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Strategies & Market Trends : Convertible Hedge investors?
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To: Ted S who wrote (61)2/2/1998 9:47:00 PM
From: John Sladek  Read Replies (1) of 107
 
Ted,

ADR = American Depository Receipt.

Basically what they are are negotiable receipts for stock in a foreign company that is being held by an American trustee, typically a large bank. The ADRs trade on the US exchanges, exactly like common stock. The ADR gives its owner the right to receive dividends (from the shares held by the trustee) and capital gains or losses when it is sold. It is a convenient way to buy and sell foreign companies which may be difficult for you to get otherwise. I think it would be easier for me to buy and sell the Sony ADR on the NYSE, then for me to trade the stock on a Japanese exchange.

The trustees must collect some sort of fee for holding the ADR's, probably dedeucting the fee from the dividends it pays out, but I have no idea how this aspect of it works. Probably some of them charge a lot more than others. Maybe someone who knows a bit more about this aspect could provide some info in this regard.

Often each ADR will represent multiple shares of stock in the foreign company, so you will have to take this ratio into account when figuring out how many ADR's to short. This is especially true with companies from the UK, since they like to keep their company share prices a lot lower than american companies do. For instance, as I recall, each Glaxo-Welcome ADR (which trades at about US$62) represents two shares of stock, and that each ADR for British Petrolium (about US$80) represents six shares of stock. Both of these ADR's trade on the NYSE.

Regards,
John Sladek
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