What is cross listing?
Cross-listing occurs when a company in one country is listed on more than one stock exchange or on a stock exchange in another country. A company would typically want to become interlisted if it needed access to more capital than is available on an exchange or if the move was part of its strategic growth plan. This tactic has several advantages and disadvantages.
To be approved for cross-listing, the company in question must meet the same requirements as any other listed member of the exchange with respect to Accounting rules. These requirements include initial filing and ongoing filings with regulatory authorities, a minimum number of shareholders and minimum capitalization.
Learn more about cross listing and some of the issues companies face when deciding to list on multiple exchanges.
Key points to remember
- Cross-listing is the listing of a company’s common stock on a different exchange from its primary and home exchange.
- Companies must meet stock exchange listing requirements to be listed.
- The benefits of cross-listing include trading stocks in multiple time zones, increased liquidity, and access to new capital.
- Alibaba Group is an example of cross-listing since the e-commerce giant is listed on the NYSE and the Hong Kong Stock Exchange.
Understanding Cross Quotes
The term cross-listing often refers to foreign-based companies that choose to list their shares on exchanges based in the United States, such as the New York Stock Exchange (NYSE), but US-based companies can choose to list on European or Asian stock exchanges to gain more access to a foreign investor base.
Multinational companies tend to list on more than one stock exchange. These companies can list their shares both on their national stock exchange and on the main ones of other countries. For example, the multinational BP (BP) – formerly British Petroleum – trades on the London Stock Exchange and the NYSE.
Advantages of cross listing
Although many companies choose to list only on their local exchange in their home country, cross-listing on multiple exchanges has advantages.
Access to capital
Some of the benefits of cross-listing include the fact that stocks trade in multiple time zones and multiple currencies. The international exhibition offers companies more liquidity, which means that there are a good number of buyers and sellers in the market. The extra liquidity provides businesses with a greater ability to raise capital or fresh money to invest in the future of the business. Companies can raise funds by issuing new shares or corporate bondswhich are debt securities that pay interest to investors in exchange for cash.
Enhances a company’s image
Companies that list themselves on international stock exchanges often do so, in part, to strengthen a company’s brand. By registering on multiple exchanges, any positive news will likely be shared by international media. A company with an international brand tends to be seen as a major player in an industry. Companies can use this brand name to increase their sales and attract more media attention in local foreign markets.
Also, some companies may perceive a greater corporate reputation from having their shares listed on two or more stock exchanges. This may be especially true for foreign companies that list in the United States. Those who obtain quotes in the United States do so via US certificates of deposit (ADR). The list of ADRs is long, with many household names such as Baidu Inc. from China, Sanofi from France, Novartis from Switzerland, Toyota and Honda from Japan, and AstraZeneca from the UK.
For example, companies headquartered in developing countries could list on major stock exchanges in the United States or London to improve the image of the company, especially since major stock exchanges have stricter listing requirements.
A cross-listing can help companies that have overseas offices or manufacturing facilities by improving their image with the local population. Therefore, the company might not be considered a foreign company. As an active participant in local markets, companies can better recruit talented workers.
Requirements and Obstacles with the Cross List
Shares of a company must meet stock exchange listing requirements for any stock exchange on which they are listed and pay all listing fees. The adoption of Sarbanes-Oxley (SOX) requirements in 2002 has made cross-listing on U.S. exchanges more difficult due to accounting, auditing and internal controls requirements, which emphasize corporate governance and responsibility. There are also variations in accounting standards required for financial reporting between international markets. American companies, for example, must adhere to GAAP or generally accepted accounting principleswhich could be a tough hurdle for some businesses whose home exchange may have more lax standards.
Concrete example of cross quotation
Although the United States has always had stricter registration requirements, there was a notable exception in 2014 with the Hong Kong Stock Exchange (HKG).
Alibaba Group Holdings Ltd. (BABA), the Chinese e-commerce giant, sought to list on the Hong Kong Stock Exchange, but was turned down due to corporate governance practices. from Alibaba two-class structure left too much power in the hands of a few individuals within the company when electing board members. As a result, Alibaba continued its initial public offering (IPO) on the NYSE in September 2014, which became the largest IPO in US history at that time.
The company said it preferred to list in Hong Kong, but found itself in the United States with a base of eager and deep institutional investors to back its equity. In November 2019, Alibaba was finally interlisted on the Hong Kong Stock Exchange with an offering of 500,000,000 new shares.
Why do companies cross-list?
Cross-listing gives a company a larger pool of foreign investors, access to more capital, and establishes a presence in the countries where the company is listed.
What are the disadvantages of cross-listing?
A company that cross-lists may incur additional costs to comply with the regulations and requirements of the exchanges and countries in which it wishes to list.
What are listed companies?
Interlisted companies are companies that become listed on more than one stock exchange or on a stock exchange in another country.