Difference Between ADR and GDR

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What are ADR and GDR?

An American depositary receipt abbreviated as ADR is a type of negotiable certificate that is issued by a U.S. depository bank that represents a specified number of shares, generally a single share- which is of a foreign company's stock. The ADR trades on the U.S. stock markets as any domestic shares would trade.

A global depository receipt which is abbreviated as GDR is quite similar to the American Depository Receipt. This is a type of bank certificate which represents the share in a foreign company. This is a foreign bank that holds the shares internationally. The shares are traded as domestic shares among them, but, globally, various bank branches offer the shares for sale.

Difference Between ADR and GDR 


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The difference between ADR and GDR are as follows:

Basis for Comparison

ADR

GDR

Full-Form

American Depository Receipt

Global Depository Receipt

Meaning

This is a negotiable instrument which is issued by the US Bank, which represents the Non- US Company stock that is being traded in the US stock exchange.

GDR is a negotiable instrument which is issued by the international depository bank that represents the foreign company’s stock trading world-wide.

Relevance 

Foreign companies are able to trade in the US Stock Market.

In this case, the foreign companies can trade in any country’s stock market other than that of the US.

Issued where

In the United States domestic capital market.

European Capital market.

Listed in 

In American Stock Exchange like the NYSE or the NASDAQ.

In the Non-US Stock Exchange like the London Stock Exchange or the Luxembourg Stock exchange.  

Negotiation done

Only in America

All over the world

Disclosure Required

Onerous

Less Onerous

Market

Retail Investor Market

Institutional Market


Depository Receipt 

The depository is a type of mechanism through which a domestic company is able to raise finance from the international equity market. In this system of depository receipt, the shares of the company are domiciled in one country which is held by the depository, particularly by the Overseas Depository Bank, and these issues claim against the shares. These kinds of claims are known as the Depository Receipts which are denominated in a convertible currency, mostly in US $, but which can also be denominated in Euros. These receipts are listed on the stock exchanges.

ADR and GDR are the only two depository receipts, which are being traded in the local stock exchange but this is being represented by a security that is issued by a foreign publicly listed company.


Full Form of ADR and GDR

ADR and GDR are commonly used by Indian companies in order to raise accurate funds from the foreign capital market. ADR is traded on US stock exchanges, while GDR is traded on the European stock exchanges.

The full form of both is American Depository Receipts and Global Depository Receipts respectively. Further, we will focus our view on the details of both these receipts. 

American Depository Receipt or ADR, is the negotiable certificate, that is issued by a US bank, denominated in the US$ representing the securities of a foreign company that is trading in the stock market of the States. These are the claims against the number of shares that are underlying. ADR’s are offered for sale to American investors. ADR’s are also easily transferable, without any stamp duty. 

GDR or the Global Depository Receipt is also a negotiable instrument that is used to resource the financial markets of various countries with a single instrument. The receipts are issued by the depository bank, in more than a single country by representing a fixed number of shares into a foreign company. 

FAQ (Frequently Asked Questions)

1. What is the Meaning of Negotiable Instrument?

Ans. A negotiable instrument is literally a signed document that promises a sum of payment to a specified person or to the assignee. This is a formalized instrument that is transferable. A Negotiable Instrument is a signed document. This promises to pay the bearer a sum of money at a future date or on-demand. The payee, the one who is receiving the payment, must be named else it will be indicated on the instrument.

Negotiable Instruments are the written contracts, these benefits could be passed on from its original holder to a new holder. Negotiable instruments are the documents that promise payment to the assignee (the person whom it is assigned to/given to) or a specified person.

2. What is a Stock Exchange?

Ans. A stock exchange is of a centralized location where the shares, that are of publicly-traded companies are bought and sold. The main difference between using a stock exchange and over-the-counter (OTC) methods of trading stocks is that, on an exchange, transactions are transferred than taking place directly between the two parties.

The stock exchange searches for a sell order for the same share. The exchange then facilitates the actual transfer of ownership of shares from the sellers to the buyers. 

3. Who are Public Listed Companies?

Ans. A public listed company is such a company whose shares are available on the open market. A public company is listed on a stock exchange (listed company), this facilitates the trade of shares. In some jurisdictions, public companies over a certain size are mandatory to be listed on an exchange.

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