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CFA Level I Exam · Equity Instrument Features

Depository Receipts (ADR, GDR) and Foreign Listings

Updated 7 October 2026 · Fact-checked

A depository receipt (DR) is a security issued by a bank that represents shares of a foreign company held in custody. It trades locally in local currency. ADRs trade in the US; GDRs trade in other markets. To answer questions, identify who the issuer is, whether the program is sponsored, and compare it with a direct listing.

Understand Depository Receipts and Foreign Listings

A company may want its shares to be available to investors in another country. Buying shares directly on a foreign exchange can be hard. The investor may need a foreign account, foreign currency, and may face different settlement rules and taxes. Companies solve this in two ways: a direct listing or a depository receipt.

A direct listing means the foreign company's ordinary shares trade on a foreign exchange, usually alongside its home listing. The company must meet that exchange's listing and disclosure rules. Investors buy the actual shares, which trade in the listing exchange's currency. This gives the most direct access but is the most costly and demanding for the issuer.

A depository receipt (DR) is a security created by a depository bank. The bank holds the foreign company's shares with a custodian and issues receipts that trade on a local exchange or over the counter. Each receipt can represent one share, a fraction of a share, or several shares. The receipt trades and pays dividends in the local currency, so the investor avoids foreign settlement. An American depository receipt (ADR) trades in the US and is priced in USD. A global depository receipt (GDR) is issued outside the US and outside the issuer's home country, often in several markets at once, and is priced in a major currency such as USD or EUR. ADRs come in programs with different levels of SEC registration, listing and disclosure requirements.

DRs can be sponsored or unsponsored. In a sponsored program, the foreign company is a party to the deposit agreement with the depository bank. It usually gets shareholder-related benefits such as voting rights passed through to receipt holders and clearer investor communication. In an unsponsored program, the depository bank issues the receipts without the company's participation, based on market demand. Several banks may issue separate unsponsored receipts for the same company, and holders generally have fewer rights, such as limited voting rights. The company has less control over the program.

The trade-off is access versus cost and rights. DRs make foreign shares easy to buy, increase the company's visibility, and may widen its investor base. But the holder bears currency risk relative to the home currency of the shares, may pay depository fees, and may have weaker shareholder rights than direct holders. Direct listings give full ownership rights but cost more to maintain.

Key formulas to remember

DR value per receipt
Value of one DR = Price of underlying share (in local currency) × DR ratio × exchange rate (DR currency per local currency)
The DR ratio is the number of underlying shares per receipt. Use a fraction if one receipt represents part of a share.
Sponsored vs unsponsored
Sponsored: issuer is party to the deposit agreement. Unsponsored: depository bank issues without the issuer's participation.
Sponsored programs generally give holders better rights, including voting through the depository.
ADR vs GDR
ADR: traded in the US, priced in USD. GDR: issued outside the US and outside the issuer's home country, often in multiple markets.
Both are receipts, not the shares themselves.

How to solve Depository Receipts and Foreign Listings questions

Use the same sequence for any question on depository receipts or foreign listings.

  1. 1Read the stem and identify what is being compared: DR vs direct listing, ADR vs GDR, or sponsored vs unsponsored.
  2. 2Note who owns the actual shares. For a DR, the custodian holds them and the investor holds a receipt.
  3. 3Check the currency. The DR trades in the market's currency, so the investor still bears exposure to the underlying share's currency through the DR price.
  4. 4For sponsored vs unsponsored, ask whether the issuer is a party to the deposit agreement and what rights, voting and communication follow.
  5. 5For numerical questions, convert the underlying price to the DR currency, then apply the DR ratio (shares per receipt).
  6. 6Weigh the pros and cons: easier access and local settlement versus fees, currency risk and possibly weaker rights.
  7. 7Eliminate the two options that misstate who issues the receipt, where it trades, or what rights holders get.
  8. 8Choose the remaining option and check it against the stem's currency and ratio.

Quickest way: Three-check elimination

When to use it: Use for conceptual items where you have about 90 seconds and the options differ on a single feature.

  1. Who issues it? A depository bank issues the receipt, not the foreign company itself (except by agreement in a sponsored program).
  2. Who is involved? Sponsored means the issuer takes part in the deposit agreement; unsponsored means it does not.
  3. What do holders get? A receipt in local currency with possibly limited rights, versus actual shares in a direct listing.
  4. For calculations, multiply underlying price by exchange rate by DR ratio (shares per receipt), and check the units before choosing.

Common mistakes in Depository Receipts and Foreign Listings

  • Saying a DR holder owns the shares directly.

    The receipt feels like a share because it trades and pays dividends like one.

    Fix: Remember that the custodian holds the shares and the holder owns a receipt that represents them.

  • Thinking DRs remove currency risk.

    The DR is priced in the local currency, which looks like protection.

    Fix: The DR price still reflects the underlying share price and exchange rate, so currency exposure remains.

  • Treating an ADR and GDR as the same thing.

    Both are depository receipts, so the labels blur.

    Fix: ADRs trade in the US in USD. GDRs are issued outside the US and outside the issuer's home country, possibly in several markets.

  • Assuming unsponsored programs involve the issuer.

    Students assume the company must approve any receipt on its shares.

    Fix: In an unsponsored program the depository bank issues receipts without the issuer's participation, so the issuer has less control and holders have fewer rights.

  • Forgetting the DR ratio in calculations.

    Questions often give the ratio in a short phrase, and students apply only the price and the exchange rate.

    Fix: Always write price × ratio × exchange rate and check that each unit cancels.

  • Calling a direct listing the cheaper option.

    Students think no depository bank means lower cost.

    Fix: A direct listing gives full ownership rights but requires meeting the foreign exchange's listing and disclosure rules, so it is usually more demanding for the issuer.

Worked examples

Example 1

A foreign company's shares trade at EUR 80. Each depository receipt represents 2 shares. The exchange rate is USD 1.10 per EUR. What is the USD value of one receipt? A) USD 88.00 B) USD 160.00 C) USD 176.00

Show the solution
  1. Underlying price per share: EUR 80.
  2. Receipt represents 2 shares: EUR 80 × 2 = EUR 160.
  3. Convert to USD: EUR 160 × 1.10 = USD 176.00.
  4. Eliminate USD 88.00 (it ignores the ratio: 80 × 1.10) and USD 160.00 (it ignores the exchange rate).
  5. The remaining option is C.

Answer: C) USD 176.00

Example 2

A foreign issuer did not take part in creating a receipt program. A depository bank issued the receipts on its own because of investor demand. Which description fits best? A) A sponsored ADR with full voting rights B) An unsponsored depository receipt, where the issuer has less control and holders may have limited rights C) A direct listing on the foreign exchange

Show the solution
  1. The issuer did not take part, and a bank issued the receipts. This points to an unsponsored program.
  2. Option A describes a sponsored program, where the issuer is a party to the deposit agreement. Eliminate it.
  3. Option C is wrong because a direct listing trades the actual shares and needs the issuer to meet the exchange's rules.
  4. Option B matches: unsponsored, issuer has less control, and holders generally have fewer rights.

Answer: B) An unsponsored depository receipt

Exam tips

  • Expect a conceptual item contrasting sponsored and unsponsored programs, usually on issuer involvement and holder rights.
  • For DR value calculations, check the ratio before touching the exchange rate, and watch which currency is quoted per which.
  • Remember that a DR is a receipt issued by a depository bank, and eliminate any option that says the foreign company's regulator or the exchange issues it.
  • On pros and cons, link benefits to access and local settlement, and costs to fees, currency risk and weaker rights.
  • With no penalty for wrong answers, always answer. Narrow to two options by ruling out wrong issuer or wrong ownership claims.

Practice questions from Equity Instrument Features

Depository Receipts and Foreign Listings in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Depository Receipts and Foreign Listings: frequently asked questions

What is the difference between an ADR and a GDR?

An ADR is a depository receipt traded in the US and priced in USD. A GDR is issued outside the US and outside the issuer's home country, and can trade in more than one market. Both represent shares held by a custodian.

What is the difference between sponsored and unsponsored ADRs?

In a sponsored program the foreign company is a party to the deposit agreement with the depository bank. In an unsponsored program the bank issues receipts without the company's participation. Sponsored holders generally get better rights and communication.

How do ADRs work?

A depository bank buys or holds the foreign company's shares with a custodian and issues receipts against them. The receipts trade locally in USD and pay dividends in USD. The receipt price tracks the underlying share price and the exchange rate.

Is a direct listing better than a depository receipt?

It depends on the goal. A direct listing gives investors the actual shares and full rights but requires the issuer to meet the foreign exchange's listing and disclosure rules. A depository receipt is easier for investors, and a DR program (especially an unsponsored or unlisted one) can be less costly and demanding for the issuer than a full direct listing, but it may give weaker shareholder rights.