Global Depositary Receipt (GDR)
Candlefocus EditorOriginally GDRs were issued by large banking institutions but since the 2000s financial technology companies have been able to provide GDRs through the development of blockchain technology. This technological access has allowed GDRs to be offered on a wider scale and be more easily accessible to the public.
A GDR represents a bundle of shares in a foreign company, but is quoted and traded in a different currency than the common stock of the issuing company. GDRs may offer holders of foreign shares many advantages over trading the underlying shares in the issuing company’s home market, including higher liquidity in the secondary market, easier access to dividend payments, voting rights, and legal and accountancy regulations.
In addition, GDRs make it easier for institutional investors and other large shareholders to enter the markets of other countries and gain exposure to foreign markets without having to navigate local regulation and manage foreign currency exchange. GDRs also provide a way for these investors to diversify their portfolios, allowing them to gain direct exposure to companies and economies in different parts of the world.
When considering investing in GDRs, it is important to understand the risks involved in trading on foreign stock exchanges. These risks include currency risk and exposure to economic conditions in other countries. Additionally, liquidity of a GDR’s secondary market may be lower than that of the underlying stock’s primary market. Finally, the legal and taxation conditions of the foreign country’s markets should also be taken into consideration.
Global Depositary Receipts are an important instrument in cross-border investing, as they provide a flexible and more cost-effective way to diversify portfolios and leverage foreign stock markets. GDRs are often used by institutional investors and other large shareholders to gain access to foreign markets, and offer numerous benefits over actively managing and trading the underlying stock. Overall, GDRs act as a bridge between global markets and provide an effective way for investors to gain exposure to foreign companies, without having to manage the complexities that accompany trading in foreign countries.