ADRs & How They Work
Sponsored vs unsponsored, Level I/II/III, withholding tax, FX translation
You want to own Taiwan Semiconductor — the company that fabricates chips for Apple, Nvidia, and AMD. It trades on the Taiwan Stock Exchange in New Taiwan dollars, during Asian market hours, under a local ticker. You do not have a Taiwanese brokerage account, you cannot easily settle trades in TWD, and your broker's international desk charges fees that would erode your position.
Yet you can buy TSM on the New York Stock Exchange during normal US market hours, settled in dollars, in your regular brokerage account. The instrument that makes this possible is an American Depositary Receipt — ADR. Approximately 2,000 ADR programs exist, giving US investors access to companies from dozens of countries without ever opening a foreign brokerage account.
Source: SEC Investor Bulletin on ADRs. An ADR is not a share of the foreign company. It is a certificate issued by a US depositary bank (typically JPMorgan, Citibank, or BNY Mellon) that represents a specified number of ordinary shares held in custody at the foreign company's home exchange.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 8 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1The ADR structure — what you actually own
- 2ADR levels — increasing US regulatory burden
- 3Worked example — computing an ADR's fair price from local shares
- 4ASML — the most important company most Americans have never heard of
- 5TSM — one ADR equals five Taiwanese shares
- 6Dividend withholding tax rates — the hidden cost varies wildly
- 7FX translation — the invisible second bet
- 8Where to see this on the platform