What Is a Dual Listing?
A dual listing refers to a listing of any security on two or more different exchanges. Companies use dual listings because of their benefits, which include additional liquidity, increased access to capital, and the ability for their shares to trade for longer periods if the exchanges on which their shares are listed are in different time zones.
Some exchanges have a number of listing categories for companies that seek a dual listing, each with different requirements and benefits.
- A dual listing is the listing of any security on two or more exchanges.
- The main advantage of a dual listing is the access to additional capital and increased liquidity.
- A popular way for non-U.S. companies to dual list in the U.S. is by using ADRs, or American Depository Receipts.
- Considering exchange rates and other complications, stock prices should remain the same on both exchanges. If not, an arbiter will bring them together.
- Some companies find it difficult to monitor their share trading in two markets simultaneously and may need to initiate separate marketing and investor-relations plans.
How a Dual Listing Works
A dual listing, also known as interlisting or cross-listing, is attractive to many non-U.S. companies because of the depth of the capital markets in the U.S., the world’s biggest economy.
Data indicate that companies tend to list in countries that have a similar culture or share a common language with their native jurisdiction. For example, most of the biggest Canadian companies are also listed on U.S. exchanges.
In addition to meeting the exchange’s listing criteria, the foreign company also has to satisfy U.S. regulatory requirements, restate its financials, and arrange for clearing and settlement of its trades.
A popular form of dual listing for many leading non-U.S. companies is through American Depositary Receipts (ADRs). An ADR represents the foreign shares of the company held in trust by a custodian bank in the company’s home country and carries the same rights of the shares.
Note that the stock price of a dual-listed company should be approximately the same in both jurisdictions, after taking currency differences and transaction costs into account.
Otherwise, arbitrageurs would step in and exploit the price differences. That said, price divergences do occur from time to time, especially when trading hours do not overlap and there has been a significant price move in one market.
Advantages and Disadvantages of a Dual Listing
There are numerous advantages of a dual listing. Companies get access to a larger pool of potential investors, which can be beneficial for investors as well.
For example, many Australian and Canadian resource companies list their shares on European exchanges because of substantial investor interest, partly due to the relative paucity of local resource companies.
A dual listing improves a company’s share liquidity and its public profile because the shares trade on more than one market. A dual listing also enables a company to diversify its capital-raising activities, rather than being reliant only on its domestic market.
Among the drawbacks is that dual listing is expensive due to the costs involved in the initial listing and ongoing listing expenses. Differing regulatory and accounting standards may also necessitate the need for additional legal and finance staff.
A dual listing could place more demands on management as well, given the additional time required to communicate with investors in the second jurisdiction through roadshows, for example.
How Does a Dual Listing Affect a Company's Share Price?
A dual listing does not affect a company's share price. After taking into consideration transaction costs and exchange rates, a company's share price should be the same on both exchanges and not impacted in any way. Over the long term; however, it is possible that a company with strong financials and business outlook can benefit from a dual listing by having more liquidity and greater access to capital, which could improve the share price.
What Is the Difference Between a Dual Listing and a Secondary Listing?
A dual listing primarily relates to listings on two or more exchanges when the exchanges differ greatly, particularly in regards to geography and requirements. A secondary listing is when the requirements and geography of the different exchanges hone more closely to one another.
What Are Some Companies With Dual Listings?
Companies with dual listings include Investec, Unilever, Carnival, Mondi Group, and Rio Tinto.