ADRs and GDRs

We often come across different terminology for various investment classes, some of which you may have heard or read when going through company accounts. At Reyker we feel that we have a duty to client to broaden their education and help them understand the sometimes cumbersome terminology or jargon that floats around our sector.

Following on from the on-going success of our Jargon Buster video series . and ISA and Bond education pieces, we will be providing short weekly updates to improve your knowledge. We are open to suggestions for topics and will happily bend to consumer requirements.

ADRs & GDRs — So Firstly what do the terms mean?

An ADR is American Depository Receipt

And a GDR is Global Depository Receipt

What are they?

An ADR is a method in which a non-US company can raise funding from the US market in US Dollars, to fund the purchase of a Dollar denominated asset, or fund expansion of the companys operations into a new market. ADRs are typically listed on one of the major US exchanges, and will also aid to enhance brand recognition for company with US investors. Although it will increase the companys financial reporting burden as they will be required to report to the US Securities Exchange Commission or SEC at the required intervals.

GDRs give companies access to two or more markets, which will be typically a US listing, a Euro-market (another listing outside of its home market), along with a fungible security (like a warrant or convertible option). GDRs are usually issued by a company looking to raise funding in both is local market and internationally, with GDRs listed in the US typically follow ADR guidelines (under rule 144(a) or ADR Level III, which is dependant of the issuers aims for its US listing) and will be required to make the same SEC reporting requirements.

Who issues them?

Depository Receipts are typically negotiable certificates issued by investment banks, which represent ownership of a given number of shares which trade independently from the ordinary listing.

Investor Information

In London, ADRs and GDRs are generally traded in US Dollars on the LSE international order book (IOB). Income payments made in the stocks are distributed generally in US Dollars although in the case of GDRs payments could potentially be made in any currency.

Custody of these is generally be via DTC or Euroclear and therefore would be treated as a foreign asset, so when making investment decisions investors should remember that additional custody fees may be applicable from your custodian.

A major benefit of investing in Depository Receipts is that when trading, the investment is not subject to Stamp Duty or Stamp Duty Reserve Tax. The reason for this is that on creation of the investment a levy of 1.5% stamp duty is paid by the issuer.

Depending on the balance and diversification of the investors overall portfolio, ADRs or GDRs could provide exposure to a non-sterling currency, to diversify here currency risk.

Although investments into Depository Receipts may not be suitable for all as they can contain complex instruments or options, especially within the fungible aspects of GDRs.

Further steps

If this investment class is in your investment plans please do not hesitate to contact the Reyker dealing team on reykerdealers@reyker.com or 020 7397 2596 and we will try to facilitate the investment through our liquidity channels.