What Are ADRs and SPACs?

Not every ticker on a US exchange stands for a company incorporated and operating in the US. Two structures sit outside that rule, and each carries its own risks: ADRs, which represent shares of foreign companies, and SPACs, which have no business on the day they go public.

ADRs: A Receipt for a Share Traded Elsewhere

The mechanism is simple: a US depositary bank buys shares on the company's home exchange, holds them with a local custodian and issues ADRs against them in the US. Each ADR represents a set number of local shares, and that ratio doesn't have to be one to one.

Three Levels

Foreign companies file an annual 20-F and periodic 6-K reports instead of 10-Ks and 10-Qs. Many don't publish quarterly reports at all, reporting semiannually or under their home country's rules. More: How to Read a 10-K and 10-Q

The Hidden Layers of an ADR

• Currency risk is built in. The ADR trades in dollars, but the company's earnings and its local share price are in its own currency. If the local share holds steady while the local currency falls against the dollar, the ADR falls. More: Currency Risk
• Dividend tax is withheld by another country. Tax on an ADR's dividend is withheld by the company's home country, not the US; the rate described under W-8BEN doesn't apply there.
• There is a depositary fee. The depositary bank may charge a custody fee of a few cents per ADR a year, usually deducted from dividends or collected through the broker.

SPACs: Money First, Company Later

The money raised sits in a trust account, usually in short-term US Treasury bills. The shareholder's most important right is the redemption right: if they don't like the target, they can hand their shares back at the vote for the amount in the trust (about $10 a unit plus accrued interest). If the deadline passes without a deal, the money is returned to shareholders.

The Sponsor's Stake: The Arithmetic of Dilution

The sponsor that sets up the SPAC buys founder shares before the IPO for a very small sum; these are usually about one fifth of total shares after the offering. The higher the redemption rate, the heavier those shares weigh.

Redemption rates often ran very high after 2021, and many companies fell far below the SPAC's $10 starting point after merging. With rules effective in mid-2024, the SEC raised disclosure requirements on sponsor interests, dilution and projections in SPAC mergers, bringing oversight closer to that of a traditional IPO.

Where You'll See It on This Site

On an ADR's page, price and market value are in dollars; the move on the company's home exchange and the currency effect are both reflected in those numbers. Upcoming IPOs are listed on the Calendar screen.