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Subject: Derivatives
Presented By: Sumit Arora-7257 Sankalp Mallik-7009
Depository Receipts
It is a type of negotiable (transferable) financial security It is usually in the form of equity, which is issued by a foreign publicly listed company It is a Physical Certificate It allows investors to hold shares in equity of other countries
Major Players in DR
Corporate Issuer Register & Transfer Agent Overseas Custodian Domestic Depository DR Holder
Process of Issuing DR
Company Issues Ordinary Shares
What is ADR ?
An ADR represents ownership in the shares of a non-U.S. company and trades in U.S. financial markets ADRs are quoted and traded in U.S. Dollars in the US securities market. Also, the dividends are paid to investor in US dollars ADRs were first introduced in year 1927 ADRs are traded on NYSE, NASDAQ & AMEX in USA
Types of ADR
Level I Unsponsored Types of ADRs Sponsored Level III Private Placement Level II
Unsponsored ADRs
Created in response of investors, brokers - dealers and depository Exempted from reporting requirements of the SEC Not Listed on any exchange Advantages: Inexpensive Expands investors base Minimal SEC compliance and reporting requirements Disadvantages: No control over the activity Conversion becomes costly
Sponsored ADRs
Initiated by Issuer Established jointly by an Issuer and Depository Depository provides shareholders communication and other information to ADR holders Through Depository ADR holders can exercise voting rights
Level I
Least Expensive
Level II
More Expensive
Level III
Most Expensive
Private Placements
Capital can be raised by placing Depositary Receipts with large institutional investors Do not have to conform full SEC reporting and registration requirements Cheaper means of raising equity capital
Indian ADR
What is GDR ?
GDR is a certificate issued by a depository bank, which purchases shares of foreign companies GDR can be traded globally in exchange or over the counter market & it is a global funding vehicle for raising capital
Process of GDR
GDR Listing
London Stock Exchange Luxembourg Stock Exchange Dubai International Financial Exchange (DIFX) Singapore Exchange Hong Kong Exchange
Comparison
ADR
Centre NYSE
GAAP Company accounts must be reconciled to US GAAP
GDR
Centre LSE
GAAP Satisfied with Statement of difference between the A/c Standards Cost Comparatively lower Retail Only QIBs allowed in US Liability Comparatively less than ADR
What is IDR ?
IDRs are depository receipts denominated in Indian Rupees issued by a Domestic Depository in India The US $ 200,000 limit is not applicable for an investment in IDRs An IDR holder will be entitled to rights on an equitable basis vis--vis the rights of shareholders of the issuer company in its home country. Fungibility: Reverse fungibility is not allowed
Process of IDR
Shares
IDRs listed on IDR Holders FIIs, NRIs, FIs, Retail, Non- NSE / BSE Institutional Investors