In view of the current situation, modern investors cannot buy securities that are issued by foreign firms. Once because of this, many investors, showing violent indignation, began to look for other ways to solve the problem. And, in the end, they succeeded - depositary receipts were created that could cover the need for shares issued in other states. What is characteristic, today the popularity of such receipts is quite high, moreover, it is growing all the time.

The stock market, which has reached unprecedented proportions in recent years, can be of two types:

• external;
• internal.

We have just found out that it would be impossible to buy foreign shares without intermediaries, which is due to a number of reasons - taxation, difficulties with currency conversion, unstable political and economic situation, etc.

Note! The appearance of the first receipt dates back to 1927, because it was then that the withdrawal of bonds abroad was prohibited in the UK. The American government, on the other hand, took a different path - it introduced a veto on the receipt of shares from outside.

The opportunity to “break through” there appeared only after the appearance of American receipts (seventies and eighties of the last century). And no wonder, because in the domestic market of America, interest rates dropped sharply at that time, because of which investors made efforts to find all kinds of methods to solve the problem. As a result, there are thousands of such receipts from several dozen countries on the current market.

Depository Receipt - What is it?

In principle, this is one of the most powerful instruments on the stock exchange that the investor has and which refers to secondary bonds, and issues receipts by a special banking institution (depository) in the form of special certificates. And if you have this document in your hands, it means that you own a certain number of shares of a foreign company.

The main varieties of the described document

All depositary receipts are conditionally divided into two large groups, let's get acquainted with the features of each of them.

And here a natural question arises: why do organizations issue such receipts (global and American)? There are several goals that they pursue at once, let's consider them.

1. Creation of an additional image through which it would be possible to attract new investors. An extremely important point, since receipts are issued, as a rule, by banks of the largest states on the planet.
2. Growth in the market value of shares within the domestic market through a significant increase in demand for them.
3. Attraction of additional funds, which allows to implement any projects of the investment plan.
4. Expansion of the circle of shareholders and attraction of foreign investments.

At the same time, a depository receipt is a very profitable tool for the investor himself, which is also due to several reasons.

1. There is an opportunity for a better and more productive diversification of a particular portfolio.
2. There is a chance to minimize the risk associated with disparate market activity.
3. Due to the fact that the value of shares of developing countries grows, the investor can receive a higher income.
4. Finally, receipts open doors to leading foreign firms.

ADR classification

There are two main categories of US depositary receipts.

1. Sponsored. We are talking about documents that are issued at the request of the issuer. By the way, only one bank can deal with the issue itself - a special agreement is concluded with it (this applies to mandatory registration conditions). These receipts are of four levels: 1st and 2nd - for shares already in circulation, and 2nd and 4th are issued through new issues.
2. Unsponsored. They can be issued at the request of both one investor and several. Tellingly, the issue in this case is not controlled by the issuer. The disadvantages of this kind of receipts include the fact that they can be traded only on over-the-counter markets, and this, accordingly, significantly complicates the life of shareholders. Transactions with such documents are often carried out by mail, by telephone or at a meeting.

Features of issuing such receipts

A depository is an organization that issues the receipts described in the article. This may be a trust company or a banking institution. For the legal consolidation of the transaction, the parties conclude a contract, which specifies the obligations and subtleties of the agreement. After issuing shares, the issuer transfers them to the depositary, who, accordingly, starts the issue.

Note! There are not many banks in Russia that provide such services - for example, Credit Suisse.

However, certain requirements for the issuer must be taken into account.

1. Shares cannot be used as collateral (if they have been deposited).
2. Circulation of shares on the stock exchange is not allowed (if we are talking about the issue of ADRs).
3. If a ban is imposed on them, then it is prohibited to register them for the actual holder or transfer them for storage.

About the "cycle" of the tool

If you alone or with other investors are interested in foreign bonds, then you need to instruct the broker to buy the desired shares. There are two ways to implement such a transaction.

1. Through brokers operating in the state where the shares are issued.
2. Through brokers operating in the issuer's market.

When the transaction is completed, the shares are transferred to the custodian bank. After being credited to the account of the depositary, the securities are transferred to the broker, and he, accordingly, transfers them to the depot, which was indicated by the investor.

But if the broker was instructed to purchase ADRs that are not available on the US market, then the purchase scheme will look much more complicated.

1. The broker makes a deal with the issuer.
2. The shares he has purchased are credited to the custodian bank, which writes the papers to the account of the depository, which is issuing ADRs.
3. The depositary, in turn, issues receipts - they are transferred to an American broker. All this is carried out through a special clearing center. In this center, the papers are credited to the broker for the purpose of the subsequent transaction.

As a conclusion

As a result, we note that depositary receipts are one of the most important instruments present on the stock market today, and a large number of transactions with foreign shares could hardly have been realized without it. And if you master this tool well, then others will become clearer. In addition, new investment prospects will open up.

Video - Depository Receipts: Tool Description

A depositary receipt is a derivative financial instrument that guarantees ownership of shares in a foreign company. The main idea of ​​a depository receipt is to give its owner the opportunity to have foreign assets without going beyond the national legal framework.

In other words, holding a receipt is an indirect acquisition of securities of foreign companies. They are issued by the depository bank. First, he buys a certain number of shares of the issuing company, then issues depositary receipts against them, with the shares themselves acting as security. Subsequently, the receipts are circulated on foreign markets, where the depositary bank is represented.

Depository receipts have a face value. This is the number of securities for which they are issued.

Depository receipts are traded on the local currency market. This makes life easier for investors, since the purchased shares do not leave the country of circulation.

Derivatives are written when a company wants to list already traded shares or debt securities on a foreign trading floor. This also applies to initial public offerings (IPOs). Such instruments are traded directly or through dealers (over-the-counter).

Russian Depository Receipt (RDR)

A Russian depositary receipt is used when the depositary bank is located in Russia. The issuing company is also Russian. This is a security that
certifies ownership.

Secures the owner's right to demand real securities from the issuer in exchange for purchased receipts.

American Depositary Receipts (ADRs)

American Depositary Receipts are used when the depositary bank is located in the United States. They are traded on the New York Stock Exchange (NYSE) or the American Stock Exchange. The currency of circulation is the dollar, rarely the euro.

Global Depository Receipts (GDRs)

Global Depository Receipts (GDRs) are used when the depositary bank is located in any other country. They can be purchased on European marketplaces. For example, on the London Stock Exchange. The currency of circulation is the dollar, rarely the euro.

Benefits for the company

Depository receipts are issued to attract foreign capital. They help eliminate administrative barriers that prevent investors from investing in foreign corporations. An additional benefit is an increase in the liquidity of shares.

Benefits for the investor

The appearance of depositary receipts automatically turns the securities portfolio into an international one. Another benefit is asset diversification. However, the main idea of ​​depositary receipts is to benefit from investing in risky stocks that give a greater return. With him, he will not have to deal with the main causes of instability - risks in foreign markets and foreign regulators. But still, we should not forget that currency risk cannot be avoided in any way, since it is associated with the uncertainty of developing economies. On the other hand, an investor can benefit from the competitive rates of the dollar and euro against other foreign currencies.

Thus, depository receipts give their owners a chance to invest in foreign shares and minimize risks. Accordingly, they will be a good addition to your portfolio of securities.

Global Depository Notes (Global Depository Receipt, GDR) are issued in several states at once. They appeared on the markets in the early 90s of the last century and almost immediately became popular among investors. Using such assets, foreign investors can work with any stock market.

What are Global Depositary Receipts

This is a derivative financial instrument, a certificate that is bought for a specific security. The need for a global depositary receipt appears when an investor cannot acquire an asset himself due to lack of access to the stock market.

For example, shares of Mail.ru Group Limited. Residents themselves are issuers on foreign exchanges, and in order to be able to buy shares of Russian companies on European exchanges, depository banks create GDRs for trading on foreign exchanges, facilitating access to shares for investors. After all, it can be difficult for an Austrian, for example, to register with a Russian broker to buy Russian shares. ADRs allow you to trade shares of Mail.ru Group Limited on the London and Frankfurt stock exchanges without any obstacles and in a convenient currency.

Global Depositary Receipts are in many ways similar to American ones. However, they are used more often for Western European markets. Although it was at one time the first products of this kind.

GDR issue

The issue of depositary receipts is the prerogative of large depository banks. They hold company shares. GDRs can be for one whole share, its part or a whole block of shares.

The main issuer of the global depositary receipt is the interested depository bank. It is located in those countries where such receipts will be traded. The largest depository banks are located in the USA and a number of European countries.

The largest GDR issuers are Deutsche Bank, JPMorgan Chase, Bank of New York, Citigroup.

The depositary receipt is based on an agreement between the issuer of shares and the depository bank. It stipulates the rights and obligations of the parties, including in relation to investors. The provisions of such an agreement provide for the terms, assets that are placed in the bank, the distribution of expenses, describe the process of issuing and transferring receipts.

In a separate depository bank, shares of companies that are the subject of a receipt are stored. The bank buys these shares and then issues receipts that confirm that the bank owns the shares.

Advantages and disadvantages of the GDR

One of the advantages of GDRs is that the investor buys the receipts and has almost the same rights as an investor who buys shares directly on the stock market.

Another advantage is the simplified system for trading these receipts. Dividend payments are made primarily in US dollars and all notices are in English.

• One of the significant advantages of buying Global Depositary Receipts is that they can be bought by institutional investors, even if they are subject to certain legal restrictions on the acquisition of shares of foreign companies.
• On the other hand, the issuance of such receipts allows the company to overcome restrictions on the number of foreign shareholders. Such restrictions may be set by the government of the country in which the shares are issued. In addition, the investor does not need to pay various commissions, which can reach up to 35 basis points per year (when buying foreign shares directly).

Important advantage Global Depository Receipts is that they are liquid, since supply and demand is regulated by the creation and cancellation of receipts for shares. However, the GDRs are subject to certain currency risks if the issuer's currency is different from the currency in which the receipts are denominated (most commonly US dollars).

One of the most important benefits for companies that enter into agreements for the issuance of receipts is an increase in their presence in target markets, as well as an expansion of the investor base, which allows them to receive more foreign capital.

Market of depositary receipts

Just like any other derivatives, depositary receipts can be created and deleted depending on market demand and supply. When the receipts are created, the issuer's shares are purchased and deposited with the bank in the account of the depositary bank, which then issues the Global Depository Receipts for the new shares. In the process of canceling depository receipts, the investor returns them to the bank, which, in turn, cancels the validity of the receipt.

What determines the value of a global depositary receipt? First of all, it depends on the number of receipts, which is determined by the ratio of the number of GDRs to the number of underlying shares. This ratio can vary significantly depending on the value of the GDR in relation to the value of the underlying share.

The value of most GDRs is competitive with the value of shares. Basically, such receipts range in price from 7 to 20 US dollars. If the value of the receipt deviates too much from the optimal range,

new GDRs are created or the number of existing ones is reduced in order to balance supply and demand and return the value to the limits determined by the depository bank. Thus, more depositary receipts are created to meet growing demand, and if demand declines, excess GDRs are removed.

The value of GDRs is influenced by the same factors as the quotes on the stock market – fundamental indicators of the company, recommendations of analysts, market conditions.

Global Receipts are currently traded on the following markets:

• London Stock Exchange;
• Luxembourg exchange;
• NASDAQ-Dubai;
• Singapore Exchange;
• Hong Kong stock exchange.
• Frankfurt Stock Exchange

Companies choose one or another exchange based on a number of factors. For example, management believes that investors in a particular market know this company better and trust it. The choice of the exchange may also be due to the fact that in this country the investor base is wider. Most of the GDRs are traded on the Luxembourg stock exchanges due to the fact that receipts first appeared there. In addition, listing GDRs on these exchanges is cheaper and easier.

Features of the purchase of GDRs by an investor

In order to purchase one or another global depositary receipt, an investor sends a request to a broker. The latter, in turn, can either buy already created receipts, or purchase company shares for which it is necessary to buy GDRs (for this, a broker located in the investor's country can contact a broker located in the issuer's country). In the second case, the broker of the issuer's country sends the shares to the depository bank.

The broker representing the investor notifies its depositary bank that a certain number of shares have been purchased on the issuer's market. After that, the shares go to the depository bank, and the broker is notified about it. The latter collects payment from the investor for the services of issuing depositary receipts.

Features of the sale of GDRs by an investor

In order to sell depositary receipts, the investor gives the appropriate instructions to his broker. If the assets are not with the broker, but with the investor, he has three working days to transfer them to the broker.

The broker can either sell the receipts on the markets where they are traded, or have them removed and converted into ordinary shares issued by the company. If a broker sells receipts on an exchange, he can use the corresponding services of a broker in the issuer's market.

If he decides to delete the receipts, he sends them to the depositary bank for destruction and gives instructions for the issuance of ordinary shares. In this case, all costs are paid by the investor.

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Good day, readers of the trading blog. is a trading tool that allows traders to trade shares of foreign companies, and investors also receive dividends. These securities are freely traded on stock exchanges, bought and sold, and also have the same properties and rights as ordinary shares. In general, the modern financial world gravitates towards globalization, and the depository receipt is a powerful tool for achieving this goal.

Depositary receipts first appeared in the United States when, in 1927, Britain restricted the registration and export of shares of British companies outside the country. To enable investors and traders trading on US markets to invest in foreign stocks, depository receipts were proposed and introduced.

How does this happen? For example, you have an open account with a US broker and want to buy shares in a company that is not a US resident. You need to send a buy order to your broker, who will redirect it to a broker located in the country where the company you are interested in is located. He buys the required number of shares indicated by you and gives them to the custodian bank, whose main function is to store these securities.

Further, the custodian bank draws up all the shares purchased for you to the account of the depositary bank, which is located in the United States. He issues depositary receipts with a certain denomination, for example 1 depositary receipt equals 100 shares, and sends them to your broker, who in turn fills your order. If you, for example, bought 1,000 shares, then you will have 10 depositary receipts on your balance sheet.

In fact, all this does not last as long as described. The fact is that the market is already saturated with depositary receipts, and they change hands, bypassing this whole long chain.

For example, if you want to buy 1,000 foreign shares, then your broker will definitely find another person who wants to sell the same amount, at a given price. He does not need to apply to another country, etc.

Depository receipts are circulated both on the exchange and on the over-the-counter markets. The latter lists them on the so-called “pink lists”, which have very limited control from the relevant structures (for example, the SEC). Exchanges such as: NYSE, NASDAQ, AMEX, have strict control and selection criteria for shares, which also applies to depositary receipts. Foreign companies of world size and reliability are listed here, which can be traded freely.

Types of depositary receipts

1. American (ADR) - issued by American depository banks for shares of foreign companies. The largest US depository banks are: Bank of New-York, Citigroup, Morgan Stanley. On the NYSE, NASDAQ and AMEX exchanges today, about 500 depository receipts are being traded, and if you take into account the “pink sheets”, then their number will be about 1,500.
2. Global (GDR) - are issued by depository banks of several countries of the world. The largest European depository bank is Deutsche Bank.

What role does a depository receipt play and its trading risks

Every company wants to raise additional capital to expand its business and create more competitive products and services. For this, shares are issued that turn around on the stock exchange within the country. But if these shares are also in demand among foreign investors, then why not take advantage of this opportunity. For these purposes, a depositary receipt is created.

For example, the Russian company Yandex in 2011 was listed on the American NASDAQ platform. Its shares are presented here as ADRs. As a result, billions of dollars of investments were received, many Yandex employees became millionaires.

What is the benefit for a trader of depositary receipts?

1. You get additional tools for trading.
2. Access to shares of foreign companies. No need to look for another broker or trade through different exchanges. With the help of a depository receipt, you get access to the most reputable foreign companies with a global brand.
3. Wider portfolio diversification and, accordingly, more flexible risk control.
4. A depositary receipt is traded in the currency of the country where it is issued, for example, the US - US dollar.
5. You receive all the privileges and rights that are available for ordinary shares, including voting rights and dividend payments.

Well, now let's talk about trading risks. There is nothing special here, since the ADR trades in exactly the same way as a share. Accordingly, they will have the same risks.

Like many things in this world, the depositary receipt was invented to simplify complex processes (in this case, we mean the simplification of the circulation of shares). This life hack (as it is fashionable to say today) was first used in 1927, when the British government imposed a restriction on the export of shares of national companies from the country. In response to this, cunning American investors, who want to invest their money in British stocks at all costs, came up with depository receipts. By the way, no less cunning British managers of joint-stock companies, striving to get as many American dollars as possible for their shares, contributed to this to a large extent.

What way out of this situation did they find? You can't take shares out of the country, okay. Let the shares remain in Britain, but at the same time they are stored in a special custodian bank, which in turn issues a receipt for them (no one forbade the export of receipts). Thus, happy American investors, having in their hands such a receipt (later called depositary) enjoyed full ownership of the shares of British companies with all the ensuing consequences, such as the right to vote in the management of the company and receive.

To be more precise, the scheme for buying shares of foreign companies using depository receipts is as follows:

1. You send an order to your friend to buy the nth number of foreign shares.
2. Your broker contacts his colleague from the country in which the company you are interested in is located and transfers your order to him.
3. A foreign broker buys the ordered number of shares and transfers them for safekeeping to a special custodian bank located in his country.
4. The custodian bank places the shares transferred to it into the account of the depository bank already in your country.
5. The depositary bank issues you a depositary receipt confirming your right to own the ordered number of shares.

In fact, for you, this is no different from the usual purchase of shares in your home country, because by and large, what difference does it make in which depository they will lie, the owner of these shares, according to all laws, will still be you.

In fact, the procedure for acquiring shares through a depositary receipt described above, today, most often, comes down to a simple purchase of this very receipt. The fact is that a large number of them have already been released on the market, and they are in free circulation, trading like any other.

Types of depositary receipts

Since 1927, this financial instrument has become widespread throughout the world. Today, the acquisition of a depositary receipt for a certain number of shares, in terms of ease of execution, is practically no different from the purchase of these same shares.

It is necessary to distinguish between depositary receipts that rotate on the exchange market and receipts that are circulated outside the exchange (on the over-the-counter market). In the over-the-counter market, they are listed on the so-called “pink lists” and have rather weak control from the regulatory authorities. On the exchange market, on the contrary, all depositary receipts are subject to strict control and therefore have the maximum degree of reliability.

American Depositary Receipts (ADRs)

As mentioned at the very beginning of this article, it is this type of depositary receipts that is historically the first. After all, it was American Depository Receipts (ADRs) that were introduced in 1927 to enable American investors to buy British shares.

ADRs are deposited with American depository banks. More than 95% of them are concentrated in the three largest US banks (Bank of New York, Citibank and J.P. Morgan Chase). All ADRs are quoted in US currency.

There are four main subspecies of American Depositary Receipts, dividing them according to the degree of reliability for a potential American investor:

Unsponsored ADRs. Issuer companies for whose shares this type of ADP is issued have the right not to report to their shareholders in accordance with US standards. Prices for such receipts are relatively low (this is due to high risk and low liquidity).

ADRI. This is the first (lowest) level of sponsored receipts. Provides for the minimum reporting of the issuer's company according to SEC standards. ADRs of the first level cannot be traded on the largest trading floors, but if necessary, their level can be raised to the next level.

ADRII. To obtain this level, the issuer must comply with all SEC standards and provide minimum GAAP reporting (Form 20-F reports). This level gives the receipts the right to circulate on major US stock exchanges (NYSE, NASDAQ, etc.).

ADRIII. This is the highest level, requiring the issuing company to comply with all SEC and GAAP standards. Receipts of this level are considered the most reliable and liquid, and therefore have a relatively high price.

Global Depository Receipts (GDRs)

This type of depositary receipts differs from the previous one in that they can be circulated not in one country, but in the markets of several countries. This type of depositary receipts is widely used in European countries. One such receipt may entitle its owner both to a fractional part of one share, and to any number of shares.

Russian Depository Receipts (RDRs)

For the first time, the concept of RDR appeared relatively recently, in 2007. It also grants its owner the right to a certain number of shares of a foreign issuing company and all bonuses associated with this right (the right to vote in the management of the company and dividends).

In 2010, the first RDRs for the shares of Rusal (the company is registered on the British island of Jersey) began to be traded on the MICEX. Sberbank of Russia acted as a depository bank for them.

Benefits that a trader receives when using depositary receipts

As for the advantages that the issuing company receives, for whose shares depositary receipts are issued, they are obvious. The company is increasing the market for its shares at the expense of foreign investors. But what advantages does a trader using this financial instrument get:

1. Firstly, a depositary receipt greatly simplifies for a trader the conclusion of transactions and all settlements on foreign shares in comparison with the fact that if he owned not a receipt, but these shares themselves.
2. In fact, depositary receipts have all the advantages of shares, providing, among other things, the opportunity to acquire a share in the shares of foreign companies of a world scale.
3. The trader gets at his disposal an additional financial instrument, which allows him to expand the possibilities of his trading to a large extent.