Depositary Receipt DR Definition, Types, Pros and Cons

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 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.

Common Stock

The certificate represents shares in a foreign company traded on a local stock exchange. GDRs give companies access to greater capital and investors the opportunity to invest in the equity of foreign companies. Global Depository Receipt (GDR) are certificates issued by a depository bank, which purchases foreign company shares and deposits them in the account. GDRs are commonly used to raise capital from international investors through public stock offerings or private placement.

1. An Indian company that wants its shares to be listed on foreign stock exchanges, such as the London and Hong Kong Stock Exchanges, except the US stock exchange, can use a GDR.
2. Citi was appointed as depositary bank for Central Puerto’s NYSE-listed ADR program, which completed a successful $300 million IPO in February 2018.
3. In addition to raising capital, depositary receipts are often used in cross-border mergers and acquisitions.
4. A Global Depository Receipts offer is a sure way of bringing a company to the international limelight.
5. Depositary receipts allow investors to invest in companies in foreign countries while trading in a local stock exchange in the investor’s home country.

CURRENT LEGAL REGIME FOR FOREIGN INVESTMENT IN NIGERIA

Depositary receipts are also an important tool for corporate issuers to access global capital markets and broaden their investor base. For U.S. investors, global depositary receipts offer a way to own equity in foreign companies while trading its representative shares on a local stock exchange. Certainly, GDRs have their risks, including home country economic and political risk, currency risk, and liquidity risk. Prices of global depositary receipt are based on the values of related shares, but they are traded and settled independently of the underlying share. Typically, 1 GDR is equal to 10 underlying shares, but any ratio can be used.

Dematerialization of Shares in Non-Small Private Limited Companies

1. GDRs are exchange-traded securities that represent ownership of shares in a foreign company, where those actual shares are traded abroad.
2. Theoretically, there could be several unsponsored ADRs for the same foreign company, issued by different U.S. banks.
3. Global Finance selects the best banks for depositary receipts and the companies involved in the best depositary receipts programs of 2019.
4. Indian companies who want to issue GDRs must get Ministry of Finance and FIPB clearance.
5. GDR is a bank certificate issued in more than one country for shares in a foreign country.

It is a negotiable financial instrument issued by a foreign bank representing a foreign firm’s listed securities on a stock exchange other than the United States (US). Cross-border investing is growing rapidly as investors purchase foreign stocks and bonds to diversify their portfolios. Depositary receipts—securities that can be bought and sold on local exchanges in one country that represent the publicly traded shares of a foreign company—offer easy access to fast-growing markets around the world.

GDRs allow investors to buy and sell shares in companies that are not eligible for listing directly on the exchange in their country. Many other countries around the world, such as India, Russia, the Philippines, and Singapore also offer depositary receipts. Slovenian state-owned bank Nova Ljubljanska banka (NLB) wins the award for the Best Depositary Receipt Program in Europe, the Middle East and Africa (EMEA). NLB appointed BNY Mellon as depositary bank for its DR program, which is denominated in euros and trades on the London Stock Exchange. The program reopened the DR market in Slovenia, which had been inactive since the last such program was delisted in London in the early 2000s. The total amount of capital raised using depositary receipts rose 19% last year to $18.8 billion, with three-quarters of the total coming from companies in the Asia-Pacific region, most notably China.

American depositary receipts are shares issued in the what is global depository receipt U.S. by a foreign company through a depositary bank intermediary. Usually, the brokers belong to the home country and operate within the foreign market. Generally, the brokers are from the home country and operate within the foreign market. If a company wants to issue GDRs, typically to raise money from foreign markets, it appoints a foreign bank to act as an intermediary to issue shares on its behalf.

In addition to raising capital, depositary receipts are often used in cross-border mergers and acquisitions. Investors can diversify their investment portfolio by gaining exposure to international securities, in addition to stocks offered by local companies. Citi was appointed as depositary bank for the $1 billion Singapore-listed GDR program of Kakao, a leading lifestyle mobile platform in South Korea. The bank also was named depositary bank for Kazatomprom’s GDR program, listed on the London Stock Exchange. The company is the world’s largest uranium producer, and its IPO last November was the first by a Kazakhstan company since 2006. During the subsistence of the depository program Depository Bank charge investors fees.

Citi was appointed as depositary bank for Central Puerto’s NYSE-listed ADR program, which completed a successful $300 million IPO in February 2018. In Europe, Deutsche Bank became the successor depositary for the ADR program of Hugo Boss. The bank also was appointed as successor New York transfer agent for Dutch multinational Koninklijke Philips’ registry shares listed on the New York Stock Exchange (NYSE). A Global Depository Receipts offer is a sure way of bringing a company to the international limelight.

The service is based on an electronic order book similar to SETS but with the added option for member firms to display their identity pre-trade by using named orders, offering you greater visibility in the market. SETS are the London Stock Exchange’s electronic order book trading service for UK blue chip securities. It is an automated order driving clearing system which facilitates the consummation of transactions on the Exchange. Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, and The Bank of New York Mellon. 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). Additionally, CREST Depositary Interests (CDIs) in the United Kingdom function similarly, but not identically to depositary receipts.

Aside the Act, there are also the Company and Allied Matters Act (CAMA) and the Securities and Exchange Commission (SEC) Rules and Regulations. Specifically, Sec. 83 of CAMA and Regulation 61(2) of SEC Rules, 2006 Amendment have copious provisions requiring the full prove identity of all members and customers of financial institutions. In the same vain, Sec. 6 of same Act further imposes a duty on all financial institutions to ensure the prevention of the laundering of the proceeds of a crime. Sec. 5 of the Act also makes it a requirement for all financial institutions to keep records and proves of the identities of its members, affiliates and customers, whether natural or corporate persons. The Depository Agreement usually contains what is called payable date, i.e. the date on which holders of the Depository Receipt (DP) are paid their dollar dividends or the date on which the stock dividend are distributed. In addition to the Depository Agreement, is the Listing Particulars which is as good as the local prospectus.

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