e rit ar et in ndia 14.13
Derivatives are securities under the SC(R)A comply with Know Your Customer (KYC) norms
and hence the trading of derivatives is governed of respective companies. It also involves foreign
by the regulatory framework under the SC(R)A currency risks. IDR subscription and holding
and are allowed to be traded on the floors of the is just like any equity share trading on Indian
stock exchanges. exchanges and does not involve such hassels.
Stan Chart is the first and the only issuer of
inDiAn DePository receiPts (iDrs) IDRs in Indian markets which came out with its
As per the definition given in the Companies IDR issue in May 2010 through which it had raised
(Issue of Indian Depository Receipts) Rules, 2004, Rs. 2,500 crore on high demand from institutional
IDR is an instrument in the form of a depository investors and was listed on the Bombay Stock
receipt created by the Indian depository in India Exchange and National Stock Exchange. Ten
against the underlying equity shares of the issuing StanChart IDRs represent one underlying equity
company. In an IDR, foreign companies would of the UK-listed bank. StanChart IDRs were due
issue shares, to an Indian depository [say the to come up for redemption on 11 June, 2011.
National Security Depository Limited (NSDL)], SEBI came out with the new guidelines in June
which would in turn issue depository receipts to 2011which ruled that after the completion of one
investors in India. The actual shares underlying year from date of issuance of IDRs, redemption
IDRs would be held by an Overseas Custodian, of the IDRs will be permitted only if the IDRs
which shall authorise the Indian depository to are infrequently traded on the stock exchange in
issue of IDRs. India. SEBI rules make it clear that if the annual
Just try to understand in a simple way. An trading turnover in IDRs in the preceding six
IDR is a mechanism that allows investors in India calendar months before redemption is less than
to invest in listed foreign companies, including 5 per cent, then only the company could go into
multinational companies, in Indian rupees. IDRs for redemption of IDRs. The regulator had said
give the holder the opportunity to hold an interest that the company issuing IDRs would have to
in equity shares in an overseas company. IDRs are test the frequency of trading the instrument on
denominated in Indian Rupees and issued by a the bourses on a half-yearly basis ending June and
Domestic Depository in India. They can be listed December every year.
on any Indian stock exchange. Anybody who
can invest in an IPO (Initial Public Offer) is/are shAres ‘At PAr’ AnD ‘At Premium’
eligible to invest in IDRs. In other words, what An ordinary share in India, in general, is said to
ADRs/GDRs are for investors abroad with respect have a par value (face value) of Rs. 10, though
to Indian companies, IDRs are for Indian investors some shares issued earlier still carry a par value of
with respect to foreign companies. Rs. 100. Par value implies the value at which a
But one question comes in mind. How does share is originally recorded in the balance sheet as
investing in IDRs differ from investing in shares ‘equity capital’ (this is the same as ‘ordinary share
of foreign company listed on foreign exchanges? capital’). SEBI guidelines for public issues by new
Indian individuals can invest in shares of foreign companies established by individual promoters
companies listed on foreign exchanges only and entrepreneurs, require all new companies to
upto US$ 200,000 and the process is costly and offer their shares to the public at par, i.e., at Rs.
cumbersome as the investor has to open a bank 10. However, a new company set up by existing
account and demat account outside of India and companies (and of course existing companies