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A security designed to make investing

outside of ones home country easier

What are depository receipt ?
A depositary receipt (DR) is a type of negotiable (transferable)
financial security that is traded on a local stock exchange but
represents a security, usually in the form of equity, that is issued
by a foreign publicly listed company.

The DR, which is a physical certificate, allows investors to hold
shares in equity of other countries.
A gas company in Russia has fulfilled the requirements for DR listing and
now wants to list its publicly traded shares on the NYSE in the form of an

Before the gas company's shares are traded freely on the exchange, a
U.S. broker, through an international office or a local brokerage house in
Russia, would purchase the domestic shares from the Russian market and
then have them delivered to the local (Russian) custodian bank of the
depository bank.

The depository bank is the American institution that issues the ADRs in

In this example, the depository bank is the Bank of New York. Once the
Bank of New York's local custodian bank in Russia receives the shares,
this custodian bank verifies the delivery of the shares by informing
the Bank of New York that the shares can now be issued in the United
The Bank of New York then delivers the ADRs to the broker who
initially purchased them.
After the process the new ADR of the Russian gas company is issued, the
ADR can be traded freely among investors and transferred from the
buyer to the seller on the NYSE, through a procedure known as intra-
market trading.

All ADR transactions of the Russian gas company will now take place in
U.S. dollars and are settled like any other U.S. transaction on the NYSE.
The ADR investor holds privileges like those granted to
shareholders of ordinary shares, such as voting rights and cash
dividends. The rights of the ADR holder are stated on the
ADR certificate.
Origin of Depository Receipt
Introduced to financial Markets in April 29,1927 as ADR.

Creation of the first ADR by JP Morgan

Launched firstly for Selfridges PLC
(a famous British retailer)

The regulation of ADR changed its form in 1955 .

ADR constructed solely for need of American investors.
In 1985, SEC (Securities and exchange Commission) introduced
new regulatory framework.

The greatest development of drs has been recorded since

1990: Citibank issued the first GDR
-- Samsung Corporation
-- European and U.S. Markets could be reached

-- DR Programs in over 70 countries with over 2,250
-- Before participation it is necessary to look at the
benefits of drs
benefits of drs
To issuers To investors
To the Investors
Easy to purchase and hold.

investor doesnt need to go through the hassles of govt.
regulations and currency conversion to buy stocks of
foreign companies.

Trades and settles in the same manner as any other
security available in the investors home countrys stock
Facilitates portfolio diversification by inclusion of
foreign stocks.

Better comparison between stocks of various

Since GDRs are denominated in the investors home
currency (like ADR in US Dollars), they tend to reduce
foreign exchange risks.
To the Issuers
Broadens investor base.

Increases global presence.

More avenues to raise funds.

Price parity with global competitors.

Facilitates mergers and acquisitions.
Factors effecting DRs prices:

company track record
analysts recommendations
market conditions
international status of the company

TYPES of Depository Receipt
Depositary Receipt)
(Global depository
What is an American Depository Receipt
An American Depository Receipt (ADR) is a negotiable security
representing ownership in some underlying shares of a non-US
company, which can be traded on US stock exchanges.
ADRs are denominated in US dollars and function on the lines
of the shares of a US company in terms of trading and
dividend payment.
Mechanism of ADR
types of adrs
a) Non-Sponsored-
- The underlying company has no
- Traded on the OTC market
- No formal agreement between
bank and company
b) Sponsored-
- Varying degrees of commitment a
company can make to the DR Program

Level 1 Sponsored
One bank acts as a transfer agent for the company
Limited reporting requirements with SEC
Periodic financials not required
Traded on the OTC market
Most common way DRs are sold in the U.S
Level 2 Sponsored
Under SEC. regulation
Must file form equivalent to the U.S. Form 10-K annually
in compliance with GAAP
Listed on U.S. Stock Exchanges like NYSE,
Required to publish annual reports in accordance with US
highest level of sponsored ADRs
Registered with SEC.
Requirements for listing similar to the strictness of a U.S.
Necessary if company intends to issue new shares in U.S. market
Typically generate the most U.S. investor interest because
capital is being raised
Level 3 Sponsored
rule 144a adrs
Private placement under SEC Rule 144(a)
SEC Review not required
Only Qualified Institutional Buyers (QIBs) can obtain and trade
the ADRs
Most commonly organized and traded through the Depositary
Trust & Clearing Corporation

Global Depository Receipt
global depositary receipts (gdrs) are transferable securities
issued by depositary banks.
they represent ownership of a given number of a foreign companys
shares that can be listed and traded independently from the
underlying shares.
GDRs have risen to prominence in recent years as the favoured
instrument by which companies from emerging markets such as Russia,
India and China choose to raise capital on western stock exchanges.
Parties involved in GDR
The Lead Manager(s)
Clearing Systems
The Investor
The Company
gdrs are issued to investors in more than one country and may
be denominated in any acceptable freely convertible currency.
gdrs are issued to investors by the depository bank and not the
issuing company.
Dividends are paid in Indian rupees due to which the foreign
exchange risk or currency risk is placed totally on the
gdr holders have the option of cancelling gdrs and
arranging sale of the underlying shares in the domestic
market if the international price is less than the
corresponding domestic price.
The holder of a GDR does not have voting rights
Marketing of the GDR issue is done by the investment banks that
manage the road shows, which are presentations made to
potential investors.
How does ADR/GDR work
Let us take Infosys example trades on the Indian stock at
around Rs.2000/-
This is equivalent to US$ 40 assume for simplicity
Now a US bank purchases 10000 shares of Infosys and issues
them in US in the ratio of 10:1
This means each ADR purchased is worth 10 Infosys shares.
Quick calculation means 1 ADR = US $400
Once ADR are priced and sold, its subsequent price is
determined by supply and demand factors, like any
ordinary shares.

Procedure for Issue of GDR
Pre & post
Appointment of
GDR Listing

London Stock Exchange

Luxembourg Stock Exchange


Singapore Exchange

Hong Kong Exchange
India- ADR and GDR
ADRs and GDRs are an excellent means of investment for NRIs
and foreign nationals wanting to invest in India

By buying these, they can invest directly in Indian companies
without going through the hassle of understanding the rules
and working of the Indian financial market since ADRs and
GDRs are traded like any other stock

NRIs and foreigners can buy these using their regular equity
trading accounts
Indian Companies using ADR/GDR
Bajaj Auto No Yes
Dr. Reddys Yes Yes
HDFC Bank Yes Yes
Hindalco No Yes
ICICI Bank Yes Yes
Infosys Technologies Yes Yes
ITC No Yes
L & T No Yes
MTNL Yes Yes
Patni Computers Yes No
Ranbaxy Laboratories No Yes
Tata Motors Yes No
State Bank of India No Yes
VSNL Yes Yes
Depositary Receipt Programs are an effective strategy for international
investment, while using procedures that the investor is comfortable
with and accustomed to.
GDRs offer investors the opportunity to add the benefits of foreign
investment to their portfolio while bypassing the unnecessary risks of
investing outside their own borders.
But, as with any investment, all the risks of investing are not

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