American And Global Depositary Receipts (ADR & GDR)

American Depository Receipts (ADRs)

These are the certificates denominated in dollars issued by a US. Bank on the basis of a foreign equity it holds in custody in one of the branches abroad, usually in the home country of the issuer. This system was developed abroad, usually in the home country of the issuer. This system was developed by Morgan Guaranty Trust Company of New York on 1981 to facilitate the trading of foreign securities in the U.S. The ADR represents a convenient way for a US investor to buy foreign equity shares that were not listed in US Exchanges. The investor can receive dividends in dollars without bearing foreign taxes or being subject to exchange regulations. The system also permits transfer of ownership of this receipt in the US without the physical transfer of ownership of this receipt in the US without the physical transfer of the underlying shares. Because the underlying shares are not subject to US Securities and Exchange Commission (SEC) registration procedure, they have become more attractive. Issues traded outside the US were called International Depositary Receipt (IDR) issues.

Global Depository Receipts (GDRs)                                                

GDRs are traded and settled outside the US. However, the SEC permits the foreign companies to offer their GDRs to certain institutional buyers. The Government of India contemplated in 1991 to permit Indian companies to issue equity and equity related instruments in the form of GDRs and convertible bonds. A detailed notification was form of GDRs and convertible bonds. A detailed notification was issued in November 12, 1993 outlining the scheme for the issue of GDRs and foreign currency convertible bonds. The scheme came into force effective from April 1, 1992. In terms of guidelines issued by the Union Ministry of Finance in November 1993, Indian companies have been permitted to raise foreign currency resources through the issue of foreign currency convertible bonds (FCCBs) and equity shares under the global depository receipt (GDR) mechanism to foreign investors, both individual and institutional investors. A Global Depository Receipt is a dollar denominated instrument traded on a stock exchange in Europe or the US or Both.