American Depositary Shares (ADS) are a way for foreign companies to gain access to the United States equity market. When a foreign company wishes to be traded on an American stock market, it begins by disengaging its locally traded shares, converting them into American Depositary Shares (ADS), and then delivering these to a U.S. bank called a depositary bank. These banks work with the Securities and Exchange Commission (SEC) and the Foreign Exchange Commission (FEC) to ensure regulations are followed.

An ADS is a single certificate that represents a predetermined number of shares of a foreign company. ADS shares are often quoted on major US stock exchanges such as the New York Stock Exchange and the NASDAQ.

For investors, the advantages of American Depositary Shares include the ability to invest in foreign companies with some protection from currency fluctuations, a broader selection of available companies, as well as the familiarity of buying and selling shares according to the US market’s procedures and rules.

In addition to the obvious advantages mentioned, one can also turn to the American Depositary Receipt (ADR) facility to do their trading. An American Depositary Receipt (ADR) is a receipt issued by a U.S. bank representing a number of shares in a foreign stock. An ADR allows foreign companies to overcome the complexities of foreign regulations, currency exchange rate fluctuations, and settlement delays associated with cross-border trades in securities. Furthermore, ADRs can be in the form of a direct purchase whereby one can buy the receipt or it can be in the form of a sponsored/unsponsored plan, one of the two phrases used to describe a type of ADR.

In conclusion, American Depositary Shares (ADS) provide US investors with the ability to purchase securities from foreign companies, the benefit of avoiding some of the risks associated with trading in a foreign country, and a greater selection of companies available to invest in.