The Differences Between ADR and GDR
Introduction
American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) are financial instruments used by companies to raise capital from foreign markets. These instruments enable companies to raise capital in foreign currencies without actually being listed on foreign stock exchanges. Companies issue ADRs and GDRs to ease trading for these foreign investors, who can then trade the shares on their domestic markets. In this article, we will discuss the primary differences between ADR and GDR.
Definition
ADRs and GDRs both represent ownership of shares in foreign companies; however, ADRs are issued for companies trading on American stock exchanges, while GDRs are issued for foreign companies trading on international stock exchanges.
Trading Venues
As mentioned earlier, ADRs are issued for companies trading on American stock exchanges, such as the NASDAQ and NYSE. As a result, ADRs are traded on American exchanges during American business hours. On the other hand, GDRs represent shares of foreign companies trading on international stock exchanges, such as the London Stock Exchange (LSE), Hong Kong Stock Exchange (HKEX), or Tokyo Stock Exchange (TSE). As a result, GDRs are traded during the business hours of the exchange on which they are listed.
Currency
Another key difference between ADR and GDR is the currency in which they are denominated. ADRs are denominated in US dollars, while GDRs are denominated in a currency of the country where the issuer is located. For example, if the issuer is based in Japan, the GDR will be denominated in Japanese yen.
Regulation
ADRs are regulated by the US Securities and Exchange Commission (SEC) and must comply with all US securities regulations. GDRs, on the other hand, are not regulated by any single authority. Instead, they are subject to the regulations of the markets in which they are listed.
Conclusion
In conclusion, ADR and GDR are tools that companies use to raise capital from foreign markets. While both represent the ownership of shares in foreign companies, ADRs are for companies trading on American stock exchanges and are denominated in US dollars. GDRs are for foreign companies trading on international stock exchanges and are denominated in a currency of the country where the issuer is located. Moreover, ADRs are regulated by the US Securities and Exchange Commission (SEC), while GDRs are not regulated by any single authority. It is essential to know the differences between these two financial instruments when deciding to invest in foreign companies.
Table difference between adr and gdr
| Aspect | ADR | GDR |
|---|---|---|
| Definition | American Depositary Receipt is a type of security that represents shares of non-US companies traded in US stock exchanges. | Global Depositary Receipt is a type of security that represents shares of non-US companies traded in European stock exchanges. |
| Location of trading | ADRs are traded in US stock exchanges like NYSE and NASDAQ. | GDRs are traded in European stock exchanges like the London Stock Exchange and Luxembourg Stock Exchange. |
| Currency of trading | ADR shares are usually denominated in US dollars. | GDR shares are usually denominated in euro, pound sterling, or another European currency. |
| Regulatory framework | ADR is subject to the rules and regulations of the US Securities and Exchange Commission (SEC). | GDR is subject to the rules and regulations of the European Securities and Markets Authority (ESMA). |
| Target market | ADR is designed for US investors who want to invest in non-US companies without having to deal with foreign exchange rates. | GDR is designed for European investors who want to invest in non-European companies without having to deal with foreign exchange rates. |