Advisory Opinion Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Advisory Opinion, written in plain English, along with examples of how it is used.
What is Advisory Opinion?
n. abbreviated as ADR, American Deposit Receipt is issued by U.S. depositary banks and represents one or more shares of a foreign stock or a fraction of a share. Trading is done in terms of ADR, for the sake of convenience, instead of trading of actual foreign shares The price of an ADR is often close to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares. Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADS).
History and Definition of American Depositary Receipt (ADR)
American Depositary Receipt (ADR) is a financial instrument issued by a U.S. depositary bank representing shares of foreign stocks that trade on American stock exchanges. Its purpose is to facilitate U.S. investment in foreign companies by simplifying the process of buying shares of foreign stocks, which might be difficult due to differences in market regulations and currencies.
ADRs were first introduced in 1927 by J.P. Morgan to enable U.S. investors to purchase shares in the British retailer Selfridges. Initially, ADRs were used exclusively by large multinational companies, but they have since become widely available to investors around the world. ADRs are subject to U.S. security regulations, providing investors with greater protection and transparency than in the company's home country.
Examples of American Depositary Receipt (ADR)
- An investor in the United States who wishes to invest in a Japanese company's stock can purchase an ADR that represents a specified amount of shares in that company for a fee.
- A corporation in Brazil can issue an ADR to allow U.S. investors the chance to invest in a foreign corporation without having to go through a foreign stock exchange or currency exchange process.
- A Russian company that wishes to raise capital in the U.S. could float an ADR instead of a domestic stock issuance.
Legal Terms Similar to American Depositary Receipt (ADR)
- Securities - A general term used to describe any fungible and negotiable financial instrument that represents ownership in a company, a debt agreement, or a stock index.
- Custodian Bank - A financial institution that provides safekeeping and administration of assets, often acting as a third-party custodian in situations like ADRs.
- Global Depository Receipt - A receipt issued by an international bank, similar to the ADR process but issued outside the U.S. to allow foreign investment in domestic companies.