Introduction
What Is a Dual Listing? This is a dual listing when security is listed on two or more markets. Companies often choose to list on more than one exchange since doing so allows them to take advantage of advantages, including extended trading hours (if the markets are in separate time zones), greater capital availability, and greater liquidity. Companies that wish to be listed on both the New York Stock Exchange and another exchange may choose from among several listing categories, each with its own set of prerequisites and rewards. A company's shares are traded on more than one stock exchange, known as a "dual listing." A corporation is typically listed on the stock exchange in its home country and a major U.S. exchange like the New York Stock Exchange or Nasdaq.
The 'Real' Dual Listing
A corporation with shares listed on more than one stock exchange is said to have dual-listing. However, this phrase is often used interchangeably. Regrettably, this can lead to some muddled thinking on our part. Shares can be listed on more than one exchange in several different ways; the term "dual-listing" refers to one such manner that differs differently from the others. Dual listing occurs when a corporation has two distinct entities, each of which lists its shares on a different stock exchange.
This is common if two companies merge and both have publicly traded shares. In 2002, Carnival Cruise Lines paid $1.1 billion to acquire P&O Princess, a British cruise line that competed with Carnival. The combined business maintained its listings on the London Stock Exchange and the New York Stock Exchange rather than removing P&O's shares from the LSE. A lot of legal fine-tuning is involved in setting up such a structure. Still, the result is that the two companies are functionally combined yet remain legally independent. That means they are technically two separate companies; they function as if they were one. Investors in any class of shares hold the same voting and ownership rights in the company.
How a Dual Listing Works
Because the United States is the world's largest economy, many companies from outside the country find the prospect of a dual listing (also known as interlisting or cross-listing) appealing. According to the statistics, businesses prefer to list in nations that are culturally familiar or have a common language. For instance, almost all of Canada's largest corporations can be found on American stock markets. There are strict conditions for a foreign firm to be eligible for an ordinary listing on a major U.S. stock exchange like the New York Stock Exchange (NYSE) or the National Association of Securities Dealers (NASD). The foreign firm must also meet U.S. regulatory standards, restate its financials, and set up trade clearing and settlement to be listed on the exchange.
Advantages and Disadvantages of a Dual Listing
A dual listing can provide many benefits. A wider range of investors is made available to companies, which can also be advantageous for investors. Because of the high level of investor interest and the absence of local resource businesses, many resource companies from Australia and Canada list their shares on European exchanges. Dual-listed stocks are more liquid and raise the company's prominence in the eyes of the public because they can be traded on two markets. With a dual listing, a company doesn't have to rely heavily on its home market for capital-raising purposes. A major negative of the dual listing is the high cost of both the initial listing and the maintenance of that listing. The demand for more legal and financial personnel may also arise due to various regulatory and accounting requirements.
Depositary Receipts vs. Dual-Listed Stocks
The shares of a foreign firm are represented by a depositary receipt, which is a financial security issued by a third party. Depository receipts come in various forms, including the more well-known American Depositary Receipts (ADR) and European Depositary Receipts (EDR). Compared to a dual-listed firm, a depositary receipt is different because it is not the same thing as the underlying shares but only reflects them. In any case, there is a conversion mechanism by which depository receipts can be turned into actual shares.
The issuer of a depositary receipt is an independent third party rather than the corporation itself, which is another key distinction. Companies with two stock exchange listings are more likely to be actively traded than depositary receipts. The increased settlement risk results from the possibility that the various listings must be re-registered. It creates friction in the buying and selling of the same security on different markets.
Conclusion
Security listed on more than one stock exchange is a dual listing. Additional cash and higher liquidity are the key benefits of a dual listing. Non-U.S. corporations often use American Depository Receipts (ADRs) to achieve a dual listing in the United States. Except for fluctuations due to currency exchange rates and other issues, stock prices should be consistent across both markets. Otherwise, a third-party arbitrator will intervene. It can be challenging for some companies to keep an eye on share prices in two markets at once, necessitating the creation of two distinct sets of marketing and investor relations strategies.
