Understanding ADR Fees in the US Stock Market

What is an ADR (American Depositary Receipt)?

An ADR (American Depositary Receipt) is a transferable certificate issued by a U.S. depositary bank that represents shares in a foreign company. The depositary bank holds the corresponding shares in the company’s original listing market and issues ADRs on the U.S. securities market. This allows investors to trade equity instruments of foreign companies in the U.S. market, settled in US dollars.

The establishment of ADRs enables investors to trade without directly participating in foreign market settlements, custody, and foreign currency settlements, while adhering to the U.S. securities system.

Why are ADR Depositary Fees/ Service Fees charged?

ADR fees (also known as ADR Depositary Fees or Service Fees) are charged by U.S. depositary banks to cover the costs of the following services:

•            Holding and custody of related foreign shares.

•            Maintaining shareholder registers and ownership records.

•            Processing dividend distributions, corporate actions, and other administrative tasks.

These fees are not charged by brokers or exchanges but are part of the ADR structure itself.

When are investors required to pay ADR fees?

Typically, clients who hold a settled ADR position as of the Record Date will be regarded as shareholders subject to the applicable ADR fees.

Once the fees are confirmed by the depositary bank, they will be directly debited from the securities account. Should the account balance be insufficient, this may result in an outstanding balance, which could incur corresponding interest charges or additional fees.

When do depositary banks collect ADR fees?

ADR fees are not necessarily collected at a fixed time and depend on the specific ADR's prospectus and announcements from the depositary bank. Common scenarios include the following three categories:

The actual amount and frequency of charges are subject to the latest announcements from the depositary bank and may vary depending on the specific ADR.

The ADR prospectus or listing documents can be reviewed via the SEC EDGAR website.

Can ADR Fees Be Avoided or Waived?

ADR fees are a statutory and contractual obligation between the ADR holder and the depositary bank. Once determined, such fees are neither avoidable nor waivable.

Since the fees are directly collected by the U.S. depositary banks, brokers or intermediaries have no authority to reduce or adjust the fees.

How to locate announcements related to ADR fees?

ADRs are typically managed by the following four major U.S. depositary banks. Investors can check fee-related announcements as follows:

*Certain ADRs are exclusively custodied by a single depositary bank. If the relevant information is not available on a particular bank's website, it is recommended to confirm the designated depositary bank before proceeding with further enquiries.

How to identify if a U.S. stock is an ADR?

Investors can identify ADRs through the following:

•            Some ADRs are labeled with identifiers such as Y, YY, FY, or AY appended to their stock symbols.

•            Use the XET international app to search for the stock and navigate to the “Company Overview” (F10) section in the stock details page. The company name will include "Sponsored ADR/ADS" if the stock is an ADR.

•            If you hold U.S. equity positions, you may view your portfolio in the daily or monthly statements issued by our company. If the U.S. stock is an ADR, the company name will be followed by the designation "ADR/ADS" along with the exchange ratio for identification purposes.

•            You may refer to the websites of the four U.S. depositary banks listed above for further enquiries.

Remarks:

•            Long-term ADR holders should be mindful of the cumulative fee costs.

•            Transferring or selling ADRs may still incur fees if the record date falls while positions are held.