Direct Investing
Investors can use a variety of methods to invest in the equity of companies outside of their local market.
Depository Receipts
A depository receipt (DP) is a security that trades likeanordinary share on a local exchange and represents an economic interestin a foreign company.
It allows the publicly listed shares of a foreign company to be traded on an exchange outside its domestic market. A depository receipt is created when the equity shares of a foreign company are deposited in a bank (i.e., the depository) in the country on whose exchange the shares will trade.
The responsibilities of the depository bank that issues the receipts include acting as custodian and as a registrar. This entails handling dividend payments, other taxable events, stock splits, and serving as the transfer agent for the foreign company whose securities the DR represents.
A DR can be sponsored or unsponsored. A sponsored DR is when the foreign company whose shares are held by the depository has a direct involvement in the issuance of the receipts. Investors in sponsored DRs have the same rights as the direct owners of the common shares (e.g., the right to vote and the right to receive dividends). In contrast, with an unsponsored DR, the underlying foreign company has no involvement with the issuance of the receipts. Instead, the depository purchases the foreign company’s shares in its domestic market and then issues the receipts through brokerage firms in the depository’s local market.
Global Depository Receipts
A global depository receipt GDR) is issued outside of the company’s home country and outside of the United States. The depository bank that issues GDRs is generally located (or has branches) in the countries on whose exchanges the shares are traded. A key advantage of GDRs is that they are not subject to the foreign ownership and capital flow restrictions that may be imposed by the issuing company’s home country because they are sold outside of that country.
American Depository Receipts
An American depository receipt (ADR) is a US dollar-denominated security that trades like a common share on US exchanges.
The term American depository share (ADS) is often used in tandem with the term ADR. A depository share is a security that is actually traded in the issuing company’s domestic market. That is, while American depository receipts are the certificates that are traded on US markets, American depository shares are the underlying shares on which these receipts are based.
Global Registered Share
A global registered share (GRS) is a common share that is traded on different stock exchanges around the world in different currencies. Currency conversions are not needed to purchase or sell them, because identical shares are quoted and traded in different currencies.
Basket of List Depository Receipts
Another type of global security is a basket of listed depository receipts (BLDR), which is an exchange-traded fund (ETF) that represents a portfolio of depository receipts. An ETF is a security that tracks an index but trades like an individual share on an exchange. An equity-ETF is a security that contains a portfolio of equities that tracks an index.
