What is a Primary Listing
A primary listing is the main stock exchange where a publicly traded company's stock is bought and sold. For companies, having a prestigious primary listing, such as the New York Stock Exchange (NYSE) or Nasdaq, lends credibility to the stock and makes investors more likely to purchase its shares. In addition to its primary listing, a stock may also trade on other exchanges. A company might want to do this to increase its liquidity and ability to raise capital.
BREAKING DOWN Primary Listing
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 the other exchange(s), such as company size and liquidity of shares. For example, cross-listing would allow a multinational corporation to trade not just on the NYSE, but also on the London Stock Exchange (LSE). If the company does not continually meet an exchange's listing requirements, it will be delisted from that exchange.
How Stocks Become Listed
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, these shares can begin to be bought and sold on a listed exchange, through the secondary market.
For example, Snap Inc. (SNAP), the parent company of the popular Snapchat social media app, was one of the highest-anticipated IPOs of 2017. It decided that it would list its IPO on the NYSE and began trading to the public on March 2, 2017. The NYSE lists over 2,400 companies, including many components of the Dow Jones Industrial Average, with a total market cap in the tens of trillions of dollars.
Advantages of Being Listed on an Exchange
Beyond prestige, there are a number of advantages to a company when their stock is listed publicly on an exchange.
Some of these may include:
- The acquisition of other companies can include the use of equity instead of just cash.
- The exposure of being listed could attract 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 can be a benefit.
- An enhanced ability to attract and better compensate employees is another advantage.
- A reduction in the costs of obtaining capital through loans can give an advantage.