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CS Professional · IFSCA - Regulations, Listing and Compliances · Listing and Issuance of Securities

Veda Pharma Ltd, an Indian listed company, wants its shares to be represented abroad by instruments that trade on a stock exchange in GIFT IFSC. A company secretary explains the basic nature of such an instrument. Which description is correct?

A depository receipt is a negotiable instrument issued by a depository and backed by underlying shares of the issuer that a custodian holds. It lets investors trade an instrument linked to those shares on an exchange, without holding the shares directly.

  1. AA depository receipt is a negotiable instrument issued by a depository that represents underlying shares of the issuer held by a custodianCorrect
  2. BA depository receipt is a loan note that gives the holder a fixed claim on the issuer's assets without any link to its shares
  3. CA depository receipt is a warrant that lets the issuer buy back its own shares at a fixed price
  4. DA depository receipt is a certificate that transfers voting control of the issuer to the depository permanently

Explanation

A depository receipt is issued by a depository against underlying securities of the issuer, which are held by a custodian. The holder gets economic benefits linked to those shares. The loan note, buyback warrant and permanent-voting-transfer descriptions do not describe a DR.

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