Depositary Receipt

A depositary receipt (DR) is a negotiable security that represents ownership of a foreign stock that is held by a custodian bank in the United States. The custodian bank issues the DRs to investors in exchange for the underlying shares, which are then held in the bank's custody. DRs trade on U.S. exchanges and can be bought and sold just like any other stock.

There are two main types of depositary receipts: American depositary receipts (ADRs) and global depositary receipts (GDRs). ADRs are issued by U.S. banks, while GDRs are issued by international banks. Both ADRs and GDRs represent ownership of the same underlying shares, but there are some key differences between the two.

One of the main differences between ADRs and GDRs is the way they are priced. ADRs are priced in U.S. dollars, while GDRs are priced in the currency of the country where the underlying shares are traded. This can make GDRs more attractive to investors who are looking to avoid currency risk.

Another difference between ADRs and GDRs is the way they are traded. ADRs are traded on U.S. exchanges, while GDRs are traded on international exchanges. This can make it more difficult for U.S. investors to trade GDRs.

Finally, ADRs and GDRs have different settlement procedures. ADRs settle in U.S. dollars, while GDRs settle in the currency of the country where the underlying shares are traded. This can make GDRs more complex to trade for U.S. investors.

Despite these differences, ADRs and GDRs are both popular ways for U.S. investors to invest in foreign stocks. They offer a convenient way to trade foreign stocks without having to deal with the hassle of owning foreign shares directly.