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ADR and GDR

ADR and GDR

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Published by: surabhikhanna866757 on Aug 23, 2009
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08/04/2013

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AMERICAN
 
DEPOSITORY
 
RECEIPT
 
and
 
GLOBAL
 
DEPOSITORY
 
RECEIPT
 
REPORT
SUBMITTED BYSURABHI KHANNA
 
 
AMERICAN DEPOSITORY RECEIPTGLOBAL DEPOSITORY RECEIPTS
DEPOSITORY RECEIPTS
What are depositary receipts?
A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded ona local stock exchange but represents a security, usually in the form of equity that is issued by aforeign publicly listed company. The DR, which is a physical certificate, allows investors to holdshares in equity of other countries.
 How does DR work?
The DR is created when a foreign company wishes to list its already publicly traded shares or debt securities on a foreign stock exchange. Before it can be listed to a particular stock exchange,the company in question will first have to meet certain requirements put forth by the exchange.Initial public offerings, however, can also issue a DR. DRs can be traded publicly or over-the-counter. Let us look at an example of how an ADR is created and traded.
Origin of Depository Receipts
The origin of depository receipt is USA. It started in 1920’s. In this period, it was difficult andrisky to invest on the originals of foreign securities by American investors and brokers. The risksin this condition have been causing delays and some kind of extra expenses. In order to avoid the practical problems, they should have looked for solutions. In the solution produced, it was aimedat constituting a system that will be able to eliminate those handicaps. In those times, financialand economical system was national. For the system started to function badly, the investors and brokers were not able to transit to international market in the investment and financial activitiesthey have been carried out. They were as if trapped inside a no end box and it was impossible for them to open global market. Something was clearer than anything else. The key was as if climbing up a hill in the desert under the sun in 70 C in vein, and it was time consuming.The distance between American and European stock exchange markets was high, for this reason,what is to be was to reach the international arena in world of stock exchange market. For the
 
reason of investor’s demand of diversifying their financial resources internationally, AmericanDepository Receipts revealed.
TYPES OF DR
There are a variety of DR program types. These can be divided into capital raising and noncapital raising structures. The type of program used will depend on the requirements of theissuer, the features of the issuer's domestic market and on investor attitudes.A third type of DR program is known as "unsponsored". This differs from other types in that thecompany whose shares are represented by unsponsored DRs is not involved in setting up the program.
*Source: ADR Reference Guide – JP Morgan, February 2005
 
NON CAPITAL RAISING DRS

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