- Listing a company on multiple stock exchanges is called dual listing or cross listing.
- One of the benefits of dual listing is increased access to capital.
- Generally while dual listing stock prices should remain the same on both exchanges.
Stock exchanges are complicated places where shares of company stock are traded. Company stock is basically the shares of ownership of a corporation, each matching up with the value of the company and offering potential access to fractions of a company's earnings and proceeds. These little bits of power are then traded across exchanges by stockbrokers and traders who, like everyone, are interested in turning a profit and making a return on their investment. There are many of these stock exchanges all around the world, with some big ones being the American NYSE and NASDAQ as well as Asian ones like the Hong Kong Exchange and the Shanghai Stock Exchange. Companies list themselves on these exchanges to give potential buyers access to their shares and in doing so provide them with the opportunity to invest in something much bigger than themselves.
Can Companies Trade On More Than One Stock Market?
An interesting thing to note, however, is that most companies are only listed on a single exchange, accessible only from one spot. But this isn't a strict rule rather it's more of a common trend. It is in fact possible to trade on multiple exchanges if a company decides to go through the effort of listing themselves as such. This process is referred to as dual listing or cross-listing. Dual listing is sometimes defined as being when two separate companies function as one company with each having their own stocks listed on different exchanges, with the term cross-listing used to refer to having one company's shares on multiple different exchanges. Regardless of the naming convention, the basic idea is the same.
Dual Listing Explained
Dual listing is basically when a security, meaning any financial instrument including things like stocks, bonds, or options, is listed on two or more exchanges. This method of being listed on multiple exchanges is often attractive to non-US companies because of the massive amount of capital available in the US. Dual listing also often comes up for companies that share a similar culture or language with their base of operations, for instance, many Canadian companies are also listed on US exchanges.
Dual listing isn't easy to do. In order to get placed on well-known exchanges, there are a stringent set of qualifications that must be met, often including country-specific regulatory requirements. It may also involve a restatement of company financials as well as include various other exchange-specific listing criteria.
Advantages And Disadvantages
So given all the difficulties associated with being listed on multiple exchanges, what exactly is the benefit to the company? There are a few advantages to offset the challenges. These include access to a greater and more diversified amount of capital from international markets, as well as increased liquidity, meaning it is easier for shares to be converted into ready cash. Cross-listing also comes with increased media attention and in making it on a high-standard exchange, the company can signal their quality to outside investors.
Some of the downsides of cross-listing include the aforementioned increased requirements, increased analysis of, public attention and pressure on executives, and additional fees for the organization. Regardless, for those looking to invest generally stock prices are kept the same across markets, barring significant price moves in one market before another has begun to trade, meaning the exchange you purchase a company's shares from doesn't matter too much.