ADR and GDR Explained – JAIIB LRAB Study Material

Adr and gdr jaiib — this guide gives you the latest 2026 information, key dates, eligibility, fees and study tips for the JAIIB exam.

American Depositary Receipts (ADR) and Global Depositary Receipts (GDR) are instruments through which companies from one country raise capital from investors in another country. These instruments are important for banking professionals and form a key topic in the Legal and Regulatory Aspects of Banking (LRAB) paper of the JAIIB examination.

What Is an ADR (American Depositary Receipt)?

Most overseas firms that wish to trade in the United States use American Depositary Receipts (ADRs) to offer their equities to American investors. Depositary banks in the United States issue these instruments. Each ADR represents one or more foreign equity shares, or a fraction of one or more foreign equity shares.

If you own an ADR, you have the option to acquire the underlying foreign stock it represents. However, most US investors prefer to hold the ADR itself for ease of trading. The price of an ADR corresponds to the price of the underlying foreign stock in its home market, adjusted for the ADR-to-share ratio.

Types of ADR

ADRs traded on the New York Stock Exchange (NYSE) are divided into two types:

Sponsored ADR

In a sponsored ADR. A foreign company that wants to offer stock to US investors formally agrees with a US Depositary Bank to sell its shares on the US capital market. The arrangement is structured and regulated.

• The US depositary bank handles selling, distribution, record-keeping, and dividend payments
• Sponsored ADRs are listed and traded on American stock exchanges
• Regulated by the Securities and Exchange Commission (SEC), which enforces compliance requirements for all listed instruments

Non-Sponsored ADR

Non-sponsored ADRs are constructed by brokers and dealers without the formal involvement or agreement of the underlying foreign corporation.

• These ADRs are sold over the counter (OTC) and do not require SEC registration
• Multiple depositary banks may issue non-sponsored ADRs for the same foreign stock
• They offer less transparency compared to sponsored ADRs

Benefits of ADR

• American investors can invest in any international company, broadening their portfolio and increasing profit opportunities
• Foreign corporations can list on the NYSE and access US capital markets for raising funds
• Currency fluctuations can work to the advantage of investors and businesses depending on exchange rate movements
• ADRs are a convenient way to participate in international markets without directly dealing with foreign exchanges
• Transaction costs for ADRs in the US capital market are often lower than direct overseas investment

What Is a GDR (Global Depositary Receipt)?

A Global Depositary Receipt (GDR) is a tradable financial instrument denominated in a foreign currency. Indian corporations use GDRs to trade their equity shares on international marketplaces beyond the United States. A foreign depository institution issues a depository receipt on behalf of the Indian corporation whose shares it holds.

Depository receipts are traded like ordinary stocks on the domestic exchange of the country where they are listed. Investors can buy and sell GDRs exactly like any other security. The Depositary Bank acts as a third-party intermediary, holding the Indian company's shares as a custodian and enabling Indian companies to access global financing.

Features of GDR

1. GDR is a freely tradable instrument that can be exchanged like any other security on the exchange where it is listed
2. Indian companies with a three-year financial track record are granted access to global financial markets through GDRs; approvals from the Ministry of Finance are required
3. GDRs can be denominated in a variety of freely convertible foreign currencies, making them accessible to investors worldwide
4. The GDR can be denominated in any foreign currency, but the underlying shares will remain in the issuer's local currency (Indian Rupees in the case of Indian companies)
5. GDR holders are entitled to dividends and bonus shares on the value of the underlying shares
6. Through a local custodian, investors can convert GDRs into equity shares and sell them; this conversion option typically becomes available 45 days after the issue date
7. The issuing company deals with a single depositary entity for all GDR-related transactions, simplifying corporate governance

Key Differences Between ADR and GDR

Significance for Banking Professionals

Understanding ADRs and GDRs is important for bankers because these instruments represent cross-border capital flows that affect foreign exchange management, regulatory compliance, and trade finance. Banks facilitate the custody arrangements, foreign exchange conversions, and dividend remittances associated with these instruments. The Reserve Bank of India (RBI) and SEBI both regulate the issuance and conversion of GDRs by Indian companies under the Foreign Currency Convertible Bonds (FCCB) and Ordinary Shares (through Depository Receipt Mechanism) Scheme.

Key Points Summary

• ADR is an instrument used by foreign companies to raise funds from US investors through US Depositary Banks
• Sponsored ADRs are listed on US exchanges with SEC oversight; Non-Sponsored ADRs are traded OTC without SEC registration
• GDR allows Indian companies to raise capital in global markets outside the US
• GDR holders enjoy dividend rights and can convert GDRs into equity shares after 45 days from the issue date
• Both instruments facilitate cross-border investment and are regulated by respective securities regulators in the countries of listing

Frequently Asked Questions

Q1. What is the primary difference between an ADR and a GDR?

An ADR is specifically listed on US stock exchanges and targets American investors. While a GDR is listed on global exchanges (typically in Europe) and is aimed at a broader international investor base. ADRs are denominated in US dollars; GDRs can be denominated in any freely convertible currency.

Q2. Can an Indian company issue ADRs?

Yes, Indian companies can issue ADRs to raise capital from US investors. They must comply with SEC regulations and requirements of the Reserve Bank of India and SEBI for issuing depository receipts abroad.

Q3. What does a Depositary Bank do in an ADR/GDR arrangement?

The Depositary Bank holds the underlying shares of the foreign company as a custodian. Issues depository receipts to investors, handles dividend distribution, record-keeping, and facilitates the conversion of DRs back into underlying shares when requested.

Q4. After how many days can a GDR holder convert it into equity shares?

A GDR holder can convert the GDR into the underlying equity shares through a local custodian after 45 days from the issue date of the GDR.

Q5. Are ADRs and GDRs relevant for the JAIIB LRAB paper?

Yes. ADRs and GDRs are part of the JAIIB LRAB syllabus under topics related to capital markets, cross-border finance, and regulatory aspects of banking. Questions may test knowledge of their types, features, benefits, and the regulatory framework governing their issuance.

Conclusion

ADRs and GDRs are essential instruments in international capital markets, enabling companies to access foreign investment and giving investors exposure to global equities. For JAIIB aspirants and banking professionals. Understanding the structure, types, benefits, and regulatory requirements of these instruments provides a solid foundation for both the examination and day-to-day banking operations involving cross-border transactions. Visit iibf.org.in for the latest JAIIB exam schedule and syllabus updates.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

For more on adr and gdr jaiib, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

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Source: Indian Institute of Banking & Finance — iibf.org.in