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Depositary Receipts (DRs) are negotiable financial instruments issued by a bank to represent shares in a foreign company. They allow investors to trade international equities more conveniently on local exchanges.
A Depositary Receipt (DR) is a financial instrument that represents shares in a foreign company and is traded on a local stock exchange. It allows investors to gain exposure to global equities without dealing with the complexities of cross-border trading.
Instead of directly purchasing shares on a foreign exchange, investors buy DRs issued by a depositary bank. This bank holds the underlying shares in custody and issues the receipts in another country. Each DR typically represents one or more shares (or even a fraction) of the foreign stock.
There are several types of Depositary Receipts (DRs), depending on the issuing region, trading venue, and investor access mechanisms. Each type allows foreign companies to list and trade their equity in different markets through a depositary bank.
ADRs are issued by U.S. depositary banks and traded on U.S. stock exchanges such as the NYSE, NASDAQ, or OTC markets. They are denominated in U.S. dollars and subject to U.S. regulatory oversight, making them convenient for American investors. ADRs may be sponsored (issued with company involvement) or unsponsored.
GDRs are typically listed on European stock exchanges such as the London Stock Exchange (LSE) or Luxembourg Stock Exchange. They are used by companies, especially from emerging markets, to raise capital from international investors. GDRs are generally denominated in U.S. dollars or euros.
EDRs function similarly to GDRs but are specifically listed on continental European exchanges. They cater to European investors seeking exposure to non-European companies and are often subject to EU financial regulations.
IDRs are issued by Indian depository institutions and allow Indian investors to hold shares of foreign companies. These are traded on Indian stock exchanges like the BSE or NSE.
Each type of DR differs in terms of regulatory requirements, liquidity, and investor accessibility.
A foreign company deposits its shares with a custodian bank in its home country.
A depositary bank in the investor’s country then issues DRs that represent those underlying shares.
These DRs are traded on local exchanges, making it easier for domestic investors to gain foreign equity exposure.
An example is ICICI Bank’s ADR, which trades on the New York Stock Exchange (NYSE). Suppose one ADR represents two underlying equity shares of ICICI Bank. Investors in the US can buy the ADR in USD, even though the actual shares are listed in India and denominated in INR.
Benefits:
Easier access to foreign stocks.
Portfolio diversification across geographies.
Local settlement and domestic currency trading.
Risks:
Currency fluctuations between domestic and foreign currencies.
Regulatory discrepancies between jurisdictions.
Voting rights and corporate disclosures may differ.
Depositary Receipts serve as a bridge between investors and international equities. They simplify the investment process, enhance access, and provide exposure to global markets — all while trading within local market frameworks.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
It is a certificate issued by a bank that represents shares of a foreign company and allows them to be traded on a domestic stock exchange.
Common types include ADRs, GDRs, EDRs, and IDRs — each tailored for specific geographies and exchanges.
The company’s shares are held by a custodian, and DRs are issued by a bank in the investor's country, enabling local trading.
They offer access to foreign stocks without navigating overseas exchanges, complex taxation, or currency conversions.
Key risks include currency volatility, regulatory mismatches, limited shareholder rights, and possible liquidity constraints.
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Posted on 19 Dec
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