How ADRs dey work: ratio, fees and dividends explain

How ADRs dey work depend on two numbers wey no dey show for the price wey you see. American depositary receipt (ADR) na security wey dem dey trade for US, wey represent shares of company wey dey outside US, wey one depositary bank dey keep for abroad. The ADR ratio dey fix how many of those ordinary shares dey behind one receipt, and the depositary dey charge pass-through custody fee, wey usually be one to three cents per ADR every year, wey dem fit remove from dividend or bill you through your broker.

How ADRs dey work: the ratio and the fee

Depositary bank go collect ordinary shares for the company home market, keep dem with local custodian, and issue receipts wey be dollar-denominated against dem. Those receipts dey clear and settle like any US stock. The ratio na the conversion rate between the two sides: one ADR fit represent four ordinary shares, or one-tenth of one.

The ratio na fixed multiple, and na e dey do most of the work for the price. Make we talk say company ordinary shares dey sell for equivalent of $12.50 and one ADR represent four of dem. The receipt go dey near $50 before costs, and e dey move with the local price and exchange rate. Traders dey hold that link together: dem fit deliver ordinary shares to the depositary and collect new ADRs, or return receipts and collect the ordinary shares, anytime the two prices move far apart reach to cover the cost of doing am.

The fee na the part wey most people wey dey explain no dey talk. The depositary dey run the program and dey charge for custody and for changing each foreign distribution to dollars. Pass-through fees usually be one to three cents per receipt every year, and the exact rate dey inside the deposit agreement and the program fee disclosure, no be inside any price feed. When dividend dey come, the depositary usually remove the fee from am, and the cash wey you receive don already minus the fee. When program no pay dividend, the fee go come as separate charge for your statement, wey dem often label as ADR pass-through or custody fee.

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

Sponsored ADR dey run under deposit agreement between the foreign company and one depositary bank, wey be the only bank wey get authority to issue receipts for that stock. Unsponsored ADR na bank wey set am up by itself, without the company sign anything, and many banks fit run competing programs for the same company at the same time. Unsponsored programs dey live over the counter.

The level dey show where the receipt dey trade and wetin the issuer dey file with the SEC.

1. Level I dey trade over the counter only, e no get US exchange listing and e get minimal SEC reporting. Most unsponsored programs and plenty sponsored ones stop here.
2. Level II dey listed on US exchange. The issuer dey register the receipts and dey file annual report on Form 20-F, the foreign issuer counterpart to the 10-K.
3. Level III na listing plus public offering: the level wey foreign company dey use when e want raise new capital from US investors.

Our guide to the most common SEC filings dey cover where the 20-F dey among the forms wey US investor dey meet. Level I programs dey trade over the counter, far from exchange feeds, and dem no dey inside the panel wey dey below. Wetin follow na one year of tape on five large exchange-listed receipts, wey dem arrange 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 dey lead at roughly $4576.31 million wey dem trade per session over the trailing year. The last row, UL, dey turn over $225.5 million every day. Every name here na large, well-known business wey get US exchange listing, and the distance for daily turnover between the two ends of the panel still dey reach multiples. Thinner turnover usually come with wider quoted spreads and less depth on the book, and the Level I programs wey we talk about above no dey ever reach exchange feed at all.

How ADR dividend dey get paid

Dividend on receipt dey pass through more hands pass US corporate dividend.

1. The company declare dividend for e home currency.
2. The home country go withhold tax, at e statutory rate or at lower treaty rate where the account paperwork support one.
3. The depositary go convert the remainder to US dollars at rate wey e set on stated date.
4. The depositary go deduct e pass-through fee.
5. Wetin remain go reach your broker, wey go credit your account for dollars.

Step two na the one wey dey quietly reduce the payment, and e be mirror image of the case for our guide to dividend withholding tax for non-US investors, where US company dey pay holder abroad. One more wahala dey underneath all of am. If your shares dey out on loan over the record date, wetin land fit be payment in lieu of dividends, wey dem dey tax on different footing from the dividend itself.

Cadence na the first thing wey dey catch US investor. Quarterly na the US convention. Plenty foreign issuers dey 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 print 4 ex-dividend dates a year. The bottom row, SAP, print 1 a year and pay 2.65 dollars per share annually across that stretch. The currency column read USD on the top row: whatever the home currency of the business, the receipt dey distribute dollars.

The second surprise na the wait. The gap between the ex-dividend date and the day cash land dey short and predictable for US payer. For receipt, currency conversion and fee deduction dey 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 get the longest average gap for this group at 43.5 days from ex-date to payment, with longest single wait of 48 days. For the other end, NVO average 10.1 days. Holdings for the same panel dey weeks apart on when the money actually arrive, wey be something wey you need check before you count on payment date.

Ratio changes, terminations and cancellations

Wetin ratio change dey do to your position

Ratio change dey rewrite how many ordinary shares stand behind one receipt. Program wey dey move from one ADR for every two ordinary shares to one ADR for every four dey cut the number of receipts wey dey outstanding into two and double the price of each one. The value of your position and your claim on the company no change. Market data feeds dey record the event as split or reverse split, and price history dey adjusted the same way.

The feed no fit tell you which of two different things happen: ratio wey the depositary rewrite, or ordinary-share split for the home market wey pass straight through to the receipt. The depositary notice to holders na where that difference dey. The panel below pull recent share-count adjustments across 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 swap. 9 become 8 at UL Dec 2025, the most recent of the 8 adjustments wey dey view. Holder wey wake up see different position count and price wey move by the matching multiple dey look at one of these lines.

When program terminate

Depositary fit resign, and company fit deregister e receipts, go private, move e listing, or make dem acquire am. Holders go get notice, commonly thirty days or more, plus window to cancel their receipts and take the ordinary shares. After the window close, the depositary go sell the underlying shares and send the cash, minus fees and any local taxes. The company itself fit dey trade normally for e home market the whole time.

Cancelling ADR into ordinary shares

Cancellation na the opposite of creation. You go tell your broker, the depositary go release the ordinary shares into account for the home market, and dem go charge cancellation fee per receipt. The route need broker wey fit hold the foreign line, and e dey see more use from institutions pass individuals. For worked example of foreign issuer wey arrive on US exchange, see SK hynix's Nasdaq debut.

FAQ

Wetin be ADR fee?

Depositary bank dey charge pass-through fee for holding the foreign shares and running the receipt program, commonly one cent to few cents per ADR every year. Dem dey remove am from dividend when e dey, and bill am as separate line on your statement when e no dey. The exact rate dey set for the deposit agreement.

ADRs dey pay dividend?

Yes, when the underlying company pay one. The dividend dey declared for the home currency, reduced by any foreign withholding tax, converted to dollars by the depositary, and reduced again by the pass-through fee before e reach your account.

Wetin be the difference between sponsored and unsponsored ADR?

Sponsored ADR dey run under deposit agreement between the company and one depositary bank. Unsponsored ADR na bank wey create am without the company involvement, e fit get competing programs for the same stock, and e dey trade over the counter instead of US exchange.

ADR ratio change dey cost me anything?

No. The number of receipts and the price per receipt dey change by the same multiple, and your claim on the underlying company stay the same. Market data feeds dey record am as split, na why e fit look like corporate action from the company.

Wetin dey happen when ADR program terminate?

Holders go receive notice with window to cancel their receipts and take delivery of the ordinary shares for the home market. After that window, the depositary go sell the underlying shares and distribute the cash, minus fees and any local taxes.

Every panel wey dey above ship with the SQL wey produce am, so you fit open any number and see how dem count am. To check the payout cadence or the ex-date to pay-date gap on receipt wey you follow, ask the question for plain English on the Strasmore terminal.