- Dual listing, also known as cross-listing or multiple listing, is a phenomenon where a company seeks to list its stock on different stock exchanges.
- The dual listing requires companies to meet certain legal and regulatory requirements and deposit fees.
- Dual listing offers numerous advantages such as exposure to huge capital, new investors, increased volatility, and so on.
Have you noticed that various companies are listed on different stock exchanges? Stock listed on multiple exchanges sounds weird by it is a common phenomenon in the modern corporate world. Various companies are having their shares trading on more than one stock exchange. There are multiple reasons why companies list on different stock exchanges. But let’s first see what dual listing is.
The dual listing
Dual listing, also known as cross-listing, is a phenomenon that allows companies to list their stocks on different stock exchanges. There are two key aspects here, primary listing and secondary listing. The primary listing is the main stock exchange listing where the company’s stocks are traded. Secondary listing is the listing on a foreign stock exchange.
The dual listing requirements
Any company that looks forward to trading its stock on a particular stock exchange, must follow certain protocols – meet stock exchange’s requirements and pay fees. Similarly, a company looking to trade its stock on two stock exchanges, must meet the requirements of both stock exchanges and pay fees of both primary and secondary stock exchanges. Besides initial filing requirements, stock exchanges also require ongoing listing requirements, requirements regarding a number of stockholders, and minimum capital requirements.
Yes, there are price differences in the dual listing. Share prices aren’t the same on both stock exchanges. However, there shouldn’t be a difference in stock prices on both stock exchanges as stock is for the same company. Theoretically, the share price difference appears because of the difference in trading hours when both stock exchanges exist in different time zones. Moreover, the difference doesn’t last for long as investors looking to exploit price differences immediately rectify them.
Why do companies seek dual listing or cross-listing?
Companies seek dual listing because there are various benefits associated with it. The first major benefit is exposure to larger capital markets. This is especially true in the case of companies looking to list their stocks on US stock exchanges. Being the largest economy in the world, the US exposes foreign companies to huge capital and that is what entices foreign companies to seek dual listing on US stock exchanges.
The second major benefit of a cross listing is substantially increased volatility. It is obvious that when investors have more shares to buy and have more than one option to trade shares from, the liquidity will increase. Increased volatility also affects bid-ask spread that remains minimum. The lowest possible bid-ask spread makes buying and selling dual-listed stocks a lot easier for investors.
Besides exposure to a massive amount of capital and new investors, the dual listing also significantly improves a company’s public profile. Let’s suppose that when both stock exchanges are in different time zones, trading hours increase. More and more investors engage in that company’s stock trading and thus public profile improves a lot. Furthermore, companies that operate in different countries also seek cross-listing for various advantages.
Disadvantages of dual listing
The flip side of the coin is the disadvantages of stock which list on multiple exchanges. Cross-listing also comes with certain disadvantages. The first and foremost disadvantage of a dual listing is that it is a complicated process. Different stock exchanges have different regulations and requirements. There will be huge differences in rules and regulations such as accounting standards and financial management. Therefore, companies have to acquire professional services to cope with legal and financial matters. Moreover, the dual listing also entails extra efforts from the higher hierarchy as they have to deal with new issues and also a new set of stakeholders.
Secondly, cross-listing substantially increases initial and ongoing costs and fees. Companies have to decide whether the extra costs and fees outweigh the potential benefits of cross-listing or not. If potential benefits are low, it is better not to seek dual listing. The world has already witnessed certain cases such as Charles Schwab where dual-listed companies went back to being listed on a single stock exchange. Moreover, dual-listed companies have to remain vigilant to keep share price differences at a minimum in order to prevent opportunists to exploit price differences.
Is there any alternative to multiple listings?
Depository Receipts is an alternative to multiple listings. Depository Receipts is a remarkable way of taking advantage of foreign capital while facing fewer disadvantages. Foreign companies get third parties such as banks to issue financial security representing their shares. These issued securities are known as Depository Receipts and list on a local stock market. When local investors buy that security, they can enjoy the benefits of owning those stocks but do not get outright ownership. Depository Receipts are a phenomenal way of conveniently and cost-effectively diversifying your portfolio. However, investors should also know that Depository Receipts have extremely low liquidity and offers higher risks as they only represent stocks of a company. The company doesn’t back Depository Receipts.
Dual listing, also known as cross-listing or multiple listing, is a phenomenon where a company seeks to list its stock on different stock exchanges. The dual listing requires companies to meet certain legal and regulatory requirements and deposit fees. Dual listing offers numerous advantages such as exposure to huge capital, new investors, increased volatility, and so on. However, stock listed on multiple exchanges presents various challenges as well. Companies’ operational costs substantially increase besides increased initial and ongoing listing fees. Therefore it is important for companies to conduct a thorough cost-benefit analysis before listing on multiple stock exchanges.