Although Global Depositary Receipts (GDRs) and Depositary Interests (DIs) are both instruments enabling foreign companies to access new capital from the UK and other global markets, differences between them are increasingly becoming apparent. They both offer investors a convenient method of holding foreign securities, but recently professional advisors have highlighted financial control weaknesses in the listing prospectuses of some GDRs.

A DI, in its basic form, is an electronic instrument issued by a UK Depositary (either Euroclear UK and Ireland - formerly CREST - or a registrar) supported by a holding of the foreign security for the purpose of electronic settlement in CREST. The DI carries the same ISIN as the underlying security, which means that by holding a DI, effectively you hold the security they represent.

A GDR on the other hand is an instrument issued by a global depositary bank supporting the ownership of a foreign security. GDRs are separately listed instruments traded independently of the underlying security.

Another difference between the DI and GDR is that, with Depositary Interests, there is normally no cost to the investor; the DI depositary charges the issuer a set up fee and an annual maintenance fee. With GDRs however there are issuance and cancellation costs paid by the investor, as well as dividend and custody charges.

As stated previously, the Corporate Governance of GDRs is becoming an area of concern. More than one in three GDR issuers have reported that in 2007 they failed to fully meet recommended corporate governance standards*, yet they remain exempt from the corporate governance requirements of primary listings on the main UK market. Certain groups across the equity capital markets believe that there is a misconception that GDRs are governed in the same way as primary listings.

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*A third of GDR issuers report weak financial controls, Deloitte, 20/02/08