As an investment banker, you should be well-versed in the stock markets and their various features as companies will rope you in for determining stock prices, issuing their IPOs, raising capital, and undertaking mergers and acquisitions. An important aspect of the stock markets is also dual and secondary listings. Let’s understand what these are.
What is a dual listing?
A dual listing is when a company lists its stocks on one or more primary stock exchanges under different registered entities. Essentially, dual-listed stocks are different stocks of the same business traded on more than one exchange in different geographical regions. The first exchange is typically in the company’s home country.
Advantages of a dual listing
Dual listing allows companies to raise additional capital since the shares are offered to a larger number of investors. Further, the company also has access to higher liquidity as the buying and selling of stock is carried out by a higher number of people as compared to only one exchange. The exchanges also operate in different time zones, hence, allowing for an increased trading time.
A popular example of a dual-listed company is Unilever. According to the Unilever website:
“Unilever PLC ordinary shares of 3 1/9 pence (ISIN GB00B10RZP78) are listed in the UK and traded on the London Stock Exchange, they are listed in the Netherlands and traded on the Amsterdam Stock Exchange (ISIN GB00B10RZP78) and they are traded as American Depositary Receipts (CUSIP 904767704) on the New York Stock Exchange.”
Depository receipts
As you’ll see, the last listing is called American Depositary Receipts (ADR).
These are not exactly the same as dual listings. Depositary Receipts (DRs) are negotiable financial instruments that represent the publicly traded securities of a foreign company. Hence, they’re not actual shares. They’re issued by a bank and can be traded on the local exchange without the company being registered on that stock exchange.
However, in the case of dual-listings, the company has to be registered on any other exchanges. The multiple registered companies operate under a single business.
Dual-listed companies must follow and comply with the regulations of each country’s exchange that it is listed on.
What is a secondary listing?
Secondary listing or cross-listing is when one company lists the same stock across several exchanges. Note that in dual-listings, there are two or more companies operating as a single business.
In cross-listing, however, only one company is listing its securities on exchanges other than the primary exchange. In terms of regulations, the company needs to follow those of its primary exchange only.
Advantages of a secondary listing
A secondary listing is subject to less scrutiny as a company does not have to register as an entity in a different country. Also as compared to dual listings where the company must abide by regulations of all the exchanges it is listed on, in the secondary listing, this needs to be done only for the single primary exchange.
Secondary listings are also used by companies looking for access to capital markets or to circumvent any issues when trying to issue a dual listing.
For example, Chinese electric carmaker Nio recently announced its plans for a secondary listing of its shares in Singapore.
Nio is currently listed on the New York Stock Exchange and issued a secondary listing in Hong Kong in March. Singapore would be the third exchange for Nio’s shares to trade on.
Nio’s plans are reported to be a result of a law passed in 2020 by former U.S. President Donald Trump requiring U.S.-listed foreign companies to comply with higher auditing standards. Those that failed to follow the rules could be delisted.
Major Chinese companies listed in the U.S. — such as Alibaba, JD.com and others carried out secondary listings in the event of being delisted from America’s stock exchanges.
Conclusion
Dual listings and secondary listings are common instruments used by companies to gain access to wider capital markets. Both methods have their own advantages and should be decided upon after understanding a company’s goals and priorities. To understand dual and secondary listings more extensively, you can avail this free-of-cost course on Investment Banking.
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