What is GDR in Stock Market?
GDR in the stock market signifies Global Depositary Receipt which is a financial entity that signifies ownership interest in shares of a foreign company which is traded on international stock exchanges. GDRs offer opportunities for firms to access the worldwide capital market; investors can have indirect investment exposure to foreign companies without actually trading on their local centralised market collections.
Here are key aspects of GDRs in the stock market:
1. Issuance: GDRs are normally offered jointly by depositary banks and the overseas company. The underlying shares of the foreign company are held by the depositary bank, which then issues GDRs against that.
2. Listing: GDRs are placed on the world’s biggest international stock markets – British London Stock, US New York Stock, or Luxembourg Stock. Investors may buy and sell GDRs on recognized world markets due to the following announcement.
3. Currency Denomination: Most GDRs are denominated in a foreign currency where the issuer does not have its nation base. Mostly, GDRs are counted in major global foreign currencies such as US dollars and euros, ensuring ease of use for both the issuer and investors.
4. Trading: The trading of GDRs is charged much like ordinary stocks. The investor invests through its brokerage account, by the purchase and sale of GDRs on the exchange. Related to this point, liquidity and price discovery in the global market improves due to the trading of GDRs.
5. Underlying Shares in Custody: The actual certificates of shares of the foreign company are held by depositary bank as custody. These underlying shares are kept safe and GDRs are created against them.
6. Dividends and Corporate Actions: As with underlying shareholders, GDR holders also have a right to dividends and corporate actions including stock split, merger, etc. The depositary bank implements the management of dividends to GDR holders.
7. Types of GDRs: GDRs are either sponsored or unsponsored GDRs. For Sponsored GDRs, companies help by cooperation and their endorsement when it comes to signing the document. Unsponsored GDRs are issued by the companies involved indirectly through a financial institutions which create GDRs without their interest or participation.
8. Global Capital Raising: GDRs offer companies with a way of raising capital internationally whereby there is no need to have a direct listing on several foreign stock exchanges. This might increase a company’s visibility attract investment from a wider international investor community.