Depository receipt
a derivative freely traded on the stock market. In fact, it is a certificate that evidences the right to own a certain number of foreign shares (or other securities). In simple words, a depositary receipt is a recorded right that an investor owns a certain number of shares of a foreign issuer.
Depositary receipts appeared in the 20th century, when England banned the export of national securities, while the U.S. stopped allowing foreign securities to be traded freely. And investors wanted to. Then Americans decided to create such secondary securities, which give the right to own shares or bonds of a foreign company. Such securities became known as American Depositary Receipts (ADRs).
Similarly, GDRs or global depositary receipts were created, including issuers from different countries. The Russian variant is RDRs, the European variant is EDRs, the Japanese variant is JDRs. At the same time, not all countries have banned foreign shares. For example, in Russia you can find shares of , and other major foreign issuers on the St. Petersburg Stock Exchange.
are freely traded in the U.S. and Europe, can be listed on stock exchanges and used to raise capital in the international market. This is also one of the options for investing, in addition to the market . As a rule, issuers of ADRs are public companies or companies that are transforming into open companies, wishing to have international investors and have a certain amount of stock flexibility.
The issuance of ADRs has a number of advantages. By issuing American Depositary Receipts due to the extensive supply, the company achieves expansion, improves its image, increases the number of potential investors, and gains access to international markets.
It is quite important for an issuing company to know who the owners of depositary receipts are. Ownership identification can enhance an issuer's investor relations efforts, potentially increasing its visibility in international financial markets and increasing the liquidity of its ADRs.
There are two types of owners:
Registered owners are listed directly in the issuer's registry or with the issuer's U.S. transfer agent. Beneficial owners, which include both individual and institutional investors, do not physically own the certificates they own; they are held on their behalf by a third party, a broker-dealer or custodian bank. For companies that believe in the strategic necessity of investor relations, identification of ownership is a necessity. Investors have a choice of more than 2,000 receipts from 60 countries.
Analysts divide the market for depositary receipts into three main groups:
Traditional markets for depositary receipts include: Australia, Denmark, England, Finland, Germany, Hong Kong, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Norway, Portugal, Ireland, South Africa, Sweden, Switzerland. More than 72% programs were in the above group. The rest of the projects were conducted in emerging markets. Quite promising markets for depositary receipts promise to be: Egypt, Jordan, Romania, Vietnam and Morocco.
This type of receipt is issued by a depositary bank in the United States. Each of them provides an opportunity to own one or more Russian securities held by a domestic custodian bank. By selling depositary receipts to foreign investors in the international market, a Russian company simultaneously sells its securities represented by them.
Cheapness of the projects of issuing American depositary receipts, the ease of transactions with them, the possibility of reducing the tax burden make them a profitable investment, both for Russian issuers and foreign investors.
Also, one of the indisputable advantages for investors is that prices are quoted in US currency and payment is also made in US dollars, which helps avoid the costs of currency conversion. In the future, along with the issue of Eurobonds, depositary receipts may be used in the restructuring of Russia's foreign debt. Besides, it is a multifaceted instrument for international mergers and acquisitions of various companies, which considerably simplifies the procedure of company acquisition and increases its mobility and ability to react adequately to market environment changes. Investors' transactions with depositary receipts "take place in accordance with the US law, in a manner similar to trading in US securities.
In simple terms, a company issues shares and enters into an agreement with a major depositary bank where the shares are deposited. Instead, the bank issues global depositary receipts confirming its ownership of those shares.
One receipt may correspond to one share, or it may correspond to a part of a share or a block of shares.
on the Moscow Exchange- a convenient and understandable stock instrument used by many investors. In fact, it has the same qualities as an ordinary stock, even dividends are paid. At the same time, the investor does not in any way violate the laws of his country.