ADS (American Depositary Shares)

An American Depositary Share (ADS) is the actual tradeable unit that lets U.S. investors buy stock in a foreign company through a U.S. exchange, in U.S. dollars, without opening a foreign brokerage account or dealing in another currency directly. It is not a share of the foreign company itself, but a claim on shares held on your behalf.

Here is how it works mechanically: a U.S. depositary bank (like Citibank, J.P. Morgan, or the Bank of New York Mellon) buys and holds a block of the foreign company's actual shares in that company's home market. The bank then issues certificates against those shares, and each certificate can represent one share, a fraction of a share, or several shares bundled together, depending on how the program is structured. That bundle-to-share ratio is set when the program is created and generally stays fixed, though it can change if the company or bank restructures it.

The terms ADS and ADR get used almost interchangeably in casual conversation, but they are not quite the same thing. The ADR is technically the certificate or receipt representing ownership; the ADS is the underlying share itself. In practice, when someone says "I bought ADRs" or "I bought ADSs" of a company, they mean the same trade — buying the security that trades on a U.S. exchange under a U.S. ticker.

The nuance that trips people up is currency risk. Even though the ADS is priced and settled in dollars, the company earns its revenue and reports its underlying value in its home currency. If that currency weakens against the dollar, the ADS price can fall even if the company's business and its home-market stock price haven't moved at all. Another trap: because the home market often trades on a different clock than U.S. markets, news or price action overseas can cause the ADS to gap sharply at the U.S. open, before American traders have had any chance to react.