Understanding ADRs and GDRs for International Trading

ADR stands for American Depositary Receipt, and GDR represents Global Depositary Receipt. Both are ways to trade non-US company stocks on US and global stock exchanges, respectively, facilitating international investment.

ADRs are issued by US depositary banks and represent shares in foreign companies. Each ADR denotes a certain number of a foreign company’s shares, which the bank holds in trust.

GDRs enable companies to access investors globally, with shares held by an international depositary bank and traded on multiple stock exchanges outside the issuer’s home country.

There are three ADR levels, each with varying requirements. Level I ADRs trade on the OTC market, Level II on exchanges, and Level III allows raising capital.

GDRs often represent multiple shares and can be issued in diverse currencies, which reduces foreign exchange risk for investors and increases the stock's appeal.

ADRs and GDRs must comply with the regulations of the host country's stock exchange, including reporting requirements which can be as stringent as those for local companies.

ADRs and GDRs enhance a stock's liquidity by providing a larger investor base and longer trading hours, as they're listed in multiple time zones.