free estadisticas Saltar al contenido

Difference between ADR and GDR

diciembre 31, 2019

ADR and GDR are commonly used by Indian companies to raise funds from the foreign capital market. The main difference between ADR and GDR on the market; are issued and in exchange, are listed. While the ADR negotiated on U.S. stock exchanges, GDR listed on European stock exchanges.

Receipt of deposit a mechanism through which a national company can raise funding from the international stock market. In this system, the shares of the company domiciled in a country are held by the depositary or Overseas Depository Bank, and issue a complaint against these shares. Such requests are known as deposit receipts denominated in the convertible currency, mostly in US dollars, but they can also be denominated in euros. Now these receipts are listed on the stock exchanges.

ADR and GDR are two deposit receipts, which are exchanged on the local stock exchange but represent a security issued by a foreign listed company.

Comparative chart

Basis for ADRGDR comparison
AcronymAmerican deposit receiptGlobal deposit receipt
SenseADR is a negotiable instrument issued by a US bank, representing shares of non-US companies, traded on the US stock exchange.GDR a negotiable instrument issued by the international custodian, which represents the trading of shares of foreign companies globally.
relevanceForeign companies can trade in the US stock market.Foreign companies can trade on the stock market of any country other than the US stock market.
Issued inUnited States domestic capital market.European capital market.
Listed inAmerican stock exchange such as NYSE or NASDAQNon-US stock exchange such as London Stock Exchange or Luxembourg Stock Exchange.
negotiationOnly in America.Worldwide.
Information requirementonerousLess expensive
MarketRetail investor marketInstitutional market.

Definition of ADR

American Depository Receipt (ADR), a negotiable certificate, issued by a US bank, denominated in $ USA which represents securities of a foreign company operating in the US stock market. Revenue is a complaint against the number of underlying shares. ADRs are offered for sale to American investors. By way of ADR, US investors may invest in non-US companies. The dividend paid to ADR holders, in US dollars.

ADRs are easily transferable, without any stamp duty. The transfer of ADR automatically transfers the number of underlying shares.

Definition of RPG

GDR or Global Depository Receipt a negotiable instrument used to exploit the financial markets of various countries with a single instrument. Receipts are issued by the custodian bank, in more than one country representing a fixed number of shares of a foreign company. GDR holders can convert them into shares by delivering receipts to the bank.

The prior approval of the Ministry of Finance and the FIPB (Foreign Investment Promotion Board) taken by the company that plans to release the GDR.

Key differences between ADR and GDR

The important difference between ADR and GDR indicated in the following points:

  1. ADR is an abbreviation for American Depository Receipt while GDR stands for Global Depository Receipt.
  2. ADR is a deposit receipt issued by a US custodian bank, against a number of shares of non-US companies, traded on the US stock exchange. GDR a negotiable instrument issued by the international custodian, which represents the shares of foreign companies that are offered for sale on the international market.
  3. With the help of ADR, foreign companies can trade in the US stock market through various bank branches. On the other hand, RDG helps foreign companies to trade on the stock market of any country other than the US stock market through ODB branches.
  4. ADR issued in America while GDR issued in Europe.
  5. ADR listed on the American Stock Exchange, for example New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotations (NASDAQ). In contrast, GDR listed on non-US exchanges such as the London Stock Exchange or the Luxembourg Stock Exchange.
  6. ADR can be traded in America only while DDR can be traded worldwide.
  7. When it comes to disclosure requirements for ADRs, entered into by the Securities Exchange Commission (SEC) are burdensome. Unlike GDR, whose disclosure requirements are less onerous.
  8. Speaking of the market, the ADR market is a retail investor market, where investor participation is broad and provides an adequate assessment of a company's shares. Unlike the GDR, where the institutional market with less liquidity.

Procedure

Many companies listed on the stock exchange in India trade their shares through the Bombay Stock Exchange or the National Stock Exchange. Many companies want to exchange their shares on a foreign exchange. Although, companies must respect certain policies. In this situation, companies are listed through ADR or GDR. For this purpose, the company deposits its shares at the Overseas Depository Bank (ODB) and the bank issues receipts in exchange for shares. Now, every single receipt made up of a certain number of shares. These receipts are therefore listed on the stock exchange and offered for sale to foreign investors.

Deposit receipts help non-resident Indian investors or foreign investors to invest in Indian companies using their normal equity trading account.

Conclusion

If a national company directly lists its shares on a stock exchange, it must comply with the strict disclosure and reporting obligations and should pay listing fees. The deposit receipt is an indirect way to enter and touch multiple markets or individual foreign markets. This is part of the management strategy of most companies to be listed abroad, to raise funds, to establish commercial presence in foreign markets and to build brand equity.


Rate this post