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Suppose I am able to buy an ADR listed on an American exchange, and also suppose I am able to buy the underlying ordinary shares on its local exchange (in another country). I have bank accounts, funds, and brokerage accounts in both countries and currencies. I don't have any particular preference. Are there any reasons why I shouldn't buy the ADR?

  • Are ADRs more expensive? (e.g. custodian fees)
  • Will I be able to receive corporate communications (e.g. annual reports) if I buy the ADR?
  • Are ADR dividends delayed?
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I'll base my answer on the American depositary receipt (ADRs) AXAHY and TOT as well as their underlying ordinary shares on its local exchange (Euronext), which I own in US-based (for ADRs) and France-based (for ordinary shares) brokerage accounts.

Are ADRs more expensive? (e.g. custodian fees)

Yes. E.g., no yearly fee on AXA, but 0.45 USD/share yearly fee on AXAHY. See https://money.stackexchange.com/a/128258/5656 for the fee breakdown.

From https://www.sec.gov/investor/alerts/adr-bulletin.pdf (mirror): "Depositary banks may charge other fees, such as relating to the distribution of dividends, foreign currency exchange, voting of shares, and other matters."

Are ADR dividends delayed?

Yes. In 2020, I received the AXA dividends on 2020-07-09, whereas I received the AXAHY dividends on 2020-07-24.

Will I be able to receive corporate communications (e.g. annual reports) if I buy the ADR?

I don't know if ADR owners receive all corporate communications, but they do receive at least some of them. For example, I received an optional dividend (mirror) event a few weeks ago for my TOT ADR shares owned in a US-based brokerage account.


Related:

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When it is equally convenient to own the underlying shares and receive income in another country, including the taxes on both the earnings and appreciation when sold, then owning the shares directly avoids ADR fees. A oscillating spread between an ADR and the underlying shares on a foreign exchange in a band of ±1% isn't unusual. The period is more likely to be days than hours or minutes. An ADR would trade in lock step with the underlying shares on the foreign exchange if arbitrage was free and had no associated risks. Some risk is due to the inability to execute simultaneous orders on both exchanges. Some risk is due to not knowing the exchange rate 2 days in the future when the trade settles. Currency exchange also isn't entirely cost-free. Fluctuating exchange rates tend to drive all trades in the same direction but if it was possible to arbitrage with equal and opposite currency flows then order execution would be the only risk.

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