Depository Receipts

Depository receipt: DR

It is a financial instrument where a person in one country can buy, hold or sell his securities of a company in another country.  It is a certificate which consists of name of company, name of investor, number of shares taken, summary of depository receipt etc.

There are two types in Depository receipt:

·         Global Depository Receipt (GDR)

·         American Depository Receipt (ADR)

Global Depository Receipt:

This can be understood well with the help of an example:  Suppose let us say a European person wants to have an exposure in Indian securities, so he can do this in two ways:

One he can enter the Indian stock market and buy the company’s stock on one of the Indian markets. By this an investor will get exposed to the stock exchange and know the risks involved in it. He can also know the rules and regulations involved in purchase and sale of securities in the market.

Two he can know through the GDR which would give the investor ownership of the Indian company’s stock without being involved to Indian stock market regulations.

GDR is a global financial instrument which allows an investor to raise capital at the same time in two or more markets. Basically DR helps in cross-border and cross currency transactions.

GDR  can be listed in American and European stock exchange markets. A person from any country can buy securities  in any country and sell in any other country.

GDR can represent more than one share. They are in the US dollar.

One of the benefit of GDR as per my understanding

Once the issuing company has exploited the domestic capital markets, the company will not be benefitted in domestic market. The company will turn to international capital markets the base of investors.

One disadvantage of GDR

GDR’s have a foreign exchange risk if the currency of the issuer is different from the currency of the GDR( normally US dollar).

American Depository Receipt:

It represents ownership in the shares of a non-US company and trades in the American stock markets.

ADR enables American investors to buy shares in foreign company without any issue of cross border and cross currency transactions.

ADR’s carry price in American dollar,pay dividend in the same currency and can be traded like any other share of US based companies.

It can be listed in American Stock exchange.

ADR holder can have no right to vote in the company