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HMRC internal manual

Stamp Taxes on Shares Manual

Depositary receipt and clearance services: depositary receipt: background

Holding shares in depositary receipt form is particularly common in the United States of America, providing US investors with a convenient way to invest in non-US company securities. This is because non-US company shares, such as United Kingdom company registered securities, cannot be directly traded in America in UK share certificated form. A depositary receipt is frequently referred to, therefore, as an American Depositary Receipt (ADR).

A depositary receipt is, in effect, a substitute for the underlying share itself and is issued by a depositary bank whose business includes the issuing of ADRs against the deposit of the underlying shares. United Kingdom companies sometimes enter into exclusive arrangements with a particular depositary bank to organise the ‘ADR programme’ in their shares.

An ADR is a physical certificate entitling the holder to rights over a number of the underlying company shares that have been deposited with a depositary bank. An ADR is traded in the United States as American Depositary Shares (ADSs) which may be listed on any of the US stock exchanges, such as the New York Stock Exchange or on the National Association of Securities Dealers Automated Quotation System (NASDAQ). Depositary receipts are typically held within a central depository such as the Deposit Trust and Clearing Company in the United States, where settlement can be undertaken on a book entry basis.

The ADR concept extends to other global geographical markets. In Europe, the issuing of a depositary receipt is often known as a Global Depositary Receipt (GDR) or a European Depositary Receipt (EDR). In terms of structure and operation, there is no appreciable difference between a GDR/EDR and an ADR.