Difference Between ADR and GDR With Comparison Chart

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. They can also simplify international investing by providing the offering to U.S. investors through U.S. market exchanges. This type of instrument first started in the USA in the late 1920s and is commonly known as American depository receipt (ADR).

GDRs are most commonly used when the issuer raises capital in the local market as well as in the international and U.S. markets. This can be done either through private placement or public offerings. Level I ADRs found only on the over-the-counter market have the loosest requirements from the Securities and Exchange Commission (SEC) and are typically highly speculative. While they are riskier for investors than other types of ADRs, they are an easy and inexpensive way for a foreign company to gauge the level of U.S. investor interest in its securities. However, this certificate has no direct involvement, participation, or even permission from the foreign company.

GDRs, on the other hand, trade on various international stock exchanges, offering global accessibility beyond the U.S. market. Depositary receipts are issued in partnership with a bank acting as an intermediary. The bank manages the share issuance and administers the share listing. The underlying company does not necessarily have direct control over its depositary receipt shares as it controls its domestic shares. A US bank issues an ADR on behalf of a non-USA company that trades on a US stock exchange.

American Depositary Receipts (ADRs)

American depositary receipts (ADRs) are negotiable certificates issued by a U.S. depositary bank representing a specified number of shares—usually one share—of a foreign company’s stock. The ADR trades on U.S. stock markets as any domestic shares would. ADRs are financial instruments that represent ownership in shares of foreign companies. ADRs provide global investors with a convenient way to invest in foreign companies without the complications of trading on foreign exchanges. American depositary receipts (ADRs) allow foreign equities to be traded on U.S. stock exchanges.

The knowledge and ability to distinguish ADRs from GDRs are important for investors wishing to diversify internationally and to companies looking to broaden their capital base. Many publicly listed companies in India, trades their shares through Bombay Stock Exchange or National Stock Exchange. Many companies want to trade their shares in overseas stock exchange.

What are the regulatory requirements for ADRs and GDRs?

Thus, the DRs are physical certificates, which allow investors to hold shares in equity of other countries. A negotiable financial instrument issued by a foreign bank that represents shares of a foreign corporation listed on any stock exchange other than the New York Stock Exchange. When you invest as a domestic investor in any company that is based outside of their home country, you get dividends in foreign currency as a GDR holder (Euro or GBP). A GDR is a similar instrument to an ADR but is issued by an international bank. It represents shares of a foreign company and can be traded globally on multiple international stock difference between adr and gdr exchanges. An American Depositary Receipt (ADR) is a negotiable certificate issued by a U.S. depositary bank that represents a specified number of shares, usually one share, of a foreign company’s stock.

1. They can also simplify international investing by providing the offering to U.S. investors through U.S. market exchanges.
2. ADRs are denominated in U.S. dollars, which makes them easier for U.S. investors to buy and sell.
3. An unsponsored ADR is issued by a depositary bank without the involvement, participation, or even the consent of the foreign company it represents ownership of.
4. Global depositary receipts allow a company to raise equity in multiple markets.
5. Today, J.P. Morgan and BNY Mellon, another U.S. bank, continue to be actively involved in the ADR markets.

The major difference between ADRs is that they can only be traded in the United States while GDRs can be traded on multiple exchanges across Europe and Asia. They enable foreign investors to invest in international businesses where investing in foreign business often gives them legal and tax complications in terms of cross-border investments. If a domestic company directly lists its shares on a stock exchange, then it must comply with the stringent disclosure and reporting requirements and should pay the listing fees.

1. Stock shares are issued and managed by the executive management of the company.
2. This distinction impacts the availability and trading venues of these depositary receipts.
3. In other words, the ADS is the actual share available for trading, while the ADR represents the entire bundle of ADSs issued.
4. It is analogous to a stock certificate, which shows the number of shares of stock.
5. While they are riskier for investors than other types of ADRs, they are an easy and inexpensive way for a foreign company to gauge the level of U.S. investor interest in its securities.
6. Prior approval of Ministry of Finance and FIPB (Foreign Investment Promotion Board) is taken by the company planning for the issue of GDR.

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Remember that arbitrage is buying and selling the same asset at the same time in different markets. This allows traders to profit from differences in the asset’s listed price. As with Level I ADRs, Level II ADRs can be used to establish a trading presence on a stock exchange and can’t be used to raise capital. Level II ADRs have slightly more requirements from the SEC than Level I ADRs, but they get higher visibility and trading volume. Companies seeking international expansion often issue GDRs, especially those in emerging markets like India, to attract foreign investors.

In a sponsored ADR, the depositary bank works with the foreign company and their custodian bank in their home country to register and issue the ADRs. An unsponsored ADR is issued by a depositary bank without the involvement, participation, or even the consent of the foreign company it represents ownership of. Unsponsored ADRs are usually issued by broker-dealers that own common stock in a foreign company and trade over-the-counter.

It benefits the American investors because they may invest in international companies without dealing with foreign exchange or currency. ADR and GDR are two depository receipt, that is traded in local stock exchange but represent a security issued by a foreign public listed company. An ADR may represent the underlying shares on a one-for-one basis, a fraction of a share, or multiple shares of the underlying company. ADRs per home-country share at a value that they feel will appeal to investors.

A GDR is a bank-issued certificate representing shares in a foreign company. These shares are held by a foreign bank and are traded domestically among the bank’s branches but are also available for global sale. As suggested by its name, GDRs can be offered in multiple countries worldwide. Depository Receipts are a type of negotiable (transferable) financial security, representing a security, usually in the form of equity, issued by a foreign publicly-listed company. However, DRs are traded on a local stock exchange though the foreign public listed company is not traded on the local exchange.

As with any investment, there are distinct advantages and disadvantages of investing in ADRs. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies. ADRs are traded in the United States, while GDRs are traded outside the United States.