What is ADR and GDR
A depositary receipt is a certificate, traded on one market, that represents shares of a company listed in another country. A bank holds those shares in custody.
- ADR meaning: an American Depositary Receipt trades in the United States, is priced in US dollars and represents shares of a non-US company.
- GDR meaning: a Global Depositary Receipt is usually offered in more than one market outside the issuer's home country, often London or Luxembourg. It is commonly priced in US dollars or euros.
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Formal definition
A depositary bank issues depositary receipts after the underlying shares are deposited with a custodian in the home market. Each receipt represents a fixed number of underlying shares, or a fraction of one share. This figure is called the ratio.
The holder has an economic claim on those shares. The bank passes on dividends, converted into the receipt's currency, minus depositary fees. Voting rights pass to the holder only as far as the deposit agreement allows.
ADRs come in two forms:
- Sponsored ADRs: the company signs the deposit agreement.
- Unsponsored ADRs: a bank creates them without the company's involvement. They usually trade over the counter.
Sponsored programmes run in levels, from over-the-counter trading only, to a full exchange listing, to a listing that also raises new capital. GDRs are often placed with institutional investors under US private-placement rules and Regulation S.
Worked example (hypothetical)
Suppose an Indian company's shares trade in Mumbai in rupees, and one ADR represents a fixed ratio of those shares. The fair value of the ADR in dollars is roughly:
ADR price ≈ home share price × ratio ÷ exchange rate (rupees per dollar)
The ADR can move even when the Mumbai price does not, because the exchange rate is part of the formula. If the rupee weakens against the dollar while the share price stays flat, the dollar value of the ADR falls. This is currency risk.
A gap between the ADR price and this fair value invites arbitrage. Traders convert receipts into shares or shares into receipts until the gap is smaller than the cost of doing so. Fees and limits on foreign ownership can keep the gap open.
Where you see the term
- News: "the company plans to list ADRs in New York" or "the GDR fell in London before the home market opened."
- Reports: annual reports state the ADR ratio, the depositary bank and the fees charged per receipt.
- Platforms: some share CFDs on non-US companies track the US-listed ADR, not the home share. Check the instrument specification to see which one you are trading.
A CFD on an ADR is a leveraged derivative. It can lose money fast, and the exchange rate adds a second source of risk.
In Pakistan, the rule set by the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers applies.
Edge cases
- Ratio changes: a company can change the ratio, and older price charts may then not match the current ratio.
- Programme termination: the company can end its ADR programme. Holders then receive the underlying shares or the cash proceeds. This works much like delisting.
- Dividend timing: the ADR's record dates can differ from those of the home share. See ex-dividend and record date.
- Trading hours: the receipt and the home share trade at different hours, so prices can gap at each market's open.
Related terms
Custodian · Clearing and settlement · Free float · Exchange-traded product · Emerging markets · Eurobond · Trading glossary
Frequent questions
Is an ADR the same as owning the share?
It is close, but not the same. You hold a claim through a depositary bank, pay depositary fees, and may have limited voting rights.
What is the difference between ADR and GDR?
An ADR trades in the United States. A GDR is usually offered in markets outside the US, such as London or Luxembourg.
Why does an ADR price differ from the home share?
The ratio, the exchange rate, fees, different trading hours and limits on converting receipts into shares all affect the price.
Are depositary receipts the same as CFDs?
No. A depositary receipt is a security that represents real shares. A CFD only tracks a price, and you do not own the underlying share or receipt.