Depositary receipt

A depository receipt (also the deposit certificate; engl depositary receipt, DR. ) Is a securitized deposit of the right to a share or a part or multiple of this.

Background

To make one shares traded abroad without having to admit it there, certificates of deposit are issued certificates. This investment banks tend to act as intermediary trading partners. While buy in the home country of a listed stock company of the bank stocks and stored by a custodian, depositary receipts issued under the law of their country abroad from the bank.

The buyer of a depository receipt shall not thereby virtually the right to depository receipt to be able at any time to exchange against the corresponding amount of deposited shares.

Disadvantages

Partly have depositary receipts over a very low liquidity, which can lead to relatively large spreads and associated high transaction costs for the investor. An exchange in the shares or securities of the Depository Receipt underlying is only theoretical about the equipment of the certificate, but in practice is generally not possible. Most also remains unclear to what extent the securitized securities are actually deposited in the custody of the issuing bank, or with which the derivative financial instruments of the depository receipt replicated or hedged. Since it is legally obtain a certificate from the depository receipts, they are subject to the full risk of default of the issuer.

History

Since it was often not allowed by restrictions due to laws or their own statutes American investors and to invest in shares of foreign companies, already developed in 1927 the first American Depositary Receipts American Depositary Receipt ( ADR) as an elegant detour to overcome these hurdles. Depository receipts are a type certificate, the underlying assets underlying ( the shares ) represent and reflect so. The admission of these certificates in the respective foreign country is from the underlying foreign securities as a native, in the then investors may invest with the above restrictions.

Later, this system also Global Depositary Receipts ( GDRs ) and European Depositary Receipts developed following ( EDRs ).

In addition to the articles of association and legal restrictions imposed include high financial expenses necessary for the admission of shares (eg prospectuses ) as reasons why companies prefer the path via depositary receipts of the way of the direct placement of treasury shares for trading abroad.