American depository receipts (ADR) are foreign stocks that trade on United States stock exchanges, such as the New York Stock Exchange (NYSE). Depositary banks own ADR and sell them to American investors. When you buy an ADR, you avoid the need to worry about currency conversion or other foreign transaction fees. An ADR may be the value of one whole share, multiple shares or a fraction of a share. If you wish, convert an ADR to a common stock to take advantage of differences in price.
1. Call or otherwise contact the bank that owns the ADR and the common stock. The bank will attempt to find a person who wishes to buy your ADR in exchange for common stock. The bank will not buy your ADR back from you and may not be able to find a buyer for the ADR.
2. Contact your broker and ask if the brokerage performs foreign trades or trades ADRs. If your brokerage does not, you may have to locate a brokerage in the country of the company and request to purchase shares on the foreign stock exchange.
3. Provide detailed instructions to the broker you decide to work with regarding the action you want taken with the ADR. Your broker should have the proper paperwork for you to complete to finish the exchange.
- Converting an ADR to a common stock may reduce its liquidity, as some foreign stock exchanges do not trade as often as stock exchanges in the United States.
- There may be substantial fees when you exchange an ADR or hold a foreign stock.
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