We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Sponsored ADR?

By John Lister
Updated May 17, 2024
Our promise to you
WiseGEEK is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGEEK, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A sponsored ADR is a way for US citizens to own shares in a foreign company that trades on a US financial market. The ADR, or American Depositary Receipt, is the document and asset that the US citizen legally owns. A sponsored ADR means that a US bank is involved in the process and will grant the holder the same voting rights that come with the equivalent stock ownership.

Many foreign companies wish to have stock available for trade on the US market, as this can be a valuable source of investment. It can be difficult to have US citizens simply buy foreign stocks because of the problems of currency exchange. With a standard share issue, an investor would have to pay for the stock and receive dividends in a foreign currency. This brings both transaction costs and uncertainty about the effects of varying exchange rates.

The solution is the ADR. This is a security that is traded and pays dividends in US currency. An individual ADR will be considered equivalent to a share in the foreign company in a stated ratio. While one ADR can simply equal one share, it's possible for an ADR to be equivalent to multiple shares, or even a fraction of a share.

In its simplest form, the unsponsored ADR, a US bank's only connection is to issue the ADR. This type of ADR can be traded, but effectively exists as an asset in its own right. The connection with the foreign company's shares is loose, and the holder does not usually have the equivalent rights as if she owned the share.

A sponsored ADR works on a more formal basis. The holder of the ADR will normally have the same voting rights as if she held shares. In some cases, the holder may even have the right to exchange the ADR for the relevant shares, though usually US investors don't need to exercise this right.

There are three levels of sponsored ADR. Level I is an over-the-counter ADR, meaning it can only be traded by direct investor-to-investor deals, rather than through a stock exchange. Level II means the ADR can be listed on a stock exchange and traded in the same way as US company shares. Level III means the foreign company can create new stock and issue it in the form of the equivalent ADR. The company will need to comply with the US rules on new stock issues, and may even be more open and transparent about the details it releases to the public in an attempt to win over potentially skeptical investors.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.