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AMERICAN DEPOSITORY RECEIPTS (ADR

)

&

GLOBAL DEPOSITORY RECEIPTS (GDR)

Depository Receipts:

Depository Receipts are a type of negotiable (transferable) financial security, representing a security, usually in the form of equity, issued by a foreign publicly-listed company. However, DRs are traded on a local stock exchange though the foreign public listed company is not traded on the local exchange. Thus, the DRs are physical certificates, which allow investors to hold shares in equity of other countries. . This type of instruments first started in USA in late 1920s and is commonly known as American depository receipt (ADR). Later on these have become popular in other parts of the world also in the form of Global Depository Receipts (GDRs). Some other common types of DRs are European DRs and International DRs.

In nut shell we can say ADRs are typically traded on a US national stock exchange, such as the New York Stock Exchange (NYSE) or the American Stock Exchange, while GDRs are commonly listed on European stock exchanges such as the London Stock Exchange. Both ADRs and GDRs are usually denominated in US dollars, but these can also be denominated in Euros.

S. Thus. stock exchanges. U. it can do so through Depository Receipts (DR) mode. On receipt of the delivery of shares. are first of all delivered and deposited with the custodian bank of the depository through which they intend to create the DR. To allow creation of DRs. They are traded just like regular stocks of other corporate but are issued / sponsored in the U. the shares of the foreign company. In view of such problems. which physically remains in the country of issue. . we can say ADRs are one or more units of a foreign security traded in American market. Trading in foreign securities is prone to number of difficulties like different prices and in different currency values. ADRs were introduced with a view to simplify the physical handling and legal technicalities governing foreign securities as a result of the complexities involved in buying shares in foreign countries. usually in the custody of a bank. but is traded on U. by a bank or brokerage. ADR is a security issued by a company outside the U. ADR is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. In other words. the custodial bank creates DRs and issues the same to investors in the country where the DRs are intended to be listed.How do Depository Receipts Created? When a foreign company wants to list its securities on another country’s stock exchange.S.S. What are ADRs : American Depository Receipts popularly known as ADRs were introduced in the American market in 1927. banks found a simple methodology wherein they purchase a bulk lot of shares . which keep in changing almost on daily basis. which the DRs represent.S. These DRs are then listed and traded in the local stock exchanges of that country.

The individuals are able to save considerable money and energy by trading in ADRs. Foreign entities prefer ADRs. and reissue them and get these quoted on American stock markets.S. The first GDR was issued ADVANTAGES OF ADRs: There are many advantages of ADRs.S.S. or NASDAQ. The above indicates that ADRs are issued to offer investment routes that avoid the expensive and cumbersome laws that apply sometimes to non-citizens buying shares on local exchanges. in 1990. An American investor holding an ADR does not have voting rights in the company. exposure and it allows . Dividends are usually paid in U. ADRs are an easy and cost effective way to buy shares of a foreign company. For individuals. thus. For the American public ADRs simplify investing. AMEX. because they get more U. Global Depository Receipt (GDR): These are similar to the ADR but are usually listed on exchanges outside the U. such as Luxembourg or London.from foreign company and then bundle these shares into groups. they do so directly in dollars. as it reduces administrative costs and avoids foreign taxes on each transaction. ADRs are listed on the NYSE. making their earnings more transparent. dollars. Such companies are required to declare financial results according to a standard accounting principle. So when Americans purchase Infy (the Infosys Technologies ADR) stocks listed on Nasdaq. without converting them from rupees..

them to tap the American equity markets. now . Though IDRs will be freely priced yet in the prospectus the issue price has to be justified. are Infy (the Infosys Technologies ADR). The purchaser has a theoretical right to exchange the receipt without voting rights for the shares with voting rights (RBI permission required) but in practice. and Say (the Satyam Computer ADS) What are Indian Depository Receipts (IDR) Recently SEBI has issued guidelines for foreign companies who wish to raise capital in India by issuing Indian Depository Receipts. The shares will not be listed in India. any foreigner can purchase these securities whereas shares in India can be purchased on Indian Stock Exchanges only by NRIs or PIOs or FIIs. Rdy(the Dr Reddy’s Lab ADR). WIT (the Wipro ADR). The IDRs will allow the Indian investors to tap the opportunities in stocks of foreign companies and that too without the risk of investing directly which may not be too friendly. Such IDRs will be created by a Domestic Depositories in India against the underlying equity shares of the issuing company which is incorporated outside India. Thus. no one appears to be interested in exercising this right. IDRs will be transferable securities to be listed on Indian stock exchanges in the form of depository receipts. However. but have to be listed in the home country. Each IDR will represent a certain number of shares of the foreign company. Some Major ADRs issued by Indian Companies Among the Indian ADRs listed on the US markets. Thus. The shares represented by ADRs are without voting rights.

the DR are allowed to be exchanged for the underlying shares held by the custodian and sold in the home country and vice-versa. SEBI has issued guidelines for issuance of IDRs in April. automatic is not permitted. 2006. the company shall pay interest at the rate of 15 per cent per annum for the period of delay.Indian investors will have easy access to international capital market. the IDR issuing company should have good track record with respect to securities market regulations and companies not meeting the criteria will not be allowed to raise funds from the domestic market If the IDR issuer fails to receive minimum 90 per cent subscription on the date of closure of the issue. or the subscription level later falls below 90 per cent due to cheques not being honoured or withdrawal of applications. Moreover. the company has to refund the entire subscription amount received. Non-Resident Indians and Foreign Institutional Investors (FIIs) have not been allowed to purchase or possess IDRs without special permission from the Reserve Bank of India (RBI). Some of the major norms for issuance of IDRs are as follows. Also. SEBI has set Rs 50 crore as the lower limit for the IDRs to be issued by the Indian companies. Also. Normally. the minimum investment required in the IDR issue by the investors has been fixed at Rs two lakh. in case of delay beyond eight days after the company becomes liable to pay the amount. However. . in the case of IDRs. SEBI said.