What Is a Primary Listing?
A primary listing is the main stock exchange where a public company's stock is traded. For some companies, it is crucial to have a prestigious primary listing on the New York Stock Exchange (NYSE), Nasdaq, the Hong Kong Stock Exchange, the London Stock Exchange, and the Tokyo Stock Exchange as this lends credibility to the stock and makes investors more likely to purchase shares. In addition to a primary listing, a stock may trade on other exchanges with secondary listings. A company might want to do this to increase its liquidity and investor reach.
- A primary listing refers to the exchange on which a company's shares first appeared, primarily via an IPO.
- A primary listing on a prominent exchange often signals that the issuer's securities are high quality and that the issuer is reputable.
- In order to gain a primary listing, the issuing company must meet a set of strict financial and regulatory criteria.
- In addition to its primary listing, a stock may trade on other exchanges with secondary listings to increase liquidity and investor reach.
Understanding Primary Listings
Stocks first become available on an exchange as part of a primary listing after a company conducts its initial public offering (IPO). In an IPO, a company prices and sells shares to an initial set of public shareholders. After the IPO "floats" these shares into the hands of public shareholders, the shares can be bought and sold on a listed exchange, through the secondary market.
Listing requirements comprise the various criteria and minimum standards established by stock exchanges, such as the NYSE, to allow membership in the exchange. Only when an exchange's listing requirements are met can a company list shares on that exchange for trading. Companies that do not meet listing requirements may still be able to offer shares for trading over the counter.
For example, Snap (SNAP), the parent company of popular social media app Snapchat, was one of the highest anticipated IPOs of 2017. It decided to list shares on the NYSE and began trading on March 2, 2017. The NYSE lists more than 2,400 companies, including many components of the Dow Jones Industrial Average (DJIA), with a total market cap in the tens of trillions of dollars.
In order to be listed on more than one exchange, a practice called dual listing or cross-listing, the company must meet the requirements to be listed on these other exchanges, such as company size and liquidity of shares.
Dual listing is attractive to many non-U.S. companies because of the depth of the capital markets in the U.S., the world's largest economy. Companies tend to list in countries that have a similar culture or share a common language with their native jurisdiction. For example, many of the biggest Canadian companies are also listed on U.S. exchanges.
A foreign company may seek an ordinary listing, the most prestigious type of listing, on an exchange such as the NYSE or Nasdaq, but the requirements to do so are stringent. In addition to meeting the exchange's listing criteria, the foreign company must also satisfy U.S. regulatory requirements, restate its financials, and arrange for clearing and settlement of its trades. For example, cross-listing would allow a multinational corporation to trade not just on the NYSE, but also on the London Stock Exchange. If the company does not continually meet an exchange's listing requirements, it will be delisted.
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.
Advantages of Listing on an Exchange
Beyond prestige, there are a number of advantages when a company's shares are listed publicly on an exchange. These advantages may include:
- The ability to acquire other companies using equity instead of just cash
- Attracting the attention of influential investors, hedge funds, mutual funds, and institutional traders
- The ability to raise funds through the issuance of additional offerings of stock
- An enhanced ability to attract and better compensate employees
- A reduction in the costs of obtaining capital through loans