CDIs (Chess Depository Interests): Why are some ASX companies listed in this way?

Some ASX companies have their shares listed as CDIs, or ‘Chess Depository Interests’.

This is particularly true with American companies listed on the ASX, although some others do too. Why do they use this designation?

What is a CDI?

Strictly speaking, a CDI is a financial instrument that is used by companies listed on the Australian Securities Exchange (ASX) as a form of collateral for loans and other forms of financing. But to investors they appear to trade just like any other share. So what is the difference?

Essentially, it makes it possible for Australian investors to buy the shares in these companies. Otherwise they may have to trade on US exchanges, or be subject to US taxation laws.

From the company’s perspectives CDIs can provide US companies listed on the ASX with access to Australian funds. Yes, there may not be as large a pool of individual investors as in America, but there is a very large pool relative to the population given our compulsory superannuation system, not to mention a high engagement with the stock market 0 again due to compulsory superannuation. CBA’s dividends in the past 2 years have impacted over 12m Australians who either directly own shares or have a super fund with shares in them. 

Companies that trade as CDIs include Block (ASX:SQ2), which owns Afterpay, as well as ResMed (ASX:RMD) and NewsCorp (ASX:NWS). Not all American companies trade as CDIs – Life360 (ASX:360) is one example of a company that trades as an ordinary share, but this might change now that it is listed on the NASDAQ (although this has not happened yet).

Similar but different

It is important to note that if you are an owner you do not get legal title – that remains with the depositary nominee. Furthermore, one CDI does not always equal one share in the company. The exact amount varies from company.

And critically, you may be unable vote at a company meeting as you would be able to if you were an ordinary shareholder – it depends dependant on the jurisdiction.

Nonetheless, when it comes to corporate actions such as rights issues and capital reconstructions, CDI holders may be entitled to equal treatment to that of holders whose financial products are legally registered in their own name – albeit to the extent the CDI matches up with an ordinary share.

And companies with CDIs instead of ordinary shares are obligated to follow ASX Listing Rules just like any other company. So it is not as if you’ll be left in the dark compared to ordinary shareholders.

You may be able to convert a CDI into an ordinary share, thereby giving you legal title and the same rights as ordinary shareholders. However, this can be a long process.

Do CDIs perform any different to ordinary shares?

When considering an individual company’s ordinary shares and their CDIs, not in sense that they may perform differently to underlying shares. But the question as to whether CDIs on the ASX perform different to ordinary shares, that is different altogether.

Ultimately it is impossible to draw a succinct conclusion one way or another except to say that investors can make gains from shares traded in the CDI format. Nonetheless, they should bear in mind that if the company is listed on a foreign exchange, there may be less liquidity on the ASX compared to the other exchange.

You could argue US headquartered companies more generally have more potential to perform well judging by how the market has tended to perform better than the Australian market since the GFC – but this is all US headquartered companies.

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