what is a global depositary receipt gdr 
a global depositary receipt gdr is a negotiable financial instrument issued by a depositary bank it represents shares in a foreign company and trades on the local stock exchanges in investors countries gdrs make it possible for a company the issuer to access investors in capital markets beyond the borders of its own country gdrs are commonly used by issuers to raise capital from international investors through private placement or public stock offerings a global depositary receipt is very similar to an american depositary receipt adr except that an adr only lists shares of a foreign company in u s markets understanding global depositary receipts gdrs a global depositary receipt is a type of bank certificate that represents shares of stock in an international company the shares underlying the gdr remain on deposit with a depositary bank or custodial institution while shares of an international company trade as domestic shares in the country where the company is located global investors located elsewhere can invest in those shares through gdrs using gdrs companies can raise capital from investors in countries around the world gdrs can in theory be denominated in any currency but are nearly always in u s dollars since gdrs are negotiable certificates they trade in multiple markets and can provide arbitrage opportunities to investors gdrs are generally referred to as european depositary receipts or edrs when european investors wish to trade locally the shares of companies located outside of europe gdr transactions tend to have lower costs than some other mechanisms that investors use to trade in foreign securities example of a gdra u s based company that wants its stock to be listed on the london and hong kong stock exchanges can accomplish this via a gdr the u s based company enters into a depositary receipt agreement with the respective foreign depositary banks in turn these banks package and issue shares to their respective stock exchanges these activities follow the regulatory compliance regulations for both of the countries a depositary is an independent third party entity such as a bank that may act as a safekeeping facility and fiduciary for instance a depositary bank can provide stock related services for a depositary receipt program gdr characteristicsgdrs are exchange traded securities that represent ownership of shares in a foreign company where those actual shares are traded abroad different gdrs may also have specific characteristics that differ from one to the next these may include special considerationsa gdr distributed by a depositary bank represents a particular number of underlying shares anywhere from a fraction to multiple shares in a specific international company the particular share makeup for a gdr depends on how attractive an investment it will make to local investors for instance in the u s a depositary bank would want to create gdrs with the number of shares or fractions thereof and associated u s dollar value that u s investors might be most comfortable with the depositary bank first buys the shares of the international company or receives them from an investor who already owns them it then bundles a certain number of them this bundle is represented by a gdr the gdr is then issued by the depositary bank on a local stock exchange the underlying shares remain on deposit with the depositary bank or custodian bank in the international country the trading process involving gdrs is regulated by the exchange on which they trade for example in the u s global depositary receipts are quoted and trade in u s dollars they also pay dividends with u s dollars they re subject to the trading and settlement process and regulations of the exchange where their transactions take place typically gdrs are offered to institutional investors via a private offer due to the fact that they can take advantage of exemptions from registration under the securities act of 1933 this makes gdrs an efficient and cost effective way to access cross border capital in fact because of their flexibility and efficiencies issuers from regions such as the middle east and africa asia pacific latin america as well as europe have increased their use of gdr programs to help them achieve the objectives they have for raising capital 1trading gdrsinternational companies issue gdrs to attract capital from foreign investors gdrs trade on the investors local exchanges while offering exposure to an international marketplace a custodian depositary bank has possession of the gdrs underlying shares while trades take place ensuring a level of protection and facilitating participation for all involved brokers who represent buyers manage the purchase and sale of gdrs generally the brokers are from the home country and operate within the foreign market the actual purchase of the assets is multi staged involving a broker in the investor s country a broker located within the market of the international company a depositary bank representing the buyer and a custodian bank brokers can also sell gdrs on an investor s behalf an investor can sell them as is on the proper exchanges or the investor can convert them into regular stock for the company additionally they can be canceled and returned to the issuing company traders dealing in gdrs often compare the for example u s dollar price of the gdr with the u s dollar equivalent price of the shares trading on the international company s domestic exchange they ll typically buy the less expensive security and sell the other eventually this arbitrage trading activity causes the underlying shares and the gdrs to reach parity due to the trading activity called arbitrage a gdr s price closely tracks that of the international company s stock on its home exchange advantages and disadvantages of gdrseasy to track and tradeusually denominated in u s dollarsregulated by local exchangesoffers international portfolio diversificationmore complex taxationlimited selection of companies offering gdrsinvestors exposed indirectly to currency and geopolitical riskpotential lack of liquiditygdrs vs adrsglobal depositary receipts allow a company to list its shares in more than one country outside of its home country for example a chinese company could create a gdr program that issues its shares through a depositary bank intermediary into the london market and the united states market each issuance must comply with all relevant laws in both the home country and foreign markets individually on the other hand an american depositary receipt which also represents shares of an international company lists only on u s stock exchanges to offer adrs a u s bank will purchase shares on a foreign exchange the depositary bank will hold the underlying shares and issue an adr for domestic trading sponsored adrsa bank issues a sponsored adr on behalf of a foreign company the bank and the business enter into a legal arrangement usually the foreign company pays the costs of issuing an adr and retains control over it while the bank handles the transactions with investors unsponsored adrsa bank may also issue an unsponsored adr this certificate represents no direct involvement participation or even permission from the foreign company theoretically there could be several unsponsored adrs for the same foreign company issued by different u s banks these different adrs could also offer varying dividends with sponsored programs there is only one adr issued by the depositary bank working with the foreign company 