International depository receipts
International Depositary Receipts (IDR) are negotiable bank-issued certificate representing ownership of stock securities by an investor outside the country of origin. An international depositary receipt, or IDR, is the non-U.S. equivalent of an American Depositary Receipt. These instruments have been used since the 1970s to facilitate international trading in securities. The securities backing the receipt remain in the custody of the issuing bank or a correspondent.
The history of the IDR began in the late 1920s when Selfridges, the London department store, decided to expand its investor population in the U.S. The rules in the UK governing the transfer of shares were strict: all transfers were required to pass through the list of registered holders held by the share registrar, who was invariably located in England. In those days it was not felt necessary to specify the geographic scope applying to this rule. Therefore if a US investor in Selfridges wished to sell his shares to another investor via the New York Stock Exchange, the transfer was not considered legal until a two-legged communication had been successfully completed with the UK share registrar.
With the Cunard liners of the day taking four days to cross the Atlantic carrying the mail, the whole process of trading a UK share in New York could take weeks before final settlement was complete.
A U.S. bank, Guaranty Trust, solved the problem by holding the Selfridges shares in London in its own name, which was recorded on the UK register, and then issuing promissory notes representing those shares in New York. Being both denominated in U.S. dollars and issued against a U.S. legal contract with investors, the promissory notes traded as U.S. securities in New York and worked in exactly the same manner as other U.S. securities. Ownership of the promissory notes was recorded in a U.S.-held register.
These promissory notes became known as American Depositary Receipts.