The Indian money market is "a market for short-term and Long term funds with maturity ranging

from overnight to one year and includes financial instruments that are deemed to be close substitutes of [1] money." It is diversified and has evolved through many stages, from the conventional platform of treasury bills and call money to commercial paper, certificates of deposit, repos, FRAs and IRS more recently. The Indian money market consists of diverse sub-markets, each dealing in a particular type of short-term credit. The money market fulfills the borrowing and investment requirements of providers and users of short-term funds, and balances the demand for and supply of short-term funds by providing an equilibrium mechanism. It also serves as a focal point for the Central Bank's intervention in the market.

Call money market [edit]

The call money market deals in short term finance repayable on demand, with a maturity period varying from one day to 14 days. S.K. Muranjan commented that call loans in India are provided to the bill market, rendered between banks, and given for the purpose of dealing in the bullion market and stock [2] exchanges. Commercial banks, both Indian and foreign, co-operative banks, Discount and Finance House of India Ltd.(DFHI), Securities trading corporation of India (STCI) participate as both lenders and borrowers and Life Insurance Corporation of India (LIC), Unit Trust of India(UTI), National Bank for Agriculture and Rural Development (NABARD)can participate only as lenders. The interest rate paid on call money loans, known as the call rate, is highly volatile. It is the most sensitive section of the money market and the changes in the demand for and supply of call loans are promptly reflected in call rates. There are now two call rates in India: the Inter bank call rate'and the lending rate of DFHI. The ceilings on the call rate and inter-bank term money rate were dropped, with effect from May 1, 1989. The Indian call [3] money market has been transformed into a pure inter-bank market during 200607. The major call money markets are in Mumbai, Kolkata, Delhi, Chennai, Ahmedabad.

Treasury bill market [edit]

Treasury bills are instrument of short-term borrowing by the Government of India, issued as promissory notes under discount. The interest received on them is the discount which is the difference between the price at which they are issued and their redemption value. They have assured yield and negligible risk of default. Under one classification, treasury bills are categorised as ad hoc, tap and auction bills and under another classification it is classified on the maturity period like 91-days TBs, 182-days TBs, 364-days TBs and two types of 14-days TBs. In the recent times (200203, 200304), the Reserve Bank of India has been issuing only 91-day and 364-day treasury bills. the auction format of 91-day treasury bill has changed from uniform price to multiple price to encourage more responsible bidding from the market [4] players. the bills are two kinds- Adhoc and regular. the adhoc bills are issued for investment by the state governments, semi government departments and foreign central banks for temporary investment. they are not sold to banks and general public. The treasury bills sold to the public and banks are called regular treasury bills. they are freely marketable. commercial bank buy entire quantity of such bills issued on tender . they are bought and sold on discount basis.

Operations in Call Market Borrowers and lenders in a call market contact each other over telephone. Hence, it is basically over-thetelephone market. After negotiations over the phone, the borrowers and lenders arrive at a deal specifying the amount of loan and the rate of interest. After the deal is over, the lender issues FBL cheque in favour of the borrower. The borrower is turn issues call money borrowing receipt. When the loan is repaid with interest, the lender returns the lender the duly discharges receipt. Instead of negotiating the deal directly, it can be routed through the Discount and Finance House of India (DFHI), the borrowers and lenders inform the DFHI about their fund requirement and availability at a specified rate of interest. Once the deal is confirmed, the Deal settlement advice is lender and receives RBI cheque for the money borrowed. The reverse is taking place in the case of landings by the DFHI. The duly discharged call deposit receipt is surrendered at the time of settlement. Call loans can be renewed on the back of the deposit receipt by the borrower. Call loan market transitions and participants In India, call loans are given for the following purposes: 1. 2. 3. 4. To commercial banks to meet large payments, large remittances to maintain liquidity with the RBI and so on. To the stock brokers and speculators to deal in stock exchanges and bullion markets. To the bill market for meeting matures bills. To the Discount and Finance House of India and the Securities Trading Corporation of India to activate the call market. 5. To individuals of very high status for trade purposes to save interest on O.D or cash credit. The participants in this market can be classified into categories viz. 1. 2. Those permitted to act as both lenders and borrowers of call loans. Those permitted to act only as lenders in the market. The first category includes all commercial banks. Co-operative banks, DFHI and STCI. In the second category LIC, UTI, GIC, IDBI, NABARD, specified mutual funds etc., are included. They can only lend and they cannot borrow in the call market. Advantages of call money In India, commercial banks play a dominant role in the call loan market. They used to borrow and lend among themselves and such loans are called inter-bank loans. They are very popular in India. So many advantages are available to commercial banks. They are as follows:

High Liquidity: Money lent in a call market can be called back at any time when needed. So, it is highly liquid. It enables commercial banks to meet large sudden payments and remittances by making a call on the market. High Profitability: Banks can earn high profiles by lending their surplus funds to the call market when call rates are high volatile. It offers a profitable parking place for employing the surplus funds of banks temporarily. Maintenance Of SLR: Call market enables commercial bank to minimum their statutory reserve requirements. Generally banks borrow on a large scale every reporting Friday to meet their SLR requirements. In absence of call market, banks have to maintain idle cash to meet5 their reserve requirements. It will tell upon their profitability.

Safe And Cheap: Though call loans are not secured, they are safe since the participants have a strong financial standing. It is cheap in the sense brokers have been prohibited form operating in the call market. Hence, banks need not pay brokers on call money transitions.

Assistance To Central Bank Operations: Call money market is the most sensitive part of any financial system. Changes in demand and supply of funds are quickly reflected in call money rates and give an indication to the central bank to adopt an appropriate monetary policy. Moreover, the existence of an efficient call market helps the central bank to carry out its open market operations effectively and successfully. Drawbacks of call money The call market in India suffers from the following drawbacks:

Uneven Development: The call market in India is confined to only big industrial and commercial centers like Mumbai, Kolkata, Chennai, Delhi, Bangalore and Ahmadabad. Generally call markets are associated with stock exchanges. Hence the market is not evenly development.

Lack Of Integration: The call markets in different centers are not fully integrated. Besides, a large number of local call markets exist without an\y integration. Volatility In Call Money Rates: Another drawback is the volatile nature of the call money rates. Call rates very to greater extant indifferent centers indifferent seasons on different days within a fortnight. The rates very between 12% and 85%. One can not believe 85% being charged on call loans

Gilt-edged securities are bonds issued by certain national governments. The term is of British origin, and originally referred to the debt securities issued by the Bank of England, which had a gilt (or gilded) edge. Hence, they are known as gilt-edged securities, or gilts for short. Today the term is used in the United Kingdom as well as some Commonwealth nations, such as South Africa and India. However when reference is made to gilts, what is generally meant is UK gilts unless otherwise specified. The data collected by the British Office for National Statistics reveal that about two-thirds of all UK gilts [1] are held by insurance companies and pension funds. Since 2009 large quantities of gilts have been created and repurchased by the Bank of England under its policy of quantitative easing. The term "gilt account" is also a term used by the Reserve Bank of India to refer to a constituent account maintained by a custodian bank for maintenance and servicing of dematerialized government securities [2] owned by a retail customer.

Central Government State Government Semi-Government authorities like local government authorities, e.g., city corporations and municipalities Autonomous institutions, such as metropolitan authorities, port trusts, development trusts, state electricity boards. Public Sector Corporations Other governmental agencies, such as SFCs, NABARD, LDBs, SIDCs, housing boards etc.

Characteristics of Gilt-edged Securities Market

Gilt-edged securities market is one of the oldest market in India. The market in these securities is a significant part of Indian stock market. Main characteristics of government securities market are as follows: Supply of government securities in the market arises due to their issue by the Central, State of Localgovernments and other semi-government and autonomous institutions explained above. Government securities are also held by Reserve Bank of India (RBI) for purpose and sale of these securities and using as an important instrument of monetary control. The securities issued by government organisations are government guaranteed securities and are completely safe as regards payment of interest and repayment of principal. Gilt-edged securities bear a fixed rate of interest which is generally lower than interest rate on other securities. These securities have a fixed maturity period. Interest on government securities is payable half-yearly.

Subject to the limits under the Income Tax Act, interest on these securities is exempt from income tax. The gilt-edged market is an over-the-counter market and each sale and purpose has to be negotiated separately. The gilt-edged market is basically limited to institutional investors.

Forms of Central and State Government Securities

These securities can be issued in three forms: 1. 2. 3. Inscribed stock or stock certificate Promissory note Bearer Bond Bearer bonds are generally not issued in India and stock certificates are not popular with investors. Most government securities are in the form of a promissory note. Of course, promissory notes of a loan can be converted into stock certificates of any other loan and vice versa. Stock certificates have some benefits over promissory notes, such as, (i) the name of the holder of stock certificate is registered in the books of Public Debt Office (PDO) and hence these are safer, (ii) these are sent to the applicant directly by registered post by the PDO, (iii) the half-yearly interest is directly remitted to the holder by an interest warrant drawn at par on any treasury or State Bank of India branch specified by the holder or is remitted by money order, if the holder so desires, and (iv) it can be sold by singing the transfer for on the reserve of the certificate. Despite these advantages stock certificates are not popular because their lack of quick transferability and negotiability, these cannot be transferred by endorsement. The procedure for their transfer is relatively more complex.

Participants Market
1. 2. 3. 4.

in

Gilt-edged

Securities

Participants in government securities market belong to the following categories: Central and State governments. Their holdings represent inter-government transfer of resources. Banking Sector, comprising commercial banks and co-operative banks. Insurance companies including both Life Insurance Corporation and general insurance companies. Provident funds, both statutory and non-statutory

5.

Other institutions including special financial institutions, joint stock companies, local authorities, trusts, individuals and non-residents.

Why Government Securities are Issued?

Issue of securities takes place for the following purposes: For refunding, i.e., for conversion or refinancing of maturing securities; For advance refunding of securities which have not yet matured, known as reissue of loans; and Cash financing, i.e., raising fresh cash resources.

Trading Procedure
Transactions in the gilt-edged market are carried out in the following ways: Through vouchers, i.e., direct sales Through securities general ledger (SGL) accounts, and Through bank receipts (BRs) Direct sale of government securities is affected by Public Debt Office (PDO) by pre-specifying the loan amount and the dates when subscription for government loans would be open. In case of transactions through SGL, the transactions are recorded as book entries by RBI only in the ledger on the date of the transaction and at the value at which the transaction has taken place. Under the system each dealing bank maintains an SGL account with RBI on account of the balance of the Central Government securities. The transactions are effected by selling bankers by filling out the prescribed SGL form which is then lodged with RBI. SGLs facilitate repo transactions. A repo or Ready Forward (RF) refers to a sale transaction with a stipulation to buy-back the securities at a stipulated future date, at a price determined on the date of sale transaction. To avoid physical transfer of securities, the selling bank issues a bank receipt (BR) instead. In this case it is called transaction through BR. This avoids the hassle of writing the SGL forms and lodging them the RBI. This process is resorted to when the repo tra nsaction is for a short time. However, conduct of short operations by banks i.e., selling government securities without owning them with a views to neutralizing the transaction by buying them at a later date) through Issue of BRs is being discouraged by RBI.

Types of Government Bonds

1. Zero coupon bonds: These are bonds issued at discount and repaid at face value. the difference between the issue price and the redemption price represents the return to the investor. No periodic Interest payment is made. Zero Coupon bonds bear no reinvestment risk but they are prone to interest rate risk making their prices highly volatile. The buyers of zero coupon bonds make a series of periodic coupon payments to the buyer as well as paying face value at maturity. Zero Coupon Bonds on auction basis with introduced in January 1994 by Government of India. 2. Floating rate bonds: These are instruments whose periodic interest or dividend rates are indexed to some reference index such as Treasury bills etc. these instruments give a variable rate, a characteristic that allows both issuer and investor to share the risk inherent in changing interest rates. The volatility of interest rates have led to creation of these instruments designed to offer some protection to the players. Thus, Floating Rate Bonds enable investors to take advantage of movements in interest rates. Floating Rate Bonds were introduced by Government of India on September 29, 1995 linking it to 364 day Treasury bill rate. 3. Tap stock: This is a gilt edged security from an issue that has not been fully subscribed and is released into the market slowly when its market price reaches predetermined levels. Short taps are short dated stocks and long taps are long dated socks. These stocks were introduced by Government of India on July 29, 1994. 4. Partly paid stock: This is an innovative instrument (Government stock auctioned on November 15, 1994) for which the payment is made in installments. It is designed for institutions with regular flow of investible resources requiring regular investment outlet. The instrument has attracted good market response and is being traded actively. 5. Capital indexed bonds: These bonds were floated on December 29, 1997 on tap basis. These bonds are of four year maturity and carry a coupon rate of 6 per cent. The objectives of the capital indexed bonds were to provide a complete hedge against inflation for the principal amount of the Investment. 6. Strips: STRIPS stands for Separately Traded Registered Interest and Principal of Securities. Strips are created by separating the coupon from the principal and trading them independently. Thus, if a conventional bond of five year maturity has ten semi annual coupon payments and one payment of principal, ten coupon STRIPS and one Principal STRIP will be created on stripping the bond.

Prices and Yields

Three types of prices are prevalent in gilt-edged securities market: RBI prices. These are prices for deals with RBI. These are not cash prices. RBI publishes a price list from time to time for securities dealt in by it. These prices are so aligned that the yield on these securities for the remaining maturity period is the same as on the bonds of similar maturity which are currently issued. Prices prevailing in the secondary market at which deals take place between different operators. Artificial or loaded prices fixed by the brokers for producing deals in securities. For helping banks to show higher book profits the dealers buy depreciated securities at an inflated price above the market price and sell the same

amount of some other security to the bank again at inflated price so as to neutralize its loss on purchase. Such artificial prices distort computation of yield on securities.

Capital market reform enables the capital markets to embrace new ideas and techniques affecting it. Capital market liberalization is one such capital market reform that is adopted by various countries to strengthen their economy. A capital market is a place that handles the buying and selling of securities. This is the ideal place where both the governments and companies can raise their funds. The capital markets of all the countries have undergone a number of reforms in the past. Economic theories are made and implemented to reform the functionalities of the capital market. The prime objective behind all the policies and reforms is to strengthen the capital market of a particular country as much as possible.It has always been a big question to the economists - Whether to allow the foreign investments in the country or not? Packaged with both advantages and disadvantages, the liberalization of the capital markets has always been controversial. In the 1980s and 1990s, when the US Treasury and International Monetary Fund (IMF) tried to push world-wide capital-market liberalization, there was enormous opposition. Economists were not in the support of free and unfettered markets. Now, when the capitalist countries, developing capitalist countries, under-developed countries and a large number of socialist countries have nodded their support to the capital market reform and capital market globalization, the global capital market has evolved in a new identity. The concept of capital market is not restricted to the share and bond trading in the developed capitalist countries only but is equally influenced by the capital markets of developing and under-developed countries as well. Now, the economic or financial change in one country can affect the capital market of other country in real time. Almost all the countries are now exposed to the inter-country trades and inter-country investments. The use of internet and electronic media has added some more feasibility to the practice. Exchange of information is fast and accurate with internet. Another advantage of this system is that it brings the entire world in a single place. The capital market is one of the industries that enjoys the maximum facility of the internet service.

The market for financial securities may be divided into two segments: the primary market and the secondary market. New issues are made in the primary market whereas outstanding issues are traded in the secondary market. There are three ways in which a company may raise finances in the primary market: (1) public issue, (2) rights issue, and (3) private placement or preferential allotment. Public issue involves sale of securities to the members of the public. The first public offering of equity shares of a company, which is followed by a listing of its shares on the stock market, is called the initial public offering (IPO). Subsequent are called seasonal offerings. Initial Public Offering: The decision to go public or more precisely the decisions to make an IPO so that that the securities of the company are listed on the stock market and publicly traded is a very important decision which calls for carefully within the benefits against costs. Benefits: * Access to a larger pool of capital * Respectability * Lower cost of capital compared to private placement. * Liquidity Costs * Dilution * Loss of flexibility * Disclosures and accountability * Periodic Costs. Eligibility for IPOs: An Indian company, excluding certain banks, and infrastructure companies can make an IPO if it satisfies the following conditions: 1. The company has certain track profitability and a certain minimum net worth. 2. The securities are compulsorily listed on a recognized stock exchange which means that a certain minimum percent of each class of securities is offered to the public. 3. The promoters group (promoters, directors, friends, relatives, associates etc) is required to make a certain minimum contribution to the post issue capital. 4. The promoters contribution to equity is subject to a certain lock-up in period. Principal Steps in an IPO: A public issue involves sale of securities to the members of the public. It entails a fairly elaborate process involving the following steps after the proposed issue is approved by the board of directors and shareholders. 1. Appoint the lead manager /s 2. Appoint other intermediaries like co-mangers, underwriters, bank, brokers, and registrars. 3. Prepare the prospectus and file the same with the Registrar of Companies and SEBI. 4. Print the prospectus and dispatch the same to brokers. 5. Make the statutory announcements. 6. Collect and process the applicants 7. Establish the liability of underwriters. 8. Allot shares 9. Get the issues listed. The cost of an IPO is normally between 6 and 12 per cent spending on the size of the issues and the level of marketing effort. The important expenses incurred for public issue are: underwriting expenses, brokerage, fees for the managers and registrars, printing and postage expenses, advertising and publicity expenses, listing fees, as stamp duty. Seasoned offering: For most companies their IPO is seldom their last public issue. As companies grow, they are likely to make further trips to the capital market with issues of debt and equity. These issues are likely to be public issues offered to investors are large or rights or private placements or preferential allotment. The procedure for a public issue by a listed company seasoned offering is similar to that of an IPO. Hence all the steps involved in an IPO are applicable to a public issue by a listed company. However, a public issue by a listed company is subject of fewer regulations when compared to an IPO (expect when the post issue net worth grows to more that five times the pre-issue net worth). This is evident from the following: A public issue by a company which has been listed on a stock exchange for at least three years and has a track record of dividend payment for at least three immediate preceding years does require the promoters contribution, provided the relevant information is disclosed in the offer document.

An American depositary receipt (ADR) is a negotiable security that represents securities of a non-US company that trades in the US financial markets. Securities of a foreign company that are represented by an ADR are called American depositary shares (ADSs). Shares of many non-US companies trade on US stock exchanges through ADRs. ADRs are denominated and pay dividends in US dollars and may be traded like regular shares of stock. Over-the-counter ADRs may only trade in extended hours ADRs are one type of depositary receipt (DR), which is any negotiable securities that represents securities of companies that is foreign to the market on which the DR trades. DRs enable domestic investors to buy securities of foreign companies without the accompanying risks or inconveniences of cross-border and cross-currency transactions. Each ADR is issued by a domestic custodian bank when the underlying shares are deposited in a foreigndepositary bank, usually by a broker who has purchased the shares in the open market local to the foreign company. An ADR can represent a fraction of a share, a single share, or multiple shares of a foreign security. The holder of a DR has the right to obtain the underlying foreign security that the DR represents, but investors usually find it more convenient to own the DR. The price of a DR generally tracks the price of the foreign security in its home market, adjusted for the ratio of DRs to foreign company shares. In the case of companies domiciled in the United Kingdom, creation of ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government. Depositary banks have various responsibilities to DR holders and to the issuing foreign company the DR represents.

ADR programs (facilities) [edit]

When a company establishes an ADR program, it must decide what exactly it wants out of the program, and how much time, effort, and other resources they are willing to commit. For this reason, there are different types of programs, or facilities, that a company can choose.

Unsponsored ADRs [edit]

Unsponsored shares trade on the over-the-counter (OTC) market. These shares are issued in accordance with market demand, and the foreign company has no formal agreement with a depositary bank. Unsponsored ADRs are often issued by more than one depositary bank. Each depositary services only the ADRs it has issued. As a result of an SEC rule change effective October 2008, hundreds of new ADRs have been issued, both sponsored and unsponsored. The majority of these were unsponsored Level I ADRs, and now approximately half of all ADR programs in existence are unsponsored.

Sponsored Level I ADRs ("OTC" facility) [edit]

Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a company issues sponsored ADRs, it has one designated depositary who also acts as its transfer agent. A majority of American depositary receipt programs currently trading are issued through a Level 1 program. This is the most convenient way for a foreign company to have its equity traded in the United States.

Level 1 shares can only be traded on the OTC market and the company has minimal reporting requirements with the U.S. Securities and Exchange Commission (SEC). The company is not required to issue quarterly or annual reports in compliance with U.S. GAAP. However, the company must have a security listed on one or more stock exchange in a foreign jurisdiction and must publish in English on its website its annual report in the form required by the laws of the country of incorporation, organization or domicile. Companies with shares trading under a Level 1 program may decide to upgrade their program to a Level 2 or Level 3 program for better exposure in the United States markets.

Sponsored Level II ADRs ("Listing" facility) [edit]

Level 2 depositary receipt programs are more complicated for a foreign company. When a foreign company wants to set up a Level 2 program, it must file a registration statement with the U.S. SEC and is under SEC regulation. In addition, the company is required to file a Form 20-F annually. Form 20-F is the basic equivalent of an annual report (Form 10-K) for a U.S. company. In their filings, the company is required to follow U.S. GAAP standards or IFRS as published by the IASB. The advantage that the company has by upgrading their program to Level 2 is that the shares can be listed on a U.S. stock exchange. These exchanges include the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX). While listed on these exchanges, the company must meet the exchanges listing requirements. If it fails to do so, it may be delisted and forced to downgrade its ADR program.

Sponsored Level III ADRs ("offering" facility) [edit]

A Level 3 American Depositary Receipt program is the highest level a foreign company can sponsor. Because of this distinction, the company is required to adhere to stricter rules that are similar to those followed by U.S. companies. Setting up a Level 3 program means that the foreign company is not only taking steps to permit shares from its home market to be deposited into an ADR program and traded in the U.S.; it is actually issuing shares to raise capital. In accordance with this offering, the company is required to file a Form F-1, which is the format for an Offering Prospectus for the shares. They also must file a Form 20-Fannually and must adhere to U.S. GAAP standards or IFRS as published by the IASB. In addition, any material information given to shareholders in the home market, must be filed with the SEC through Form 6K. Foreign companies with Level 3 programs will often issue materials that are more informative and are more accommodating to their U.S. shareholders because they rely on them for capital. Overall, foreign companies with a Level 3 program set up are the easiest on which to find information. Examples include the British telecommunications company Vodafone (VOD), the Brazilian oil company Petrobras(PBR), and the Chinese technology company China Information Technology, Inc. (CNIT).

Restricted Programs [edit]

Foreign companies that want their stock to be limited to being traded by only certain individuals may set up a restricted program. There are two SEC rules that allow this type of issuance of shares in the U.S.: Rule 144-A and Regulation S. ADR programs operating under one of these 2 rules make up approximately 30% of all issued ADRs.

Privately placed (SEC Rule 144A) ADRs [edit]

Some foreign companies will set up an ADR program under SEC Rule 144A. This provision makes the issuance of shares a private placement. Shares of companies registered under Rule 144-A are restricted stock and may only be issued to or traded by Qualified Institutional Buyers (QIBs). US public shareholders are generally not permitted to invest in these ADR programs, and most are held exclusively through theDepository Trust & Clearing Corporation, so there is often very little information on these companies. CHARACTERS:It is an secured scurity. 2.fixed rat of interest is paid. 3.can be convertd into multiple shares.

Offshore (SEC Regulation S) ADRs [edit]

The other way to restrict the trading of depositary shares to US public investors is to issue them under the terms of SEC Regulation S. This regulation means that the shares are not, and will not be registered with any United States securities regulation authority. Regulation S shares cannot be held or traded by any U.S. person as defined by SEC Regulation S rules. The shares are registered and issued to offshore, non-US residents. Regulation S ADRs can be merged into a Level 1 program after the restriction period has expired, and the foreign issuer elects to do this.

Sourcing ADRs [edit]

One can either source new ADRs by depositing the corresponding domestic shares of the company with the depositary bank that administers the ADR program or, instead, one can obtain existing ADRs in the secondary market. The latter can be achieved either by purchasing the ADRs on a US stock exchange or via purchasing the underlying domestic shares of the company on their primary exchange and then swapping them for ADRs; these swaps are called crossbook swaps and on many occasions account for the bulk of ADR secondary trading. This is especially true in the case of trading in ADRs of UK companies where creation of new ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government; sourcing existing ADRs in the secondary market (either via crossbook swaps or on exchange) instead is not subject to SDRT.

ADR termination [edit]

Most ADR programs are subject to possible termination. Termination of the ADR agreement will result in cancellation of all the depositary receipts, and a subsequent delisting from all exchanges where they trade. The termination can be at the discretion of the foreign issuer or the depositary bank, but is typically at the request of the issuer. There may be a number of reasons why ADRs terminate, but in most cases the foreign issuer is undergoing some type of reorganization or merger. Owners of ADRs are typically notified in writing at least thirty days prior to a termination. Once notified, an owner can surrender their ADRs and take delivery of the foreign securities represented by the Receipt, or do nothing. If an ADR holder elects to take possession of the underlying foreign shares, there is no guarantee the shares will trade on any US exchange. The holder of the foreign shares would have to find a broker who has trading authority in the foreign market where those shares trade. If the owner continues to hold the ADR past the effective date of termination, the depositary bank will continue to hold the foreign deposited securities and collect dividends, but will cease distributions to ADR owners.

Usually up to one year after the effective date of the termination, the depositary bank will liquidate and allocate the proceeds to those respective clients. Many US brokerages can continue to hold foreign stock, but may lack the ability to trade it overseas. A global depository receipt or global depositary receipt (GDR) is a certificate issued by a depository bank, which purchasesshares of foreign companies and deposits it on the account. GDRs represent ownership of an underlying number of shares. Global depository receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets. Prices of global depositary receipt are often close to values of related shares, but they are traded and settled independently of the underlying share. Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, The Bank of New York Mellon. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and in the London Stock Exchange, where they are traded on the International Order Book (IOB). Normally 1 GDR = 10 Shares,but not always. It is a negotiable instrument which is denominated in some freely convertible currency. It is a negotiable certificate denominated in US dollars which represents a non-US Company's publicly traded local equity. characteristics of GDRs: 1.it is an unsecured security 2.a fixed rate of interest is paid on it 3.it may be converted into number of shares 4.interest and redemption price is public in foreign agency 5.it is listed and traded in the share market Global Depository Receipt is not a very different financial instrument, from that of ADR. In fact if the Indian Company which has issued GDRs in the American market wishes to further extend it to other developed and advanced countries such as Europe, then they can sell these ADRs to the public of Europe and the same would be named as GDR.