A security can be listed not only in one exchange but also in two or more, and we call this “dual listing.” Most companies opt to do this. But if it is acceptable to list on a single exchange, why would companies bother and exert effort to list on more exchanges? Companies do this because of the benefits and advantages they can earn. And when we say benefits, we talk about more liquidity, capital access, and shares’ capability to trade for extended periods. This is, of course, if the shares listed in various time zones overpower the expenses of getting listed on another exchange. Some exchanges have multiple categories for companies that look for dual listing, and the requirements and benefits can be different from one exchange to another.
What is dual listing?
Dual listing, which we can also call inter-listing and cross-listing, is very popular with companies outside US jurisdiction. Why? It is due to the depth of the capital markets in the US, and we all know that the US has the most massive economy in the world. According to data, the companies that resort to dual listing do so with countries with similar ways and cultures. It is also a plus if that country has the same language as theirs. Let us say, for example, Canadian companies tend to list themselves on US exchanges because Canada’s culture and language are pretty similar to the US’s.
Companies, listings, and exchanges
If we are to name the most prestigious listing on an exchange, New York Stock Exchange or Nasdaq is included on that list. Now, foreign companies may go for ordinary listing or these prestigious ones. But if they choose the latter, the requirements may be stricter. Aside from that, foreign companies should also need to meet the US regulatory requirements, restate their financials, and make arrangements to clear and settle their trades.
Suppose we are to name one of the most popular ways to do dual listings for the most prominent companies outside the US jurisdiction. In that case, we can include ADRs or American Depositary Receipts. It represents a foreign company’s shares held by a custodian bank trust in the company’s home country. It also carries similar share rights.
This is the part that cannot be overlooked: the dual-listed company’s stock price should be similar in both jurisdictions if we take the currency differences and transaction expenses into account. If not, people who engage in arbitrages need to enter the picture and take advantage of the price differences. Hence, divergences can sometimes happen significantly when trading hours do not overlap, and there is a significant price move in a market.
Should a company list in two or more exchanges?
Let us start with the benefits. If a company engages in the dual listing, it gains access to more potential investors. In fact, the benefit is mutual for both the investor and the company. This will also give more liquidity to the company’s share and public profile since the shares will be trading not just in a single market. Finally, a dual listing can also help a company diversify its activities related to raising capital rather than just depending on its domestic market.
However, there are also some things that a company needs to consider. Some of these include the additional costs, differing regulatory and accounting standards, and more management demands. So, companies should weigh their priorities and choices when they list on exchanges.