A dual listing occurs when a publicly-traded company decides to list its publicly traded shares on more than one global stock exchange. Although a dual-listed stock is sometimes referred to synonymously with a secondary listing (or cross-listing), there is a distinct difference. A company that is dual-listed breaks off the other stock into a separate legal entity that operates contractually as a single economic entity. For this reason, dual-listed stocks are not mutually interchangeable. In recent years, Alibaba (NYSE:BABA) undertook a secondary listing on the Hong Kong Stock Exchange (HKSX). However, because it was a secondary listing, trade the shares interchangeably.
A company chooses to be dual listed to gain access to capital. This is particularly true of international companies that may have their primary listing in their home country but wish to have access to U.S. capital markets. However, in some cases, the reverse is also true. A company that has its primary listing in the U.S. may also be listed in its home country to benefit those investors.
Although there are not many drawbacks to a dual listing, many companies feel that the potential benefits of access to capital are not worth the additional regulatory and financial costs of joining another exchange.
Growth companies that are publicly traded may sometimes choose to exchange their shares on a secondary exchange. Regardless of their country of origin, many companies choose to make the New York Stock Exchange (NYSE) or Nasdaq its primary exchange. In these cases, a dual listing is often undertaken to gain exposure to the company’s home market.
There are distinctions between a dual listing and a secondary listing (or cross-listing). However both methods have as their primary purpose the opportunity to increase capital and liquidity. This was the case with Alibaba who initiated a secondary listing on the Hong Kong Stock Exchange in 2019. Alibaba was and remains listed on the NYSE.
In this article, we’ll take a closer look at a dual listing including reviewing the benefits and drawbacks. We’ll also review the listing requirements for the NYSE and Nasdaq. Since a company has to meet the listing requirements of a particular exchange, you can see why it can become expensive and require additional legal and financial personnel to ensure that all requirements are being met.
What is a dual listing?
A dual listing occurs when a company lists its stock on multiple stock exchanges. This is sometimes referred to as cross-listing or interlisting. However, there is a key distinction. In the case of a dual listed stock, the company is listed as two independent entities that function as a single economic entity.
It’s important to note that a company’s primary listing is the exchange on which its shares first traded, usually via an initial public offering (IPO).
A dual listing may take several forms. It’s not uncommon for international companies that have a home base outside of the United States to seek a primary listing on one of the major U.S. stock exchanges. In addition to having access to U.S. capital markets, these listings are generally considered to be more prestigious which adds credibility for potential shareholders.
A company may have a primary listing in its home country and a secondary listing on a foreign exchange. This is the case for several Canadian companies that are listed on both the Toronto Stock Exchange (TSX) as well as on a U.S. stock exchange. One example of this is Barrick Gold. The company trades on the NYSE under the ticker symbol GOLD (i.e. NYSE:GOLD) and on the TSX under the symbol ABX (i.e. TSX:ABX).
Companies that seek out a dual listing may choose to use American Depositary Receipts (ADRs). ADRs do not hold the actual shares, but provide a placeholder for the actual shares. These are held in trust by a custodian bank in the company’s home country.
Why do companies add a dual listing?
The primary reason for a dual listing is to gain access to additional capital. By having the ability to offer shares to a broader audience, they can raise additional cash to fund its growth. Dual listing can also improve share liquidity. Plus, it offers diversification in the company’s capital-raising activities.
A more obscure reason that has come to light in 2020 is to provide a hedge against being delisted. in 2019 and 2020, the United States was threatening to delist Chinese companies that did not adhere to SEC regulatory requirements. In this case, several of these companies such as Alibaba already had a secondary listing (see below) on the Hong Kong Stock Exchange. This is the leading source of capital for Hong Kong and Mainland Chinese issuers.
Are there drawbacks to a dual listing?
The most significant drawback to a dual listing is the cost. Each listing carries its own costs that must be maintained. Second, companies must take care to meet the regulatory and accounting standards which can differ between countries and exchanges. This can require additional staffing.
A less significant, but realistic drawback to a dual listing is the additional time needed to update investors. This usually takes place with roadshows similar to when a company executes its initial public offering (IPO).
Dual Listing Versus Secondary Listing
As written above, a dual listing is distinct in that it requires the creation of separate legal entities. This means that shares are not interchangeable. This can get confused with a secondary listing which is when a single company chooses to offer its shares on more than one exchange.
One of the most publicized examples of a secondary listing occurred in 2019. At that time Alibaba initiated a secondary listing on the Hong Kong Stock Exchange. The listing was for 500 million ordinary shares in an effort to raise up to $14 billion of additional capital. One concern at the time was the possible dilution of Alibaba’s NYSE shares. However, those concerns have largely turned out to be unfounded.
Example of a Dual Listed Company
Carnival Cruise Lines is an example of a company that is dual listed. Carnival Corp is listed on the New York Stock Exchange under the ticker symbol CCL (NYSE:CCL). The cruise line is also listed on the London Stock Exchange (LON) as Carnival Co. & PLC. The ticker symbol is the same (LON:CCL). The two companies operate as separate legal entities but as a single economic entity.
Shareholders can buy shares of either and have the same economic and voting interest. However the shares are listed as CCL.L because the shares are not mutually interchangeable.
This is an important distinction. In most cases, a company’s stock price will be the same regardless of the exchange it is listed on. However, the stock price will reflect the currency of the region it is listed in. In the case of Carnival, its listing on the London Stock Exchange is calculated in pence sterling.
How Much Is the Listing Fee For the NYSE or NASDAQ?
A company that is preparing to list on the NYSE will pay anywhere from $150,000 to $295,000. Included in this is a $25,000 application fee, a one-time $50,000 fee and a fee that currently amounts to 4 cents per share to list. However, the company will not pay more than $295,000. Once listed, a company will continue to pay annual fees on a per share basis. Currently that amount is the greater of $0.00113 per share or $71,000.
By contrast, the Nasdaq has a tiered structure that can result in much lower entry requirements. The three tiers are the Nasdaq Global Select Market, the Nasdaq Global Market and the Nasdaq Capital Market.
A listing on the Nasdaq Capital Market carries the lowest entry requirements. The initial fee will be between $55,000 and $80,000 depending on the number of shares issued. After that, companies pay an annual fee between $43,000 and $77,000.
For the Global Select Market and Global Market the fees can be higher than the NYSE. Entry fees range from $175,000 to $320,000 and annual fees will be between $46,000 and $159,000.
What Are Listing Requirements and Why Are They Important?
Listing requirements provide companies the criteria and minimum standards that they must adhere to trade on a particular exchange. And like the listing fee, there are differences between major exchanges. The differences between the Nasdaq and NYSE are listed below.
New York Stock Exchange Listing Requirements
Prior to being listed and in addition to the listing fee (outlined above), a company must provide:
- A list of corporate bylaws
- Five years of annual shareholder reports
- Copies of the company’s stock or bond certificates
- Form 10-K for the current year
- Proposed schedule of expected stock distribution
- Proxy statement from current year annual shareholder meeting
The company must also prove it meets the following additional requirements:
- It must issue a minimum of 1.1 million shares to at least 400 shareholders
- The market value of publicly traded shares must be a minimum of $40 million with a minimum share price of $4.
- $10 million in aggregate pre-tax earnings for the last three fiscal years, including $2 million in the company’s most recent year.
- Show a global market capitalization that is a minimum of $500 million with a minimum of $100 million in revenue for the last year.
- If they choose this route the company must have no negative cash flow for the prior three years.
- Revenues of at least $75 million in the last fiscal year.
Nasdaq Listing Requirements
Prior to being listed and in addition to the listing fee (outlined above), a company must meet these initial requirements:
- It must issue a minimum of 1.25 million shares
- The market value of publicly traded shares must have a minimum regular bid price of $4.
- Must have at least three market makers for its stock
- Must meet stringent government standards
- At least $11 million in aggregate pre-tax earnings in the past three years and in two years at least $2.2 million. The company must not have a year with a net loss
- A minimum aggregate cash flow of at least $27.5 million for the past three years with a market cap of at least $550 million and minimum revenues of $110 million in the prior 12 months.
- A market cap of at least $850 million with minimum revenues of $90 million.
The Final Word on Dual Listed Stocks
Despite the fact that dual listing is a rather straightforward, it’s not that common for companies to be dual listed, particularly U.S. companies. The primary reason for this is that the costs may not justify the access to additional capital and liquidity. However the opposite is true of companies that have their home base in another country. For example, it’s not uncommon for an Australian or British company to have a dual listing on a European stock exchange for access to those investors.
As an individual investor there are minimal concerns regarding a dual listed stock. Regulatory requirements mean that the stock price on the two exchanges will be close to each other barring some minor fluctuations in exchange rates.
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