European Depositary Receipt (EDR)
Contents
Unlocking the World of European Depositary Receipts (EDR): A Comprehensive Guide
Exploring European Depositary Receipts (EDR)
European Depositary Receipts (EDRs) serve as tradable securities issued by European banks, representing shares of non-European companies. Traded on local exchanges, EDRs allow European investors to diversify their portfolios and provide non-European companies with access to a broader investor base.
Delving into the Mechanics
EDRs function similarly to American Depositary Receipts (ADRs), enabling foreign companies to list shares on European exchanges. European banks purchase shares of non-European companies, reissuing them in local currencies for trading on European exchanges. Banks also handle dividend payments, currency conversions, and shareholder communications.
Assessing Risks Associated with EDRs
While EDRs offer opportunities for global investment, they also come with risks. Currency fluctuations pose a significant risk, impacting the value of EDRs held by European investors. Additionally, low trading liquidity may hinder investors' ability to trade EDRs efficiently.
Comparing EDRs, ADRs, and GDRs
EDRs and ADRs share similarities but cater to different markets—Europe and the U.S., respectively. Both provide access to foreign shares in their respective markets, with ADRs priced in U.S. dollars and EDRs priced in euros. Global Depositary Receipts (GDRs) offer access to multiple markets with a single fungible security, commonly used for international capital raising.