What does ADR mean in BANKING

When a foreign corporation decides to list their shares on U.S. exchanges, they will enter into an agreement with one or more sponsor banks or depositary banks that provide services related to listing, trading, and paying dividends for ADRs. The sponsoring bank then procures a limited number of shares from the company, which are held in trust outside the US by the depositary bank. The depositary bank issues ADRs, each representing one or more underlying shares of the company's stock held by it in trust at the overseas facility. These ADRs can then be traded publicly on US exchanges in either US dollars or another specified currency depending on how it is denominated.

Investors benefit from investing in ADRs because they can gain exposure to companies operating outside their home country without having to go through the process of directly purchasing and owning foreign securities, including any associated currency risk and custody risk associated with those purchases. Additionally, investors can still receive dividend payments earned by the underlying security as if they had bought individual shares directly since these are paid out via US custodian banks. Lastly, holding company equity in a US-listed ADR format allows investors access to corporate governance procedures similar to those they would experience with domestic equities.

As with all investments, there are associated risks when investing in an ADR. Since U.S.-listed issuers may not meet all reporting requirements required by U.S regulators, some information regarding finances and other aspects of these companies may not be readily available or disclosed as frequently as is expected for domestic issuers listed on U.S exchanges. Another risk involves fluctuations in exchange rates between home countries of companies and currencies used for trading their respective securities.

Generally, depositary banks play a key role in determining pricing for such securities based on factors such as supply & demand dynamics along with changes happening across global financial markets & economies. Internationally traded stocks often see significant price variability between different countries due to factors like taxation & regulation leading to arbitrage opportunities among investors who keep close track of such disparities.

Companies from different industries issue American Depository Receipts including big international conglomerates engaged across technology, travel, hospitality, banking & finance etc.. Typically large companies engaged internationally find listing their securities via this route attractive since it helps them raise capital more easily than international listings alone given superior liquidity levels often present across major US markets.