What is a primary listing?
Most companies consider it essential to have a prestigious primary listing on Nasdaq or the NYSE (New York Stock Exchange). Why? This will give the company’s stocks more credibility. Hence, more credibility means more trust from investors, so they will most likely buy them. And when we say primary listing, we refer to the main stock exchange where a public company’s stock is being traded.
The way a company does listings might be different from another. Some companies may opt to trade on different exchanges with secondary listings. They do this because they want to have more access to investors and more liquidity.
Let’s start from the beginning.
When companies decide to go public, and they have their IPO or Initial Public Offering, their stocks will become available on exchanges. They become part of a primary listing after their IPO. So what happens in an IPO? They set prices for their shares and sell them to an initial set of public shareholders. Later on, the shares are available to purchase or sell on an exchange after the IPO floated them in the public shareholders’ hands. It is possible with a secondary market.
Requirements for listing
There are many stock exchanges, and they are not similar when it comes to requirements, criteria, and minimum standards. If a company wants its stock to be listed on a specific stock exchange, it must be ready to meet all the exchange’s requirements. For example, the New York Stock Exchange allows membership in the exchange. If the company cannot meet all of the exchange’s listing requirements, they can still offer their shares to be traded over the counter.
Can a stock be listed on more than one exchange?
We already mentioned earlier that some companies opt to list their stock on more than one exchange. There is a practice that we call dual listing and cross-listing that makes it possible for a stock to be listed on more than one exchange. The company should also meet the listing requirements of these exchanges. And when we say requirements, we refer to company size and shares liquidity.
Many companies beyond the US are interested in the dual listing because the capital markets in the US are deep. After all, the US has the most massive economy in the world. Should a company decide to engage in the dual listing, they would do so, preferably in a country with the same culture and language. For example, many companies in Canada are also listed in the US exchanges.
Why list on an exchange?
If it is acceptable even if a company does not get listed on an exchange, why should it still do so? Before we end the topic, let us list more benefits that a company can have if it gets listed on an exchange.
- The company can acquire other companies with equity.
- There is more access to potential investors, traders, hedge funds, mutual funds, and more.
- The company can generate funds by issuing additional stock offerings.
- There are more chances to gain better employees and opportunities to compensate them better.
- The costs are lesser when getting capital through a loan.
Aside from prestige, these are just some of the benefits of getting listed. If you are a trader, won’t you also prefer the ones listed on a stock exchange?