Global Depository Receipts (sometimes spelled "Global Depositary Receipts"), or simply GDRs, were developed on the basis of American depositary receipts (ADRs), to securitize the ownership in shares. GDRs are, in simple terms, securities that represent an underlying foreign share. Global Depository Receipts are traded instead of the original shares on exchanges worldwide. For all practical purposes, everything is exactly the same as a direct share listing on the Frankfurt Stock Exchange. The benefit is that, once the Global Depository Receipt is established, it can then be traded on any stock exchange in the world.
Global Depository Receipts have come into prominence recently as being one of the favored instruments to go public on the Frankfurt Stock Exchange and other exchanges. They are not complicated to understand and they trade just like a direct stock listing. Investors shall not likely even know the difference.
Global Depository Receipts have a long and respected history. The history of Global Depository Receipts began in the late 1920s when Selfridges, the London department store, decided to expand its investor population in the US. A US bank, Guaranty Trust, solved the problem by holding the Selfridges shares in London in its own name, which was recorded on the UK register, and then issuing promissory notes representing those shares in New York. Being both denominated in US dollars and issued against a US legal contract with investors, the promissory notes traded as US securities in New York and worked in exactly the same manner as other US securities. Ownership of the promissory notes was recorded in a US-held register.
Thus, Global Depository Receipts have worked successfully for decades to encourage investment between one country and another.
The objective of a Global Depository Receipts for us is 1) to enable a foreign company to seamlessly list on the Frankfurt Stock Exchange, and 2) to enable investors in the European markets, who would not necessarily feel comfortable buying securities directly in the securities’ home country, to purchase the foreign company’s stock on the Frankfurt Stock Exchange.
Putting it more simply they convert, for example, a US, Canadian, Chinese, Australian, etc. company share into a German share, trading on the Frankfurt Stock Exchange. And although the same share is governed by two very different regulatory rule-sets, it trades perfectly on the Frankfurt Stock Exchange or, in both countries, if dually listed.
There are two very important characteristics of Global Depository Receipts (GDRs), which are vital to their successful existence. First, the Global Depository Receipt shares trading on the Frankfurt Stock Exchange can be exchanged for the shares they represent in their home country. In fact, all Global Depository Receipts, whether American Depository Receipts or Global Depository Receipts, share this characteristic. This means that the Frankfurt Stock Exchange traded Global Depository Receipts can be surrendered to the issuing bank, whereupon the shares they represent will be released to the investor in their home country. This ‘exchange’ facility is important as it ensures a price link between the markets of the two countries, which brings us to the second important characteristic of Global Depository Receipts, which is that the prices of that same share trading in the US/Canada/China/Australian/etc. and Germany on the Frankfurt Stock Exchange, remain linked, albeit in different currencies.
Since the invention of the American Depository Receipt, a large number of countries have used the Depository Receipt format to overcome the difficulties of investing across national and economic borders. These include the following, to mention a few:
• Austrian
• Australian
• Belgian
• Brazilian
• Canadian
• Chinese
• Dutch
• German
• Indian
• Japanese
• Korean
• Russian
• South African
• Swedish
• Swiss
• Taiwanese
• US
• UK
Go Public Pros GmbH is the recognized leader in establishing Global Depository Receipts for Frankfurt Stock Exchange or other stock exchange listings. Contact us for more information and a price quote.
