How ADRs Work: Ratios, Fees and Dividends

How ADRs work comes down to two numbers that never appear in the quoted price. An American depositary receipt (ADR) is a US-traded security that represents shares of a foreign company, held abroad by a depositary bank. The ADR ratio fixes how many of those ordinary shares sit behind one receipt, and the depositary charges a pass-through custody fee, commonly one to three cents per ADR per year, either netted out of a dividend or billed through your broker.

How ADRs work: the ratio and the fee

A depositary bank takes delivery of ordinary shares in the company's home market, parks them with a local custodian, and issues dollar-denominated receipts against them. Those receipts clear and settle like any US stock. The ratio is the conversion rate between the two sides: one ADR might represent four ordinary shares, or a tenth of one.

The ratio is a fixed multiple, and it does most of the work in the price. Suppose a company's ordinary shares change hands at the equivalent of $12.50 and one ADR represents four of them. The receipt sits near $50 before costs, and it moves with the local price and with the exchange rate. Traders hold that link together: they can deliver ordinary shares to the depositary and have new ADRs issued, or hand receipts back and take the ordinary shares out, whenever the two prices drift far enough apart to cover the cost of doing it.

The fee is the part most explainers leave out. The depositary runs the program and charges for custody and for turning each foreign distribution into dollars. Pass-through fees are commonly a cent to three cents per receipt per year, and the exact rate lives in the deposit agreement and the program's own fee disclosure rather than in any price feed. When a dividend is on the way, the depositary usually nets the fee out of it, and the cash you receive is already after the deduction. When a program pays no dividend, the fee arrives instead as a separate charge on your statement, often labeled an ADR pass-through or custody fee.

Sponsored and unsponsored ADRs, and Levels I, II and III

A sponsored ADR runs under a deposit agreement between the foreign company and one depositary bank, which becomes the only bank authorized to issue receipts in that stock. An unsponsored ADR is set up by a bank on its own, without the company signing anything, and several banks can run competing programs in the same company at once. Unsponsored programs live over the counter.

The level sets where the receipt trades and what the issuer files with the SEC.

1. Level I trades over the counter only, with no US exchange listing and minimal SEC reporting. Most unsponsored programs and a large share of sponsored ones stop here.
2. Level II is listed on a US exchange. The issuer registers the receipts and files an annual report on Form 20-F, the foreign issuer's counterpart to the 10-K.
3. Level III is a listing plus a public offering: the level a foreign company uses when it wants to raise new capital from US investors.

Our guide to the most common SEC filings covers where the 20-F sits among the forms a US investor meets. Level I programs trade over the counter, away from the exchange feeds, and they sit outside the panel below. What follows is a year of tape on five large exchange-listed receipts, sorted by average daily dollar volume.

SELECT
    ticker,
    round(avg(toFloat64(close) * volume) / 1e6, 2) AS avg_daily_usd_millions
FROM global_markets.stocks_daily_aggs
WHERE ticker IN ('TSM', 'ASML', 'SAP', 'NVO', 'UL')
  AND date >= today() - 365
  AND date <  today()
GROUP BY ticker
ORDER BY avg_daily_usd_millions DESC

TSM leads at roughly $4576.31 million traded per session over the trailing year. The last row, UL, turns over $225.5 million a day. Every name here is a large, well-known business carrying a US exchange listing, and the distance in daily turnover between the two ends of the panel still runs to multiples. Thinner turnover usually comes with wider quoted spreads and less depth on the book, and the Level I programs described above never reach an exchange feed at all.

How an ADR dividend gets paid

A dividend on a receipt passes through more hands than a US corporate dividend.

1. The company declares a dividend in its home currency.
2. The home country withholds tax, at its statutory rate or at a lower treaty rate where the account paperwork supports one.
3. The depositary converts the remainder into US dollars at a rate it sets on a stated date.
4. The depositary deducts its pass-through fee.
5. What is left reaches your broker, which credits your account in dollars.

Step two is the one that quietly shrinks the payment, and it is the mirror image of the case in our guide to dividend withholding tax for non-US investors, where a US company pays a holder abroad. One more wrinkle sits underneath all of it. If your shares are out on loan over the record date, what lands may be a payment in lieu of dividends, which is taxed on a different footing from the dividend itself.

Cadence is the first thing that catches out a US investor. Quarterly is the US convention. Plenty of foreign issuers pay twice a year, or once.

SELECT
    ticker,
    any(currency)                          AS paid_in,
    round(count() / 3.0, 1)                AS payments_per_year,
    round(toFloat64(sum(cash)) / 3.0, 2)   AS usd_per_share_per_year
FROM
(
    SELECT
        ticker,
        ex_dividend_date,
        any(cash_amount) AS cash,
        any(currency)    AS currency
    FROM global_markets.stocks_dividends
    WHERE ticker IN ('TSM', 'NVO', 'SAP', 'UL', 'BTI', 'KO', 'JNJ', 'PG')
      AND ex_dividend_date >= today() - 1095
      AND ex_dividend_date <  today()
    GROUP BY ticker, ex_dividend_date
)
GROUP BY ticker
ORDER BY payments_per_year DESC, ticker

Over the trailing three years the top of the panel prints 4 ex-dividend dates a year. The bottom row, SAP, prints 1 a year and paid 2.65 dollars per share annually across that stretch. The currency column reads USD on the top row: whatever the home currency of the business, the receipt distributes dollars.

The second surprise is the wait. The gap between the ex-dividend date and the day cash lands is short and predictable for a US payer. For a receipt, a currency conversion and a fee deduction sit in between.

SELECT
    ticker,
    round(avg(dateDiff('day', ex_dividend_date, pay_date)), 1) AS avg_days_ex_to_pay,
    max(dateDiff('day', ex_dividend_date, pay_date))           AS longest_days_ex_to_pay
FROM
(
    SELECT
        ticker,
        ex_dividend_date,
        any(pay_date) AS pay_date
    FROM global_markets.stocks_dividends
    WHERE ticker IN ('TSM', 'NVO', 'SAP', 'UL', 'BTI', 'KO', 'JNJ', 'PG')
      AND ex_dividend_date >= today() - 1460
      AND ex_dividend_date <  today()
    GROUP BY ticker, ex_dividend_date
)
WHERE pay_date > ex_dividend_date
GROUP BY ticker
ORDER BY avg_days_ex_to_pay DESC

BTI carries the longest average gap in this group at 43.5 days from ex-date to payment, with a longest single wait of 48 days. At the other end, NVO averages 10.1 days. Holdings in the same panel sit weeks apart on when the money actually arrives, which is worth checking before counting on a payment date.

Ratio changes, terminations and cancellations

What a ratio change does to your position

A ratio change rewrites how many ordinary shares stand behind one receipt. A program moving from one ADR for every two ordinary shares to one ADR for every four halves the number of receipts outstanding and doubles the price of each one. The value of your position and your claim on the company are unchanged. Market data feeds record the event as a split or a reverse split, and price history is adjusted the same way.

The feed cannot tell you which of two different things happened: a ratio rewritten by the depositary, or an ordinary-share split in the home market passed straight through to the receipt. The depositary's notice to holders is where that distinction lives. The panel below pulls recent share-count adjustments across a set of large foreign issuer receipts.

SELECT
    concat(ticker, ' ', formatDateTime(execution_date, '%b %Y')) AS event,
    toUInt32(any(split_from))                                    AS old_share_count,
    toUInt32(any(split_to))                                      AS new_share_count
FROM global_markets.stocks_splits
WHERE ticker IN ('BABA', 'NVO', 'SONY', 'TM', 'HDB', 'IBN', 'INFY', 'PDD', 'TSM', 'SAP', 'UL', 'BTI', 'ASML', 'MUFG', 'SMFG', 'TEVA', 'ERIC', 'STLA')
  AND execution_date >= today() - 3650
  AND execution_date <= today()
GROUP BY ticker, execution_date
ORDER BY execution_date DESC
LIMIT 12

Read each row as a swap. 9 became 8 at UL Dec 2025, the most recent of the 8 adjustments in view. A holder who woke up to a different position count and a price moved by the matching multiple was looking at one of these lines.

When a program is terminated

A depositary can resign, and a company can deregister its receipts, go private, move its listing, or be acquired. Holders get notice, commonly thirty days or more, along with a window to cancel their receipts and take the ordinary shares. After the window closes the depositary sells the underlying shares and remits cash, net of fees and any local taxes. The company itself can be trading normally in its home market the entire time.

Cancelling an ADR into ordinary shares

Cancellation is the reverse of creation. You instruct your broker, the depositary releases the ordinary shares into an account in the home market, and a cancellation fee is charged per receipt. The route calls for a broker that can hold the foreign line, and it sees far more use from institutions than from individuals. For a worked example of a foreign issuer arriving on a US exchange, see SK hynix's Nasdaq debut.

FAQ

What is an ADR fee?

A depositary bank charges a pass-through fee for holding the foreign shares and running the receipt program, commonly a cent to a few cents per ADR per year. It is netted out of a dividend when there is one, and billed as a separate line on your statement when there is not. The exact rate is set in the deposit agreement.

Do ADRs pay dividends?

Yes, when the underlying company pays one. The dividend is declared in the home currency, reduced by any foreign withholding tax, converted into dollars by the depositary, and reduced again by the pass-through fee before it reaches your account.

What is the difference between a sponsored and an unsponsored ADR?

A sponsored ADR runs under a deposit agreement between the company and one depositary bank. An unsponsored ADR is created by a bank without the company's involvement, can have competing programs in the same stock, and trades over the counter rather than on a US exchange.

Does an ADR ratio change cost me anything?

No. The number of receipts and the price per receipt change by the same multiple, and your claim on the underlying company stays the same. Market data feeds record it as a split, which is why it can look like a corporate action from the company.

What happens when an ADR program is terminated?

Holders receive notice with a window to cancel their receipts and take delivery of the ordinary shares in the home market. After that window, the depositary sells the underlying shares and distributes the cash, net of fees and any local taxes.

Every panel above ships with the SQL that produced it, so you can open any number and see how it was counted. To check the payout cadence or the ex-date to pay-date gap on a receipt you follow, ask the question in plain English on the Strasmore terminal.