International Depository Receipt (IDR)

An international depository receipt (IDR) is a negotiable security that represents ownership of shares in a foreign company. IDRs are issued by a bank or other financial institution and are traded on an exchange in the country where they are issued.

The IDR is a popular way for foreign companies to raise capital in international markets. By issuing IDRs, a company can tap into the capital markets of countries where it does not have a local presence. IDRs are also a way for investors to gain exposure to foreign companies without having to deal with the complexities of trading foreign stocks.

There are two main types of IDRs: sponsored and unsponsored. A sponsored IDR is issued by a bank or other financial institution that has a relationship with the underlying company. The sponsoring bank guarantees the IDRs and provides investors with information about the underlying company. An unsponsored IDR is issued by a bank or other financial institution that does not have a relationship with the underlying company. Unsponsored IDRs are not guaranteed by the sponsoring bank and investors have no recourse to the underlying company if the IDRs are not redeemed.

The IDR market is a growing market. In 2019, the total value of IDRs outstanding was approximately $2.5 trillion. The largest IDR markets are the United States, Europe, and Japan.

IDRs offer a number of advantages to both companies and investors. For companies, IDRs provide a way to raise capital in international markets without having to list their shares on a foreign stock exchange. IDRs also give companies access to a wider pool of investors. For investors, IDRs offer a way to gain exposure to foreign companies without having to deal with the complexities of trading foreign stocks. IDRs are also typically more liquid than foreign stocks.

However, IDRs also have some disadvantages. For companies, IDRs can be more expensive to issue than traditional equity offerings. IDRs also give investors less control over the underlying company than traditional equity offerings. For investors, IDRs can be more volatile than traditional equity offerings.

Overall, IDRs are a valuable tool for companies and investors looking to access international markets. IDRs offer a number of advantages over traditional equity offerings, but they also have some disadvantages. Investors should carefully consider the advantages and disadvantages of IDRs before investing in them.