How to Exchange ADRs for Common Stock
ADRs (American Depository Receipts) are securities issued by depository banks (such as JP Morgan and Bank of New York) that represent shares in foreign companies. ADRs avoid the hassle of trying to buy the stock directly on a foreign exchange and are traded on the New York Stock Exchange. In some cases, you may want to exchange ADRs for common stock (to take advantage of currency exchange rates, for example). This used to be fairly difficult due to lack of liquidity in the ADR-to-stock market. That started to change in 2002, and you now have a couple of options that make it much easier (and less expensive) to exchange ADRs for common stock.
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Instructions
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Contact the depository bank that issued your ADRs and holds the common stock. To convert ADRs to common stock, you must find a buyer who holds the stock itself and wants to convert it to ADRs. The depository bank may be able to match you up with a buyer. They do not make swaps themselves.
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Call brokers to find a match. There is a small market with traditional brokerage firms of investors who will swap common stock for the ADRs of that stock. You may have to contact several brokers in the United States or the country where the stock was issued, but the place to start is with your own broker.
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Exchange ADRs for common stock (or vice versa) using one of the recently introduced online trading platforms such as JP Morgan's ADRMax or ADR Navigator (marketed by I. A. Englaner). Beginning in 2002, these services are online electronic exchanges for ADRs (as an example, there is a link to one in Resources). Open an account with one of these services the same way you would with a traditional broker, by supplying personal information and an initial deposit.
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Make the exchange of ADRs for common stock once you find a buyer. If you use the traditional approach, all you need to do is place your order with the broker. For online trading, use the service's trading platform software to enter your order. The system then searches until it finds a match and you are done.
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Tips & Warnings
As of 2009, liquidity continues to be a problem with some ADR/stock conversions. The market is growing, but it still can take time to match a buyer and seller due to the low trading volume. When you exchange ADRs for common stock, be aware of currency exchange rates. The swap can be profitable if exchange rates have changed since you bought your ADRs. It can also cost you money if the currency exchange rate has moved the wrong way, so do your homework. When investing in ADRs, remember not only the effect of exchange rates, but also that you may be liable for foreign taxes on any profits.
