What it means
Most companies start with a single listing on their home exchange. As they grow, many want to be visible to investors in other markets, so they apply to list on a second exchange too.
The shares are the same shares, with the same rights, but they can be bought through either market. The main attraction is access to capital and liquidity (how easily shares can be bought or sold without moving the price).
A second listing can widen the pool of potential buyers, extend the hours in which the shares can be traded and raise the company's profile with customers, suppliers and employees in a new region. It can also make it easier to use shares as currency for acquisitions in that market.
There are costs, however. The company must satisfy the listing rules, disclosure standards and governance requirements of both exchanges, which means extra legal, audit and compliance expense.
Filing duties can differ between markets, so finance teams may have to prepare reports in more than one format. Dual listing is different from a dual-class share structure, where one company issues two types of share with different voting rights.
It is also different from a depositary receipt programme, where a bank issues certificates that represent shares held at home. With a true dual listing the same ordinary shares trade on both exchanges.
Because the same share trades in two places, prices tend to stay close once currencies are taken into account. If a gap opens up, traders buy on the cheaper exchange and sell on the dearer one, an activity known as arbitrage, which pulls the prices back together within moments.
In practice
Real-world examples.
Example
A mining company founded in Australia lists a second time on a North American exchange because many of its customers and investors are based there. The listing makes it easier for pension funds on that continent to hold its shares.
Example
A technology business headquartered in Europe dual lists in New York to be near the largest pool of technology investors. It spends about $2,000,000 a year on extra audit and compliance work to meet both sets of rules.
Example
A shipping company wants to use its own shares to buy a rival in Asia. Having a local listing there means the rival's shareholders can receive shares that already trade on a familiar exchange.
Formula
Calculation
Implied price on Exchange B = Price on Exchange A (in foreign currency) x Exchange rate (dollars per unit of foreign currency)
Worked example: a company's shares trade at 40 euros on a European exchange, and the exchange rate is $1.10 per euro.
Implied dollar price = 40 x $1.10 = $44.00
If the same shares are quoted at $44.50 on a US exchange, the gap is $44.50 - $44.00 = $0.50 per share, or about 1.1% ($0.50 / $44.00 = 0.0114). Traders would test whether buying in Europe and selling in the US covers their costs, and their activity would push the two prices back together.Case study
Seen in the real world.
Northwind Harbour Logistics is a fictional freight company that trades on its home exchange. Its chief financial officer noticed that most analyst coverage and trading volume came from investors in a single country, and daily volume was thin enough that a $5,000,000 sale could move the price noticeably.
The board approved a second listing on an overseas exchange. After 12 months the company reported that its average daily trading volume had doubled and that bid-ask spreads (the gap between buying and selling prices) had narrowed. The extra annual cost of about $1,200,000 for listing fees, lawyers and auditors was judged worthwhile.
This illustrative case also shows the trade-off: the benefits arrive gradually, while the compliance costs begin on day one, so a dual listing needs a clear business reason.
Watch out
Common mistakes.
- Assuming a dual listing creates new shares or raises money automatically; it only makes existing shares tradable in another place unless the company also sells new shares at the same time.
- Ignoring currency effects when comparing prices on the two exchanges, so a normal exchange rate difference is mistaken for a bargain.
- Confusing a dual listing with an American depositary receipt, which is a certificate issued by a bank rather than the company's own shares listed on a second market.
Questions
People also ask.
Why do companies dual list?
They do it to reach more investors, improve trading volume, raise their profile in new markets and sometimes to support acquisitions or employee share schemes.
Does a dual-listed company have two share prices?
The price is quoted on each exchange in its own currency, but once exchange rates are applied the two prices stay very close because arbitrage removes gaps.
Is dual listing the same as cross-listing?
The terms overlap and are often used interchangeably, although cross-listing can also include depositary receipt arrangements.
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