Dual listing occurs when a company’s stock is listed on two or more exchanges. Typically, a company will be listed on a stock exchange in its home country as well as a prominent U.S. exchange such as the New York Stock Exchange or Nasdaq.
Definition and Example of Dual Listing
A dual listing allows investors to purchase shares of a company on two or more stock exchanges. One example of a dual-listed company is Tencent, an internet and technology company with headquarters in Shenzhen, China. Tencent has been listed on the Hong Kong Stock Exchange since 2004, and is listed in the U.S. on the Nasdaq as an American depositary receipt (ADR).
ADRs give U.S. investors a way to purchase shares of non-U.S. companies without the complexities of buying them through their home stock markets.
Nestle and Thomson Reuters are two additional examples of companies listed on U.S. stock exchanges as well as stock exchanges in other countries (Switzerland in the case of Nestle, and Canada for Thomson Reuters).
The primary benefits of a dual listing include additional liquidity, increased access to capital, and the ability for shares to be traded for longer periods each day if the exchanges are in different time zones. A dual-listed stock also may gain greater market visibility, which in turn may result in additional media coverage and make its products or services more visible.
How Dual Listing Works
A company most often elects to pursue dual listing to gain access to capital outside its own country’s stock exchange. It may also seek a dual listing to commit to comply with more stringent exchange listing standards.
Because the New York Stock Exchange and Nasdaq are the two largest stock exchanges in terms of market capitalization, most dual-listed companies there are non-U.S. companies that wish to have exposure on U.S. stock markets.
The most common way a foreign company dual lists on a U.S. stock exchange is through an ADR. An ADR is issued by a U.S. bank or broker. Investors who purchase shares of a company via an ADR do not own shares of the company per se, but rather shares that are owned by the issuing bank or broker.
Similarly, companies may offer investors shares in markets located in countries other than the U.S. through global depositary receipts (GDR), which are issued by a depository bank in an international market, most often Europe.
A non-U.S. company that wishes to be listed on a U.S. stock exchange must pay application and issuing fees totaling more than $50,000.
In addition to meeting the exchange’s listing requirements, an overseas company that wants to be listed on either of the two major U.S. stock markets must also meet strict Securities and Exchange Commision (SEC) reporting rules, including filing an annual report that conforms to U.S. generally accepted accounting principles (GAAP) standards.
Pros and Cons of Dual Listing
Increased access to capital
Heightened consumer awareness
Extended amount of time to trade on multiple markets
Expensive listing fees and associated costs
Additional time spent meeting listing requirements and accounting regulations
More requirements to communicate with investors
- Increased access to capital: Simply put, exposure to more investors increases the likelihood of raising additional capital.
- Greater liquidity: When more people can purchase shares of a company, it increases liquidity, which typically reduces the bid-ask spread.
- Heightened consumer awareness: More awareness of a company among investors can result in increased awareness among consumers.
- Extended amount of time to trade on multiple markets: If a company is listed on two or more stock exchanges in significantly different time zones, that increases the number of hours the stock can be traded each day.
- Expensive listing fees and associated costs: Listing a stock on either major U.S. stock exchange costs in excess of $50,000, which is minimal if a company stands to raise millions in additional capital. But there also may be significant costs for additional accounting and reporting needs.
- Additional time spent meeting listing requirements and accounting regulations: Different countries’ stock exchanges have differing regulations, which require salaried professionals to wade through and ensure that the company is in compliance with them. The same can be said for meeting separate accounting and reporting regulations.
- More requirements to communicate with investors: Preparing to list on a new stock exchange usually requires corporate officials to spend a generous amount of time presenting to investment banks and individual investors. Here again, however, the added expense can prove to be minimal compared with the additional capital raised.
What It Means for Investors
Dual listing is generally a positive for investors, as it provides easier access to companies outside their home market that they might not otherwise be able to invest in. In most cases, investors can purchase shares of dual-listed companies through the same brokerage accounts they use to purchase domestic stocks and bonds.
Dual-listed companies can seek to be listed on less-regulated exchanges, such as over-the-counter (OTC) markets. Investors should remember the “buyer-beware” guidance that applies for all OTC stocks.
- Companies elect to be dually listed primarily to increase access to capital and make it easier for investors outside of their home country to purchase shares of their stock.
- The most common means for companies to seek dual listing in the U.S. is through issuance of ADRs.
- The expenses of dual listing can be significant, but many companies consider them well worth paying, given the additional amount of capital that can be raised.