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What is a European depositary receipt (EDR)?

What is a European Depositary Receipt

A simple European depositary receipt (EDR) meaning is a bank-issued security, representing a specified number of shares in a non-European company’s stock. It is the European equivalent of an American depositary receipt (ADR) and global depository receipts (GDRs).

Where have you heard of European depositary receipts (EDRs)?

Experienced investors are likely aware of the complications of trying to invest in overseas capital markets. EDRs provide European investors with the opportunity to invest in foreign companies while avoiding some of the challenges, such as trading in a foreign currency across different time zones, or having to open up foreign brokerage accounts.

What do you need to know about European depositary receipts (EDRs)?

European depositary receipts are not a new form of investment. The more commonly known American depositary receipts were first issued in the 1920s, and other countries were quick to follow suit as the idea of global investing increased in popularity. Similar to ADRs, the benefits of EDRs are clear: investors gain convenient access to the shares of publicly-traded companies overseas, while companies, in return, attract investors outside of their home country, allowing them to raise more capital.

EDRs are issued by a European depositary bank upon receipt of shares of a non-European company. The bank holds onto the underlying shares and issues the EDR, which can be freely traded on the stock exchange like any other listed security. EDRs can be issued in any currency, but are most commonly priced in euros. Any dividends due will be distributed in the currency that the EDR was issued in.

However, investors looking to purchase EDRs should consider some of the potential risk factors, such as:

  • Depositary receipts are usually subject to higher fees than would accompany regular securities. In addition, investors may find themselves subject to the tax laws of the country the company is based in, in addition to those of their home country when they sell their investment;

  • The value of a EDR is subject to not only the price of the underlying security but the exchange rate of the currency that the EDR is issued in. For example, a European investor who purchases an EDR of a US-based company would find the value of their investment will be affected by the exchange rate between the US dollar and their home currency.

One of the examples of EDRs is Japanese car manufacturer Toyota Motor Corporation that has its shares listed on the Tokyo Stock Exchange (TSE) under the ticker symbol 7203 and the London Stock Exchange (LSE) under the ticker TYT. Another example is US-based company Gamestop Corporation, which has been in the news following its meteoric price rise in early 2021, whose shares are traded on the New York Stock Exchange (NYSE) under the ticker symbol GME and the Frankfurt Stock Exchange (FSE) under the ticker G2SC.

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