Depositary Receipt

Definition of 'Depositary Receipt'


A negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. A depository receipt trades on a local stock exchange, but a custodian bank in the foreign country holds the actual shares. Depository receipts can be sponsored or unsponsored depending on whether the company that issued the shares enters into an agreement with the custodian bank that issues the depository receipt.

Investopedia explains 'Depositary Receipt'


Two common forms of depository receipts are the American Depository Receipt (ADR) and Global Depository Receipt (GDR). An ADR is listed and traded on exchanges based in the United States, while a GDR can be traded on established non-U.S. markets such as London and Singapore.

When a foreign listed company wants to create a depository receipt abroad, it follows a standard process. The firm will likely hire a financial advisor to help it navigate regulations, and will then choose a domestic custodian bank. A broker in the target country will purchase shares of the firm in the country where the firm is located, and then the domestic bank will register the shares on behalf of the broker. The bank then issues the depository receipt to the broker. The broker can have the shares listed on a local exchange, such as the NYSE, as an ADR.

For example, a firm based in Kenya looking to list shares in the United States through an ADR will pick a Kenyan bank to serve as a custodian of the firm’s shares. Once the bank is chosen, the firm will decide how many shares will be represented by the depository receipt, referred to as the depository receipt ratio, and will find an American broker willing to purchase the shares to be held by the custodian bank. Once the bank issues depository receipts, the American broker can sell those shares domestically.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  2. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  3. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  5. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  6. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
Trading Center