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Each issuance must comply with all relevant laws in both the home country and each of the foreign markets. Depositary receipts only offered in a single foreign market are usually titled by that market’s name, such as American depositary receipts, European Depositary Receipts (EDRs), and Indian Depositary Receipts (IDRs). Stock shares are issued and managed by the executive management of the company. The option of issuing an ADR gives a company the power to raise money in other markets.

Since then, U.S. investors have invested in foreign companies without a foreign brokerage account. Over 2,000 ADRs trade in the U.S. today as well as they represent shares of companies from around 70 countries. In a nutshell, depositary receipts (DRs) provide investors with a straightforward way to invest in foreign companies without the complexities of dealing directly with foreign markets. They come in different types with each of its own advantages and setbacks. While DRs broaden investment opportunities, prudent investors should conduct thorough due diligence and consider their individual risk tolerance and investment objectives before incorporating DRs into their portfolios.

Global Depository Receipt (GDR): Meaning, Features, Example, Advantages and Disadvantages

• GDRs represent shares of a foreign company and are traded on non-US stock exchanges, such as London or Luxembourg, in a convertible foreign currency.
• It is a certificate which represents a specified number of shares by a foreign stock traded on the USA exchange.
• ADRs are listed on various stock exchanges , such as the New York Stock Exchange, the American Stock Exchange and Nasdaq, as well as trading over the counter.
• In an Indian Depository Receipt, a foreign company published depository receipts to the Indian investor.
• GDRs are similar to ADRs but are listed and traded on multiple international stock exchanges, such as the London Stock Exchange.

GDRs are issued by international banks and can be traded on multiple global exchanges. For example, Nestle might issue GDRs through HSBC in London and Deutsche Bank in Frankfurt. Investors can buy these GDRs using their local currency, making international investing more accessible. Global Depositary Receipts (GDRs) work similarly but are issued outside the US. They let companies raise capital in multiple countries and are usually listed on exchanges like the London Stock Exchange or Euronext.

It acts as a financial bridge for Indian firms that want to attract U.S. investors. In simpler terms, Indian companies like ICICI Bank and Tata Motors gain substantial visibility and capital in the U.S. market with ADR issuance. This would not only boost their financial muscles but also witness improvement in brand value across the globe. GDRs are designed for an international audience and can be listed and transacted on multiple international exchanges, making them accessible to investors from a variety of countries.

India’s Foreign Direct Investment (FDI) Policy – UPSC Economy Notes

• ADRs provide a simple method for U.S. investors to invest in foreign companies without dealing with foreign currencies or exchanges.
• ADRs and GDRs both provide investors with the opportunity to invest in foreign companies, but they differ in their geographical span, market expansion, currency denomination, regulatory structure, and their types.
• Among the most common are American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs).
• A Global Depository Receipt (GDR) is a powerful financial instrument that enables companies, particularly those from emerging markets such as India, to raise capital from international investors.
• Reclaiming foreign tax through ADRs can reduce returns if investors lack the time or resources to manage claims correctly.
• ADRs are instruments that enable American investors to purchase foreign companies’ stakes which do not trade on American stock exchanges.

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. Through ADRs, Indian companies who are willing to raise funds from the U.S. can do so by issuing shares on the American Stock exchange like Tata Motors

So, in order to overcome this problem, the companies give shares to an American bank. Each type offers unique opportunities for international investments. By meticulously following these steps and abiding by regulatory frameworks, companies can seamlessly issue DRs, facilitating international investment and capital mobilization while ensuring compliance with market standards. The Securities and Exchange Board of India (SEBI) has established guiding principles that companies must adhere to for issuing IDRs. They can either stem from existing shares already issued by the company, where shareholders offer their shares at a grant price for conversion into DRs, a scenario referred to as a sponsored issue. Alternatively, new shares can be specifically issued for the DR offering, broadening the investment horizon.

What is a Global Depository Receipt (GDR)?

ADRs and GDRs are very important to companies that look forward to raising international capital. Although they share the same objectives, they have a lot of differences from a target perspective, regulatory framework, and investor access. This section narrows down the ten major differences that demarcate the two mechanisms and summarizes them in an orderly table and explanations.

Process of Issuing ADRs and GDRs

GDRs are issued by international depositary banks outside the U.S. and traded on international stock exchanges. It complies with the regulations of the markets where they are traded. They represent shares of foreign companies and allow global investors to invest in foreign stocks, generally denominated in major currencies like the U.S. dollar or euro. Global Depository Receipts (GDRs) are financial instruments that allow companies to raise capital in the international market by issuing depository receipts. GDRs represent a claim to shares in a foreign company, and they are traded on international stock exchanges. A Global Depositary Receipt (GDR) is a transferable financial instrument that a depositary bank issues.

Trading Jurisdiction of GDR and ADR

Then, they sell ADRs in the U.S. as a form of indirect ownership. These ADRs entitle the purchaser to the foreign stock they represent, even though the bank still has title to the underlying stock. A Depository Receipt (DR) is a negotiable economic instrument issued through an agency in a foreign jurisdiction traded on local stock exchange.

These instruments represent ownership in a foreign company and are traded on the stock exchanges in the home countries of investors. GDRs facilitate a company, the issuer, access to capital markets outside their domestic borders. Issuers frequently utilize GDRs to raise funds from global investors, whether through private placements or public stock offerings. A Global Depositary Receipt closely resembles an American Depositary Receipt (ADR), with the key distinction being that an ADR exclusively lists shares of a foreign company on U.S. markets. A Global Depository Receipt (GDR) is a powerful financial instrument that enables companies, particularly those from emerging markets such as India, to raise capital from international investors.

The difference between ADR and GDR structures becomes even more important in these cases, as reclaiming tax from emerging market governments can be particularly difficult without expert help. For example, a French company may apply a 30% WHT on dividends paid through an ADR. The U.S.–France tax treaty allows eligible investors to reduce this to 15%, but only if they submit the correct forms. If the same company issues a GDR listed in London, the depositary structure may automatically apply the lower rate, especially if the investor resides in a treaty-beneficial country.

Through Depository Receipts traders can trade foreign companies in the exchange. As ADRs are issued by non-US companies, they have risks that is inherent to all foreign investments. These GDRs are those which help non-American companies raise funds and establish a trading presence in the European markets only.

How can investors buy and trade depository receipts?

Investments in the securities market are subject to market risk, read all related documents carefully before investing. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor’s account. “Investments in securities market are subject to market risk, read all the scheme related documents carefully before investing.”

For Indian companies, GDRs are the primary mechanism to list shares on foreign exchanges (excluding the US, where American Depository Receipts, or ADRs, are used). GDRs enable firms to attract foreign investment without investors having to navigate complex cross-border regulations, currency conversions, or tax issues. These shares are held by a foreign bank that provides depository receipts to these companies in return for difference between adr and gdr the shares.

While both structures serve a similar purpose, they differ in how they handle withholding tax (WHT) on dividend income. Understanding which option offers better tax efficiency can help investors retain more of their earnings. American Depository Receipts (ADR) is a type of negotiable security instrument that is issued by a US bank on behalf of a non-US company, which is trading on the US stock exchange. The term “euro-issues” is used in a general sense to refer to securities issued in international markets, denominated in a currency other than the local currency of the issuer.