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ADR & GDR

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What is Depository Receipt?

A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity that is issued by a foreign publicly listed company. DR is created when a foreign company wishes to list its already publicly traded shares or debt securities on a foreign stock exchange. it can be listed to a particular stock exchange, the company in question will first have to meet certain requirements put forth by the exchange.

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The

Before

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Types of DR
American Global

Depository Receipts(ADR)
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Depository Receipts(GDR)

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American Depository Report

A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) ina foreign stock that is traded on a U.S. exchange. are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas.

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ADRs

ADRs

help to reduce administration and duty costs that would otherwise be

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Types of ADR
There

generally are three different types of sponsored ADR programs:

Level I, Level II, and Level III,
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Level I ADRs are used when an issuer does not wish to, or is not allowed to, list its securities on a national securities exchange; Level I ADRs are traded in the pink sheets. Level I ADRs must be registered with the SEC.

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Level

II ADRs can be listed and traded on national securities exchanges and must comply with the full registration and reporting requirements of the Securities Act and the Securities Exchange Act of 1934. III ADRs are the highest profile

Level

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Benefits of ADR
Help

investors to invest in big foreign Help the investors to profit from many emerging market companies. All transactions are done in U.S. Dollars. The competitive rates of Euro and U.S. Dollar over other market currencies also benefit the investor. Offers more transparency and stability.

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Global Depository Receipt

A

bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. financial instrument used by private markets to raise capital denominated in either U.S. dollars or euros.

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Foreign

Investment through GDRs is treated as Foreign Direct Investment. An applicant company seeking Government's approval in this regard should have a consistent track record for good performance (financial or otherwise) for a minimum period of 3 years. There is no restriction on the number of GDRs to be floated by a company or a group of companies in a financial year.

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Benefits of GDR
For

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the Company A company may opt to issue a GDR to obtain greater exposure and raise capital in the world market. Issuing GDRs has the added benefit of increasing the shares liquidity while boosting the companys prestige on its local market.

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For

the Investor Investors gain the benefits of diversification, while trading in their own market under familiar settlement and clearance conditions. More importantly, GDR investors will be able to reap the benefits of usually higher-risk, higher-return equities, without having to endure the added risks of going directly into foreign markets, which may

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Option contract
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DERIVATIVE

A security derived from a debt instrument ,share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security. A contract which derives its value from the prices, or index of prices, of underlying securities.
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TYPES OF DERIVATIVES

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Forwards

A forward contract is customized contract between two entities, where settlement

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takes place on a specific date in the future at todays pre-agreed price.

Futures

An agreement between two parties to buy or sell an asset at a certain time in the future at a certain price . Futures contacts are special types of forward contracts in the contracts in the sense that the former are standardized exchange-traded contracts.

Options

the a

Options are of two types calls and puts. Calls give the buyer the right but not obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not obligation to sell

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Option Basics
Financial A

Option
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contract that gives its owner the right (but not the obligation) to purchase or sell an asset at a fixed price as some future date

Call A Put A

Option

financial option that gives its owner the right to buy an asset

Option

financial option that gives its owner the right to sell an asset

Option The

Writer

seller of an option contract

OPTION TERMINOLOGY (For The Equity Markets)

Important concepts in option contract: Strike Price - This is the stated price per share for which an underlying stock may be purchased (for a call) or sold (for a put) upon the exercise of the option contract. Expiry Date - This shows the termination date of an option contract. Expiry date of U.S.-listed options is on the third Friday of the expiry month Volume - This indicates the total number of options contracts traded for the day. The total volume of all contracts is listed Bid - This indicates the price someone is willing to pay for the options Contract. Ask - This indicates the price at which someone is willing to sell an options contract. Open Interest - Open interest is the number of options contracts that Are open; these are contracts that have not expired nor been exercised.

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Call Option

Put Option

Option Buyer

Buys the right to buy the underlying asset at the Strike Price

Buys the right to sell the underlying asset at the Strike Price

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Option Seller

Has the obligation to sell the underlying asset to the option holder at the Strike Price

Has the obligation to buy the underlying asset from the option holder at the Strike Price

Operators in the derivatives market

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Hedgers - Operators, who want to transfer a risk component of their portfolio. Speculators - Operators, who intentionally take the risk from hedgers in pursuit of profit. Arbitrageurs - Operators who operate in the different markets simultaneously, in pursuit of profit and eliminate mis-pricing.

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Understanding Option Contracts

The

option buyer (holder)

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Holds The

the right to exercise the option and has a long position in the contract

option seller (writer)

Sells

(or writes) the option and has a short position in the contract Because the long side has the option to exercise, the short side has an obligation to fulfill the contract if it is exercised.

Interpreting Stock Option Quotations

At-the-money Describes

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an option whose exercise price is equal to the current stock price an option whose value if immediately exercised would be positive

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In-the-money Describes

Deep in-the-money describes an option that is in-themoney and for which the strike price and stock price are far apart

Out-of-the-money Describes

an option whose value if immediately exercised would be negative

Deep out-of-the-money describes an option that is outof-the-money and for which the strike price and stock price are far apart

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Options on Other Financial Securities

Hedge To

reduce risk by holding contracts or securities whose payoffs are negatively correlated with some risk exposure

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Speculate When

investors use contracts or securities to place a bet on the direction in which they believe the market is likely to move

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Option Payoffs at Expiration

Long

Position in an Option Contract

value of a call option at expiration is
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The

C = max (S K , 0)

Where S is the stock price at expiration, K is the exercise price, C is the value of the call option, and max is the maximum of the two quantities in the parentheses

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Payoff of a Call Option with a Strike Price of $20 at Expiration

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Option Payoffs at Expiration

Long Position in an Option Contract

The value of a put option at expiration is

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P = max (K S , 0)

Where S is the stock price at expiration, K is the exercise price, P is the value of the put option, and max is the maximum of the two quantities in the parentheses

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Short Position in an Option

An

investor that sells an option has an obligation.

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This

investor takes the opposite side of the contract to the investor who bought the option. Thus the sellers cash flows are the negative of the buyers cash flows.

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Short Position in a Call Option at Expiration

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Factors Affecting Option Prices

Strike The

Price and Stock Price

value of a call option increases (decreases) as
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the strike price decreases (increases), all other things held constant.
The

value of a put option increases (decreases) as

the strike price increases (decreases), all other things held constant.

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Arbitrage Bounds on Option Prices

Intrinsic The

Value
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amount by which an option is in-the-money, or zero if the option is out-of-the-money\

Time

Value (sometimes called Option Value)

The

difference between an options price and its intrinsic value

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Option Prices and Volatility

The

value of an option generally increases with the volatility of the stock.

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Private placement

29 2029

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What is Private Placement?

The

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sale of securities to a relatively small number of selectinvestors as a way of raising capital SEBI DIP Guidelines Companies Act U/s. 81(1A) For public company only

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SEBI guideline
Eligibility q The SEBI DIP Guidelines apply to a preferential issue of equity shares/ Fully Convertible Debentures (FCDs)/ Partly Convertible Debentures (PCDs) or other Convertible q Preferential issue cannot be made if it is not in compliance with the Conditions of continuous listing q A listed company cannot make a preferential allotment during the period commencing from the submission of offer document to the SEBI on behalf of the Company for public or rights issues, till the securities referred to in the said offer document have been listed or the application moneys refunded on account of non-listing or

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Exemptions
q

An allotment pursuant to a Merger and Amalgamation Scheme approved by the High Court
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An allotment pursuant to rehabilitation packages approved by BIFR

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Pricing of instruments
q q

The Guidelines only lay down what must be the minimum price price in case of a preferential issue of shares must be the higher of the: Average of the weekly high and low of closing prices during six months Preceding the Relevant date, or Average of weekly high and low of closing prices during two weeks Preceding the Relevant date

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If company has been listed for less than six year

It must be higher than q IPO price q Average of the weekly high and low of the closing prices of the shares during the period they have been listed q Average of weekly high and low of closing prices during two weeks Preceding the Relevant date

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Procedural Requirements

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The Explanatory Statement u/s. 173(2) to the Notice for the General Meeting must contain several prescribed details Practice Pointer: The Companys Auditor must certify compliance with the SEBI Guidelines A copy of such Auditors Certificate must be placed before the General Meeting held for considering the issue Practice Pointer: If the issue is to promoters, relatives, associates, related entities for non-cash

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cont

the valuation of the assets received by the company in return and such Report has to be filed with the Stock Exchanges where shares are listed. The valuer could be a CA or a Merchant Banker Pointer: The proceeds of the preferential issue must be separately disclosed in the Balance Sheet

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Practice

If it is issued to foreign investor

It

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is treated as FDI It need to comply with FEMA & FIPB Its equity shares of the same class are listed on the NSE or BSE for at least one year Clause 40A the listing agreement. At least 10% of the issue shall be to mutual funds.

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Cont
The

minimum number of allottees for each placement of specified securities made shall not be less than:

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2 where the issue size is less than or equal to Rs. 250 crores; where the issue size is greater than Rs. 250 crores.

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Restrictions on amount raised

All

previous QIPs made in the same financial year shall not exceed 5 times the net worth of the issuer

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There

is a lock-in of 1 year from the date of allotment, except for sale on a recognized stock exchange

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