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Issuer Services
DRs were created in 1927 to assist U.S.
investors seeking to purchase shares
of non-U.S. corporations. Since then,
DRs have grown into widely accepted
flexible instruments that provide issuers
worldwide with access to investors
outside their home markets. Historical
and recent data point to the growing size
of this opportunity. According to the U.S.
Federal Reserve, total U.S. investment
in non-U.S. equities, including DRs and
non-U.S. shares, has increased steadily
over the last 23 years, rising from $279
billion in 1991 to $6.6 trillion in 2014.
Additionally, overall DR trading volumes
totaled 152.0 billion shares in 2014,
growing at a compound annual growth
rate of 9% since 2006, reinforcing the
long-term trend of constant growth in
cross-border trading. Moreover, stock
exchange enhancements such as the
International Order Book, a dedicated
depositary receipt trading service on
the London Stock Exchange, further
deepens market liquidity for DRs as
an access product. Similarly, capital
raised in the form of DRs by non-U.S.
companies reached $37.3 billion
in 2014, with approximately $32.8
billion (or 88%) coming from initial
public offerings.
Features and Benefits of
Depositary Receipts
Issued by a depositary bank, a DR is
a negotiable instrument evidencing
ownership of shares in an overseas
corporation. Each DR evidences
depositary shares (DSs), representing
a specific number of underlying shares
on deposit with a custodian in the
issuer’s home market. The term “DR”
is commonly used to refer to both the
physical certificate as well as the security
itself. DRs are generally subject to the
trading and settlement procedures of
the market in which they trade. The
different types of DRs are frequently
identified by the markets in which they
are available, or the rules and regulations
associated with the structures.
For example:
• American Depositary Receipts (ADRs)
are DRs that are publicly available to
investors in the U.S.;
• Global Depositary Receipts (GDRs)
are DRs that may be offered to
investors in two or more markets
outside the issuer’s home country,
usually pursuant to Rule 144A and
Regulation S (Reg S) under the U.S.
Securities Act of 1933;
• Local Depositary Receipts (LDRs)
extend the traditional ADR concept
to various markets globally. Examples
include Hong Kong Depositary
Receipts (HDRs), Japanese
Depositary Receipts (JDRs), and
Brazilian Depositary Receipts (BDRs).
DRs can be publicly offered in the U.S.,
privately placed or issued pursuant to
an international offering. The structure
of the DR program typically defines
the segment of investors that can
purchase the securities. In the U.S.,
publicly offered securities are available
to the broadest spectrum of investors
and trade either on a national stock
exchange (e.g., NASDAQ or the New
York Stock Exchange (NYSE)) or in the
over-the-counter (OTC) market. GDRs
are usually offered to institutional
investors through a private offering, in
reliance on exemptions from registration
under the U.S. Securities Act of 1933.
These exemptions are Reg S for non-
U.S. investors and Rule 144A for U.S.
investors that are Qualified Institutional
Buyers (QIBs). QIBs in the U.S. include
institutions that own and invest in at
least $100 million in securities of non-
affiliates and registered broker-dealers
that own or invest on a discretionary
basis at least $10 million in securities
of non-affiliates. A GDR offering often
has a Rule 144A component as well
as a placement to non-U.S. investors
pursuant to Reg S.
Issuance and Cancellation: Fungibility
of DRs with Ordinary Shares
Based upon availability and market
conditions, an investor may acquire
DRs either by purchasing existing DRs
or by converting shares purchased in
the issuer’s home market to new DRs.
New DRs are created subsequent to the
deposit by an investor (or broker) of
shares with the depositary’s local market
custodian. The depositary then issues
new DRs, which represent the shares on
deposit, to the investor or broker. This is
referred to as an issuance of DRs.
Conversely, an investor may cancel
the DRs and sell the underlying
ordinary shares in the relevant home
market upon delivery of the DRs
The Role of the Depositary Bank
A Depositary Receipts (DR) program is an effective option for companies seeking to further tap global
capital markets and expand their equity base outside their home market. Issuers establishing DR
programs may benefit from a broadened investor base, potentially increasing liquidity as a result of
an expanded market, and enhanced visibility. From the investor perspective, DRs have long been a
popular instrument in worldwide capital markets, particularly where the elimination of custody and
cross-border safe-keeping charges are a key benefit.