Difference between ADR and GDR

ADRs and GDRs both provide investors with the opportunity to invest in foreign companies, but they differ in their geographical span, market expansion, currency denomination, regulatory structure, and their types.

What is ADR?

ADR stands for “American Depositary Receipt“. It is a financial instrument issued by a U.S. bank that represents ownership of shares in a foreign company. ADRs are traded on U.S. stock exchanges, making it easier for American investors to buy and sell shares of foreign companies without needing to directly purchase shares on foreign stock exchanges.

Key characteristics of ADR include:

• ADRs represent ownership of shares in a foreign company. The ADR is issued by a U.S. bank and represents a specific number of underlying shares of the foreign company.
• ADRs are traded on U.S. stock exchanges, making them accessible to American investors.
• ADRs come in different levels, including Level 1, Level 2, and Level 3. Each level has different reporting and regulatory requirements. Level 1 ADRs are traded over-the-counter (OTC), while Level 2 and Level 3 ADRs are listed on U.S. stock exchanges.

What is GDR?

A GDR, or Global Depositary Receipt, is a financial instrument similar to an American Depositary Receipt (ADR), but it is traded and issued outside of the United States. GDRs represent ownership of shares in a foreign company and are typically listed and traded on international stock exchanges, such as the London Stock Exchange or the Luxembourg Stock Exchange.

Key characteristics of GDRs include:

• Similar to ADRs, GDRs represent ownership of shares in a foreign company.
• GDRs are listed and traded on international stock exchanges, allowing investors outside of the company’s home country to invest in the shares indirectly.
• Like ADRs, GDRs come in different levels, including Level 1, Level 2, and Level 3. Each level has different reporting and regulatory requirements. Level 1 GDRs are typically traded over-the-counter (OTC), while Level 2 and Level 3 GDRs are listed on international stock exchanges.

Difference between ADR and GDR

ADR (American Depositary Receipt) and GDR (Global Depositary Receipt) are both financial instruments that enable investors to purchase the shares of foreign corporations. They serve a similar function but differ in significant ways:

Basis	ADR	GDR
Definition	American Depository Receipts (ADRs) allow U.S. investors to own overseas company shares without using foreign stock markets. ADRs are exchanged in U.S. dollars on U.S. stock markets for a specified amount of foreign firm shares.	A Global Depository Receipt (GDR) represents ownership in a global company shares traded on foreign stock markets. GDRs allow foreign enterprises to raise financing from international investors without listing on multiple exchanges.
Scope of the Instrument	ADRs are issued in the United States and represent ownership of shares in a foreign company. They are dealt in American stock markets.	Global Depositary Receipts are issued outside of the United States for international investors. They are eligible for listing on multiple international stock exchanges.
Market Exposure	ADRs provide a simple method for U.S. investors to invest in foreign companies without dealing with foreign currencies or exchanges. ADRs are primarily designed for American investors.	GDRs are designed for an international audience and can be listed and transacted on multiple international exchanges, making them accessible to investors from a variety of countries.
Currency Denomination	ADRs are denominated in USD. This indicates that the ADR’s value is quoted and traded in U.S. dollars, despite the fact that it represents shares of a foreign company.	Depending on where they are issued and listed, GDRs can be denominated in various currencies, such as U.S. dollars, euros, or other significant currencies.
Regulatory Structure	ADRs are subject to U.S. regulations and are issued in compliance with U.S. Securities and Exchange Commission (SEC) regulations.	GDRs are subject to the laws of the jurisdiction in which they are issued. Depending on the jurisdiction, the regulatory framework can vary.
Types/Levels	ADRs are available at various levels, including Level 1, Level 2, and Level 3, each of which has distinct reporting and listing requirements.	Depending on where they are issued and how they are listed, GDRs can be categorized into various categories. RegS (issued outside the U.S. but not registered with the SEC) and Rule 144A (U.S. private placement) GDRs may fall under these categories.

ADR and GDR – FAQs

What is the primary difference between ADRs and GDRs?

ADRs are traded in the United States, while GDRs are traded outside the United States.

Where are ADRs and GDRs traded?

ADRs are traded on U.S. stock exchanges, and GDRs are traded on international stock exchanges.

What are the regulatory requirements for ADRs and GDRs?

ADRs comply with SEC regulations, while GDRs adhere to local exchange regulations and securities laws.

How are ADRs and GDRs denominated?

ADRs are denominated in U.S. dollars, while GDRs are denominated in a foreign currency.

What are the levels of ADRs and GDRs?

Both ADRs and GDRs have different levels (e.g., Level 1, Level 2), indicating varying degrees of reporting and regulatory compliance.