What Are Depositary Receipts (DRs)?

Depositary Receipts (DRs) are financial instruments that allow investors to own shares in a foreign company without directly buying stock on that company’s home exchange. They are negotiable certificates issued by a bank (the depositary) representing ownership of a specific number of shares in a foreign corporation. These shares are held in custody by the bank in the company’s home country, while the DRs trade on an exchange or over-the-counter market in another country—most commonly in the United States.

DRs make international investing more accessible by overcoming barriers like foreign settlement systems, currency conversion, and regulatory differences. The two main types are American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs).

This article is not financial advice or any prediction of asset prices. The gathered information may not be all accurate and subject to change at any time.

How Depositary Receipts Work

A foreign company wishing to reach international investors deposits its shares with a depositary bank in its home country (or a custodian bank acting on behalf of the depositary).
The depositary bank issues DR certificates in the target market (e.g., U.S. or Europe), each representing a fixed number of underlying shares (the “ratio” — e.g., 1 DR = 1 share, or 1 DR = 10 shares).
Investors buy and sell these DRs on local exchanges (e.g., NYSE, NASDAQ, London Stock Exchange) in the local currency (USD, GBP, etc.).
Dividends, if paid, are converted to the DR currency and distributed (net of fees and taxes).
Holders can convert DRs back into original shares if desired (though this is rare for retail investors).

The depositary bank handles corporate actions (voting rights pass-through where possible, stock splits, rights offerings) and currency conversion.

Types of Depositary Receipts

American Depositary Receipts (ADRs)

Issued and traded exclusively in the United States.
Listed on major exchanges (NYSE, NASDAQ) or over-the-counter.
Subject to SEC reporting requirements depending on level:
Level I: OTC only, minimal reporting (least regulation).
Level II: Exchange-listed, full SEC registration but no capital raising.
Level III: Exchange-listed, full SEC reporting, allows company to raise new capital via public offering.
Rule 144A ADRs: Private placements to qualified institutional buyers (QIBs), no public trading.
Most common DR type; over 2,000 ADRs from more than 80 countries as of 2025.

Global Depositary Receipts (GDRs)

Traded on multiple international markets, primarily London Stock Exchange and Luxembourg.
Often listed in Europe or Asia.
Allow simultaneous access to investors in several countries.
Common for companies from emerging markets (Russia, India, China pre-restrictions).

Other less common variants include European DRs, Indian DRs, and country-specific programs.

Brief History of Depositary Receipts

The concept originated in the 1920s when U.S. investors sought exposure to foreign stocks amid post-WWI growth.

1927: The first ADR was created by J.P. Morgan for British retailer Selfridges, allowing Americans to invest without dealing with UK settlement.
1930s–1950s: Growth slowed during the Great Depression and WWII but resumed post-war.
1960s–1980s: Major expansion as European and Japanese companies issued ADRs.
1990s–2000s Boom: Emerging market firms (Brazil, India, China, Russia) used DRs to access global capital. Peak activity pre-2008 crisis.
2010s–2020s: Regulatory changes (Sarbanes-Oxley 2002 increased costs, leading some delistings). Geopolitical issues caused delistings (e.g., Russian ADRs suspended in 2022, Chinese VIE structures scrutinized).
Current State (2025): ADRs remain popular for companies from Taiwan (TSMC), Netherlands (ASML), Argentina (MercadoLibre), and others. Total market value exceeds $10 trillion.

Role and Importance of Depositary Receipts

For Companies

Access to deeper capital pools (especially U.S. investors).
Increased global visibility and prestige.
Diversified shareholder base.
Currency hedging for expansion.

For Investors

Easy exposure to foreign companies in local currency and time zone.
Trade via familiar brokers/exchanges.
Dividend payments in home currency.
Diversification without foreign custody risks.

For Markets

Bridge capital flows between developed and emerging economies.
Enhance liquidity for foreign stocks.
Contribute to globalization of equity markets.

Key Considerations

Fees: Depositary banks charge custody and dividend processing fees, reducing net returns.
Currency Risk: Underlying shares are in foreign currency; fluctuations affect DR value.
Taxation: Withholding taxes in home country; credits may apply.
Voting Rights: Often limited or none for DR holders.
Delisting Risk: Geopolitical or regulatory changes can force removal (e.g., Russian ADRs in 2022).

Depositary Receipts remain a cornerstone of international investing, enabling efficient cross-border ownership while maintaining local market conventions. From the first Selfridges ADR nearly a century ago to today’s tech giants like TSMC and Novo Nordisk, DRs continue to connect global companies with worldwide capital.