If a foreign business can only issue new stock and raise money on its local exchange, it's losing out on the millions of investors in the U. Businesses that are based in the U. Additionally, trading on U. This makes the stock price more reliable. The more people who are trading the stock, the less likely it is to be mispriced.
The final advantage is more trading time. If a stock is listed on exchanges in different time zones, it will be tradable throughout the day instead of just while one of the exchanges is open. However, this is unimportant for many businesses because most exchanges allow some form of after-hours trading.
The pros, as outlined above, are access to capital with new stock offerings and more stock trading volume. The cons are mostly related to cost. Listing on multiple exchanges comes at a price. The custodian bank holding the trust when a company goes the ADR route has to be paid, and the entity needs to be structured and updated by lawyers.
If the business doesn't dual-list via an ADR, there will be massive costs to state financials under SEC regulations and comply with all other exchange rules. Additionally, when the company is taking advantage of a stock trading on multiple exchanges by issuing more shares, the management team will need to travel to those locales.
In the U. Foreign companies may find it beneficial to hold multiple shareholder meetings as well. All in all, the cons of dual-listing are likely immaterial to multinational corporations looking to raise hundreds of millions or even billions of dollars.
On a micro level, dual-listing does not affect stock prices. The prices on the different exchanges will be the same when you account for currency differences and transaction costs. Clementine Freeth. Costs associated with a dual listing. Initial costs include instructing local counsel and financial advisors and ongoing costs include increased regulatory compliance. These are outweighed by greater access to capital and potentially lower commissions than on other exchanges.
Liabilities associated with listing requirements such as warranties, indemnities and ongoing obligations. Liaising for cross-market releases. Processes are put in place to make and monitor public announcements. Potential changes to the board of directors, company constitution and corporate governance considerations.
Potential time demand on management. Potential concerns following Brexit There has been concern that Brexit may affect EU recognition of UK public markets and therefore restrict trading in shares listed in both London and elsewhere in the EU. Conclusion A dual listing in the UK is an obvious choice for any listed company with an international business or asset base that is looking to increase its global presence and investor base.
Trainee Simon Jennings also contributed to this article. Keep in touch. Looking for someone? Generic filters Hidden label. Hidden label.
Looking for an Office? The issuer must control the majority of its assets and have done so for at least 3 years. Ongoing obligations. Yes, reverse takeovers and transactions representing a fundamental change of business require approval. No, all notifications made by the issuer in the previous 12 months must be available on its website. More liquidity and increased ability to raise funds or use shares for acquisitions.
But the change, which requires shareholder approval, would mean its shares will only be traded at its main market listing in Sydney.
So why would a major business like BHP choose to take itself off the Footsie and what motivations would a firm have to have two primary listings in the first place? The firm has two separate legal identities, but function as one economic entity.
Many publicly-traded businesses are listed on two or more stock exchanges where investors can buy their shares. But dual-listed companies have two primary listings with two separate legal identities that function as one economic entity. Another mining giant Rio Tinto is dual-listed. So is cruise operator Carnival Corporation, financial services firm Investec, and its former subsidiary Ninety One, while formerly dual-listed groups include Unilever and Royal Dutch Shell.
Each division has separate shareholder bodies, annual general meetings, and abides by different reporting requirements. The company would like to revamp that set-up. It wants a unified corporate structure, incorporated in Australia, which it said would make it 'more agile and efficient, with improved flexibility to shape our portfolio for the future'. Access to capital is one of the main reasons, as it allows firms to potentially gain a larger base of investors, especially from financial powerhouses based in major cities like London and New York.
Because it provides access to two stock markets, a dual listing can enhance a corporation's public profile and boost its liquidity by increasing the avenues by which it can raise capital.
Furthermore, shares can be traded more frequently if exchanges are located in different time zones. Rio Tinto is listed in London and Sydney, so while the former is asleep, the latter exchange can pick up the slack. Maike Currie, investment director at Fidelity International, also notes that firms with substantial presences in multiple markets often seek a dual-listed arrangement. Two Cs can sum up the biggest problems affecting DLCs: costs and complexity.
It is more expensive for companies to maintain two separate legal entities, which incur significant costs from both listing in the first place and employing extra staff and offices to deal with the added bureaucracy.
Practically, confusion can arise from operating in different time zones with different share prices, shareholder voting procedures and corporate laws.
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