American Depositary Receipt

The American Depositary Receipt or ADR’s are  derivative securities that grant their holders a direct participation in another security (whether fixed or variable income) that acts as an underlying asset, creating this way a community of proprietors over the corresponding underlying asset. Metaphorically, the underlying asset is the core of the derivative security, since it states its price and nourishes it of the cash flow needed to satisfy the credits of their holders, existing this way an undissolvable union between the underlying asset and the security that derives from it (that is the reason of its name: derivative security). If the underlying asset extinguishes, the derivative security will have the same luck. Likewise, the ADR´s allow representing the underlying asset in a currency and a unit nominal value different than the good that composes the underlying asset.

This way, if the underlying asset is constituted by variable income securities, because the ADR´s are derivatives, they will act then as substitutes of the shares that constitute their underlying assets, granting their holders all the rights deriving from them, and even the right to exchange the ADR’s for shares that have served as underlying asset.

Image: Denys Nevozhai – Unsplash