What is a global depository receipt (GDR)? 

How do you define GDR? In financial markets, the acronym GDR refers to a global depository receipt. Simply put, a GDR meaning is a certificate that a depositary bank issues and sells on a stock exchange to represent shares in a foreign company. 

GDRs allow investors to buy and sell shares in companies that are not eligible for listing directly on the exchange in their country.    

Where have you heard of global depository receipts?

As an investor you will have heard of the trading of global depositary receipt shares from companies in emerging growth countries like China and India. Investing in GDRs is one way for investors to diversify their portfolios with exposure to international markets.

What do you need to know about global depository receipts?

How do GDRs work? If a company wants to issue GDRs, typically to raise money from foreign markets, it appoints a foreign bank to act as an intermediary to issue shares on its behalf. The bank is responsible for buying the shares on the company’s domestic market, creating a GDR that represents the shares, and then selling the GDRs on a foreign stock exchange. 

GDRs are usually traded in US dollars, but can also be traded in euros. A GDR is typically equivalent to 10 common shares in a company, but the company can specify any number of shares. The voting rights assigned to the shares are held by the depository bank that retains the shares, rather than the investor that holds the GDR. 

Unlike American depositary receipts (ADRs), which allow foreign company shares to be traded on the US stock exchanges, GDRs can be traded in multiple countries. They are traded on the International Order Book (IOB), which was set up in 2001 as a central electronic order book to give investors direct access to GDRs from more than 30 countries. The London Stock Exchange (LSE) operates the IOB and trades are settled by the Euroclear clearing house, which acts as a central securities depository.

Companies in developing economies might opt to list GDRs on foreign stock exchanges to raise funds for expansion or debt repayment, because they can attract more investors and higher share prices on the larger international markets.

Investors buying GDRs can benefit from the exposure to the relatively high growth that companies can achieve in developing markets compared with more developed economies. GDRs make it easier to invest in foreign companies as investors can trade them through their regular brokerage account, rather than having to exchange currency and open a foreign account. 

A global depository receipts example is South Korea’s Samsung Electronics, a multinational electronics company, which has its GDR shares listed on European exchanges like the LSE, the Frankfurt Stock Exchange and the Luxembourg Stock Exchange (LuxSE). GAIL India, the country’s largest gas company, has its GDRs traded on the LSE. Russian oil and gas business Gazprom, one of the world’s largest energy companies, also trades its GDRs on foreign exchanges including the Singapore Stock Exchange.