How Global depositary receipts used as Financial instrument ?

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  1. Nikil Mohan

    Nikil Mohan Member

    Sir, How the Global depositary receipts used as Financial instrument ?

    Thanks in advance in anticipation of your answer.
  2. Chandrashekar M

    Chandrashekar M Active Member

    A GDR is issued and administered by adepositary bankfor the corporate issuer. The depositary bank is usually located, or has branches, in the countries in which the GDR will be traded. The largest depositary banks in the United States areJP Morgan, theBank of New York Mellon, andCitibank.

    A GDR is based on aDeposit Agreementbetween the depositary bank and the corporate issuer, and specifies the duties and rights of each party, both to the other party and to the investors. Provisions include setting record dates, voting the issuer’s underlying shares, depositing the issuer’s shares in the custodian bank, the sharing of fees, and the execution and delivery or the transfer and the surrender of the GDR shares.

    A separatecustodian bankholds the company shares that underlie the GDR. The depositary bank buys the company shares and deposits the shares in the custodian bank, then issues the GDRs representing an ownership interest in the shares. The DR shares actually bought or sold are calleddepositary shares.

    Thecustodian bankis located in the home country of the issuer and holds the underlying corporate shares of the GDR for safekeeping. The custodian bank is generally selected by the depositary bank rather than the issuer, and collects and remits dividends and forwards notices received from the issuer to the depositary bank, which then sends them to the GDR holders. The custodian bank also increases or decreases the number of company shares held per instructions from the depositary bank.

    The voting provisions in most deposit agreements stipulate that the depositary bank will vote the shares of a GDR holder according to his instructions; otherwise, without instructions, the depositary bank will not vote the shares.
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