlement expenses. A foreign transaction fee is added to trades placed on the US over-the-counter market through the Schwab website. The commission and foreign transaction fee will be combined and will appear as one line item, labeled "Commission," on the trade confirmation.

Common questions

An American Depositary Receipt is a certificate issued by a U.S. bank that represents shares in foreign stock. These certificates trade on American stock exchanges. ADRs and their dividends are priced in U.S. dollars. ADRs represent a simple, liquid way for U.S. investors to own foreign stocks.

ADRs are a form of equity security created specifically to simplify foreign investing for American investors. An ADR is issued by an American bank or broker, known as a custodian or depositary. It represents one or more shares of foreign-company stock held by that bank in the home stock market of the foreign custodian or depositary.

Investors who purchase the ADRs are paid dividends in U.S. dollars. The foreign bank pays dividends in the native currency, and the custodian bank distributes the dividends in U.S. dollars after factoring in currency conversion costs, foreign taxes, and any pass-through fees.

ADRs are created and issued by both domestic and international banks. These custodian banks or 'ADR agents' will typically charge an ADR 'pass-through fee' to cover administrative or other costs associated with the ongoing management of the particular ADR program. The average fee is one to three cents per share. The actual fee amount charged, and the timing of the pass-through fees vary per ADR issuer. Any fees charged to Schwab, like most brokerage firms, are automatically passed on and borne by the ADR investor.
 

To collect the fees owed by ADR investors, the Depositary Trust Company (DTC) collects the custody fees on behalf of ADR agents and then charges companies like Schwab that hold ADRs for their clients. Fees charged to Schwab by the DTC are referred to as 'ADR pass-through fees' and labeled as such on client statements. The dividend and the ADR fee will appear as two separate items making it very clear for investors to understand the difference.

Pass-through fees can be charged in two different manners. If the underlying ordinary share pays a dividend, the custodian banks collect the foreign issuer's funds and convert them to U.S. dollars and then forward the dividend payments to ADR holders. Generally, at this time, they also choose to charge the ADR pass-through fee. When the foreign issuer does not offer dividends, the pass-through fee is simply deducted from the investor's account according to the predetermined timing as delineated in the ADR's prospectus.

Investors should review each individual ADR's prospectus for specific pass-through fee information. You can search for individual prospectuses online using the U.S. Securities and Exchange Commission's EDGAR Company Search.

The governments of some countries, such as France and Italy, have implemented foreign transaction taxes as a percentage of the purchase amount on certain securities, including ADRs. Executing brokers and market makers pass these foreign transaction taxes on to broker/dealers like Schwab as fees. In turn, Schwab collects these fees from clients in the form of an Industry fee and they are reflected on trade confirmations and client statements.

Many ADRs can be converted into ordinary shares in the local home market and foreign ordinary shares can sometimes be converted to ADR shares. Occasionally, the underlying ordinary share is actually a Private Placement or the ADR custodian bank’s books are closed in anticipation of a dividend, corporate action, or they have reached a foreign ownership limit. In such instances, converting the ADR and holding the asset at Schwab would not be feasible or possible. 

It is also important to note there are often fees, taxes, and costs associated with an ADR conversion.

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