Depositary Receipt: Definition & Meaning | Bondfish
Depositary receipt is a certificate issued by a depositary bank that represents securities of a foreign issuer, allowing investors to trade them on their home market and in their own currency.
What it means
The best-known form is the American Depositary Receipt (ADR): a U.S. depositary bank holds a non-U.S. company’s shares in custody and issues receipts that trade in U.S. dollars and clear through U.S. settlement systems. One receipt can represent one underlying share, several shares, or a fraction of a share. A Global Depositary Receipt (GDR) applies the same idea outside the United States, typically listing in financial centers such as London or Luxembourg.
Receipts can be sponsored — created in partnership with the issuer, which handles dividends and shareholder communications through the depositary bank — or unsponsored, set up by banks or broker-dealers without the issuer’s involvement and generally limited to over-the-counter trading.
Why it matters for bond investors
Although depositary receipts are usually associated with equities, the same mechanism exists for fixed income: a Global Depositary Note wraps a local-currency bond so global investors can hold it through international clearing systems. In the ISO classification system used to label securities, depositary receipts on debt instruments even have their own CFI code group. Investors in any depositary instrument should watch for custody and processing fees, currency conversion costs, and the political and economic risks of the issuer’s home market.
Related terms
This definition is for general information only and is not investment advice. Bond investing involves risk, including possible loss of principal.