basics of ADR for US stocks

[stressor]

hi, is there any difference between buying ADR in a us stock vs buying direct? For example, facebook is listed as ADR and in the US. What is the implication of buying the ADR? is it correct that the UK listed ADR would be in £GBP?

thanks

[gryffron]

Hi,

ADRs are US stocks. It stands for American Depositary Receipt. An ADR is very simply a fund, issued by a bank, which invests in and tracks a single stock. A single company ETF in British terms.

Why? Because they are listed on NYSE, and pay US tax. And usually track "foreign" companies. Foreign to the USA that is. Japanese, Russian, European, even many large British companies. They are a very easy way for US based investors to buy overseas stocks, without having to worry about foreign tax regimes or currencies. It keeps their tax returns very simple.

They are also a useful way for UK/European investors to buy into the more obtuse stock markets which are usually unattractive to investors. E.g. I own Toyota ADRs. Because Complex tax rules make it nigh impossible for foreigners to hold Japanese stocks directly.

Must confess I haven't heard of US stocks being listed as ADRs. What would be the point? Although some US stocks have very high values, so it may be a way to break them down. Maybe that's why Facebook at $240 are listed as an ADR, is the ADR 1/2, 1/4, 1/10 the actual share value?

I've never heard of uk listed ADRs, Nor any denominated in Sterling. Although I suppose it is possible some uk brokers are "borrowing" the idea. But I can't find an Facebook ADR listed. Where have you seen it?

The implication/difference is that there is another layer of ownership and cost involved. Although ADRs fees are usually minimal, the banks make their money from the foreign-to-USD currency fees. And potentially risk if the holding bank goes broke. Although since they are usually 100% fully underwritten in actual shares, this risk is also minimal.

Gryff

[stressor]

So using the example of facebook I see the following.....0QZI is on LSE? Sorry if I am confused about what these various listings mean

https://markets.on.nytimes.com/research ... eLookup=FB

Facebook Inc. FB UNITED STATES OF AMERICA Common Stock *
Facebook Inc. FB2X.A:GER GERMANY Common Stock
Facebook Inc. FBOK3,:SAO BRAZIL Depositary Receipt
Facebook Inc. FBX:SGO Chile Common Stock
Facebook Inc. FBY:BEC CHILE Common Stock
Facebook Inc. FB:SWX Switzerland Common Stock
Facebook Inc. FB:VIE AUSTRIA Common Stock
Facebook Inc. FB:MIL ITALY Common Stock
Facebook Inc. 0QZI:LSE United Kingdom Common Stock
Facebook Inc. FB3:BUE Argentina Depositary Receipt

[Alaric]

I've never heard of uk listed ADRs

The London market supports "Depositary Receipts"

By using a Google search for "foreign shares quoted in London"", I was able to download a list.

Most are quite obscure, but I did notice Samsung, Tata Steel and a number of Russian ones. No US ones though.

This link implies you can buy Facebook directly

https://www.ii.co.uk/shares/facebook-inc-a/NASDAQ:FB

[gryffron]

This link implies you can buy Facebook directly
https://www.ii.co.uk/shares/facebook-inc-a/NASDAQ:FB

Of course you can. You can buy all NYSE stocks through UK brokers, and many other nations too. Your link right now (11pm) says "market opens in 15 hours", which implies you're buying from New York rather than a London listing.

0QZI:LSE implies that Facebook has a direct London listing. Which may be true. Not sure exactly what that is. It's still listed in usd. Although volumes are wafer thin. $400k/day in London vs $2.5bn/day on New York. Many large companies are listed in multiple locations as stressor's link shows. The downside of buying from such secondary listings, is that the overseas listing can disappear making it really hard to sell your shares.

Personally, I'd stick to buying from the Company's "main" listing, when possible, wherever that is, to avoid any complications. There won't be any tax advantages from buying through a secondary listing.

Gryff

[mc2fool]

So using the example of facebook I see the following.....0QZI is on LSE?

Yes, 0QZI is a CREST Depository Interest (CDI), which is the UK equivalent of an American Depository Receipt.

If you look up 0QZI on the London Stock Exchange site you'll see it's priced in US$. https://www.londonstockexchange.com/exc ... DGES1.html

As both the UK and US markets are closed right now it's difficult to know if there's likely to be much of a price differential between 0QZI and FB but I'll be surprised if there is. Not sure I see the point in preferring one over the other, although I suppose with the CDI you can avoid having to fill in a W8-BEN, FWIW.

I guess a lot will depend on your broker. Of my two brokers both II and IWeb will let me buy FB directly on NASDAQ but only II will let me buy 0QZI (which isn't a great surprise as IWeb is more "vanilla"). OTOH if you have a UK-only broker 0QZI may be your only choice (if at all).

I suggest you try initiating a buy for each on your broker's site at some time when both the UK and US markets are open, and see what your broker says, and what quotes they give you....

[gryffron]

0QZI is a CREST Depository Interest (CDI), which is the UK equivalent of an American Depository Receipt.
...
I suppose with the CDI you can avoid having to fill in a W8-BEN

Thanks.
...
Presumably you would also avoid filling in (non ISA) "foreign dividends" on your self assessment. Which have to be reported in much greater detail than UK dividends.

I wonder does 0QZI pay dividends in USD or UKP? One big advantage of ADRs to Americans is that they convert everything to local currency. Strange that a UK CDI should still be priced in USD.

Gryff

[PinkDalek]

[Presumably you would also avoid filling in (non ISA) "foreign dividends" on your self assessment. Which have to be reported in much greater detail than UK dividends. ...

Interesting observation and I don't know the answer but see https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg50240 re CGT which includes Where a DR is issued in the UK the HMRC view is that the holder of a DR is the beneficial owner of the underlying shares.

Which might suggest HMRC also would consider any dividend income to be "Foreign" sourced.

[gryffron]

Shame. Again, the other big benefit of ADRs is that the dividends are already US taxed. That implies that CDIs are much less use to Brits than ADRs are to Americans. Probably explains why the market in CDIs is so thin.

Gryff

[Lootman]

the other big benefit of ADRs is that the dividends are already US taxed.

What do you mean by "already US taxed"?

There might be US withholding tax applied to a UK holder of ADRs, but the ADRs themselves pay dividends gross, as do all US shares to my knowledge.

There might also be taxes withheld by the country where the underlying is located, e.g. Switzerland for Novartis ADRs.

Also note that not all US ADRs trade on the NYSE. Some are traded OTC on the pink sheets e.g. Nestles and Siemens.