Deposit receipts make investing in a company beyond the investor's home borders easy and convenient. A depositary receipt is a negotiable certificate that represents ownership in a foreign firm.

A bank, known as depositary, deposits the shares of a foreign company, and issues shares receipts representing those shares. These receipts are called depositary receipts. A depositary receipt trades like other shares on the local exchange in the country in which it is issued.

Depositary receipt programs can be structured in many ways; however, there are two commonly used structures: American Depositary Receipts, which give companies outside of the US access to the US capital markets, and Global Depositary Receipts, which provide exposure to the global markets outside the issuer's home market.

American Depositary Receipts

American Depositary Receipts (ADRs) offer the issuing company access to the US capital market and at the same time provide investors in the US with a convenient way to directly invest in international companies.

ADRs are dollar-denominated securities that trade, clear and settle like any other US security. They are a negotiable instrument that represents ownership of shares (ADSs) in a non-US company. ADRs are traded over-the-counter or on one of the major US exchanges.

ADRs can be sponsored or unsponsored.

• Sponsored ADRs are created at the request of a foreign company wanting its shares traded in the United States.

• Unsponsored ADRs are created by a US securities company if a foreign company does not seek to have its shares traded in the United States but US investors are interested.

Global Depositary Receipts

Global Depositary Receipts (GDRs) give issuers exposure to the global markets outside their home market. GDRs are offered to investors in two or more markets, and are most commonly used to raise capital in Europe and the US

Even though they may not be listed in US exchanges, GDRs are generally denominated in US dollars.

Types of American Depositary Receipts

There are four types of American Depositary Receipts (ADRs.

Apart from ADRs and GRDs, we also have Global Registered Shares (GRS) and Basket of Listed Depositary Receipts (BLDRS). While ADRs are quoted only in US dollars and traded only in the US, Global Registered Shares (GRSs) can be traded on equity exchanges around the globe in a variety of currencies. Basket of listed depository receipts (BLDRS) are an exchange traded fund (ETF) that represents a portfolio of depository receipts.