International Depository Receipt (IDR): Anꦛ Overview

An international depository receipt (IDR) is a negotiable certificate issued by a bank. It represents ownership of a number of shares of stock in a foreign company that the⛦ bank holds in trust.

International depository receipts are more often known in the U.S. as 澳洲幸运5官方开奖结果体彩网:American depository receipts (ADRs). In Europe,🐠 th⛄ey are known as Global Depository Receipts and trade on the London, Luxembourg, and Frankfurt exchanges.

The acronym IDR also is used to identify Indian Depository Rece🃏ipts🐻.

Understanding the IDR

IDRs are purchased by investors as an alternative to the direct purchase of foreign stocks on foreign exchanges. For example♔, American traders ca🐲n buy shares of the Swiss bank Credit Suisse Group AG or Swedish automaker Volvo AB directly from American exchanges via ADRs.

For the companies, the IDR makes it easier and cheaper to reach international buyers. The company is not required to comply with all of the listing and reꦓgulatory requirements of every country in which it wishes to sell shares.

IDRs generally represent 澳洲幸运5官方开奖结果体彩网:fractional ownership of the underlying stock, with each IDR representing one, two, three, or 10 shares. The price of the IDR usually trades close to t🍨he value of the underlying shares⛦ on a currency-conversion basis.

Occasional divergences in price are exploited for 澳洲幸运5官方开奖结果体彩网:arbitrage opportunities. Arbitrage is the simultaneous purchase and sale of an asset with the aim of profiting from an imbalance in the price on various exchanges and various currencies. The trade exploits the price differences of identical or near-identical financial instruments. Arbitrage can exist as a result of market 澳洲幸运5官方开奖结果体彩网:inefficiencies.

Special Considerations on IDRs

The regulatory body for the capital markets of India, the 澳洲幸运5官方开奖结果体彩网:Securities💝 and Exchange Board of India (SEBI), issued new guidelines in 2019 for companies listing depository receipts. The guidelines allow for Indian companies to list depository receipts on a limited number of foreign exchanges, including the NASDAQ, the NYSE, and the London Stock Exchange. 

This is a departure for regulators of the markets in India. While Indian companies were able to issue debt securities, called masala bonds,🐻 on international exchanges, the same option was not available for equity shares.

The National Stock Exchange of India (NSE) was founded in 1992 and started trading in 1994, in contrast with the 澳洲幸运5官方开奖结果体彩网:Bombay Stock Exchange (BSE), which has been in existence since♏ 1875. Both exchanges follow the same trading mechanism, trading hours, and settlement 🔯process.