Russia’s invasion of Ukraine has thrown light on the many Russian companies whose shares are traded in London through global depositary receipts (GDRs) but what exactly are GDRs?
GDRs, and their US equivalents ADRs (American depositary receipts) exist as a way for foreign shares to be more easily traded on a local market.
Essentially, an intermediary (usually an investment bank) buys a chunk of shares in Company X and then issues a certificate representing a set number of those shares, e.g. one GDR could represent five shares.
The GDRs can then be traded on several markets, priced in the local currency and with the dividends typically also paid out in the local currency.
Companies issue GDRs to attract interest from foreign investors. A custodian bank will often hold the shares in escrow while a share transaction takes place, thus ensuring both parties in the trade are protected while the deal goes through.
Brokers manage the purchase and sale of GDRs, liaising with the custodian bank, the intermediary that issued the GDR and the buyer.
From the buyer’s point of view, buying a GDR on the buyer’s domestic stock exchange saves a lot of faffing about setting up an overseas trading account and worrying about exchange rates.
Disadvantages include tax complications, low liquidity, loss of voting rights (GDR holders have no voting rights) and as we have seen this week, the possibility of the intermediary facilitating the issue of GDRs suddenly deciding to stop doing so.