Global Depository Receipt GDR: Meaning, Features, Example, Advantages and Disadvantages

A global depositary receipt (GDR) is a negotiable financial instrument issued by a depositary bank. It represents shares in a foreign company and trades on the local stock exchanges in investors’ countries. GDRs make it possible for a company (the issuer) to access investors in capital markets beyond the borders of its own country. They are the global equivalent of the original American depositary receipts (ADR) on which they are based. GDRs represent ownership of an underlying number of shares of a foreign company and are commonly used to invest in companies from developing or emerging markets by investors in developed markets.

Similarly, EDRs are only listed on European stock exchanges and can only be traded in Europe. Global Finance’s global award for the Best Depositary Receipts Bank goes to BNY Mellon, which alone accounts for half of all globally sponsored DR programs. The bank’s market share is as high as 75% for sponsored programs in the Middle East, North Africa and the Gulf, and 81% in sub-Saharan Africa. The bank focuses on the unique needs of its DR clients, free from the influence of investment banking, trading and research functions. The issuer must register with the regulating authorities in the target country, and must meet all the listing requirements of the stock exchange market on which they choose to list.

What Is the Difference Between an ADR and a GDR?

The IOB offers easy and cost efficient access for traders looking to invest in fast growing economies, for example, in Central and Eastern Europe, Asia, Africa and the Middle East. It offers investors direct access to large companies in these markets by means of Depositary what is global depository receipt Receipts (DR). GDR is the only way through which Indian companies can make their shares available on various foreign exchanges. Thus, the company can use the issued negotiable certificates to raise funds outside of India by trading the shares on foreign exchanges. GDRs are listed on non-US stock exchanges like the Luxembourg or London Stock Exchange. The GDR market is institutional and thus offers low liquidity but allows trading across many significant countries.

A depositary receipt is a negotiable instrument issued by a bank to represent shares in a foreign public company, which allows investors to trade in the global markets. GDRs are negotiable certificates that represent ownership of a specified number of shares of a company issued by depositary banks. Foreign companies can trade in a country’s stock market through GDRs, except the US stock market. Those holding GDRs can surrender them to the bank and convert them into shares.

Global Depository Receipt & The Practice Of An Investment Solicitor

They are not set up locally in Nigeria to be able to buy and hold local shares but can buy and hold GDRs through their Euroclear and Clearstream accounts. GDR facilities can be structured to start trading as early as the close of offer, while local share trading is still frozen for several months. This will represent a huge advantage for GDRs compare to local shares given that aftermarket liquidity is one of the key investment considerations for international institutions. It is a financial instrument used by foreign based corporations to raise capital denominated in either US dollars or Euro. When the depository bank is in the United States, the instrument is known as American Depository Receipts (ADRs). On the other hand, Depository Banks in Europe issue European Depository Receipts (EDR), while banks in other countries issue Global Depository Receipts (GDRs).

It is a negotiable instrument which is denominated in some freely convertible currency.1 GDRs enable a company, the issuer, to access investors in capital markets outside of its home country. On the other hand, an American depositary receipt, which also represents shares of an international company, lists only on U.S. stock exchanges. The depositary bank will hold the underlying shares and issue an ADR for domestic trading. Unlike American depositary receipts (ADRs), which allow foreign company shares to be traded on the US stock exchanges, GDRs can be traded in multiple countries. They are traded on the International Order Book (IOB), which was set up in 2001 as a central electronic order book to give investors direct access to GDRs from more than 30 countries.

Global Depositary Receipts vs. American Depositary Receipts: An Overview

Stock shares are issued and managed by the executive management of the company. The option of issuing an ADR gives a company the power to raise money in other markets. Moreover, they can avoid doubling the workload of reporting to two government regulatory agencies. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources.

It is a general term for a depositary receipt that consists of shares from a foreign company. Therefore, any depositary receipt that did not originate from your home country is called a GDR. You would also recall that unlike in the local capital market, the settlement of GDRs is in USD/EUR. This will be most preferable to the investors both locally and internationally.

A global depositary receipt is a type of bank certificate that represents shares of stock in an international company. The shares underlying the GDR remain on deposit with a depositary bank or custodial institution. An American depositary receipt represents shares in a foreign company and is listed only on American exchanges. A GDR represents shares in a company being on various foreign stock exchanges. Indian companies trade shares on international exchanges except for the US through a GDR.

The significant benefits of the issuance of the GDRs to the issuing Company are enormous. It is a guaranteed channel of establishing its presence in the international financial markets. ADRs are denominated in U.S. dollars but their initial offering value is based on the value of the home currency. There is further currency risk in the conversion of dividends into the investor’s home currency. Shares in the Finnish technology company Nokia are traded on an exchange in Helsinki. However, American investors who want to bet on Nokia can purchase Nokia ADRs (NOK) in the U.S.

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1. This connection ensures that the shares of stock actually exist and no manipulation occurs between the foreign company and the international brokerage house.
2. ADRs are categorized into sponsored and unsponsored, which are then grouped into one of three levels.
3. They trade on the alternative Chi-X Australia market during Australian trading hours and give investors exposure to some of the largest US-listed companies.
4. A U.S.-based company that wants its stock to be listed on the London and Hong Kong Stock Exchanges can accomplish this via a GDR.

The bank is responsible for buying the shares on the company’s domestic market, creating a GDR that represents the shares, and then selling the GDRs on a foreign stock exchange. Previously, if investors wanted to buy shares in a foreign company, they would need to exchange their money into foreign currency and open a foreign brokerage account. Then, they would be able to purchase shares through the brokerage account on a foreign stock exchange. Depositary receipts allow investors to invest in companies in foreign countries while trading in a local stock exchange in the investor’s home country. It is advantageous to investors since shares are not allowed to leave the home country that they trade in.

1. These activities follow the regulatory compliance regulations for both of the countries.
2. The bank acted as depositary for 41% of the new Chinese DR programs launched in 2018.
3. These fees in most cases are share between the issuer and the Depository Bank as the later usually concedes to such arrangement .
4. It is advantageous to investors since shares are not allowed to leave the home country that they trade in.
5. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange, and the London Stock Exchange, where they are traded on the International Order Book (IOB).

The depositary bank first buys the shares of the international company (or, receives them from an investor who already owns them). The underlying shares remain on deposit with the depositary bank (or custodian bank in the international country). A depositary receipt typically requires a company to meet a stock exchange’s specific rules before listing its stock for sale. For example, a company must transfer shares to a brokerage house in its home country. Upon receipt, the brokerage uses a custodian connected to the international stock exchange for selling the depositary receipts. This connection ensures that the shares of stock actually exist and no manipulation occurs between the foreign company and the international brokerage house.