What it means
When a company interlists, or cross-lists, its shares appear on a second exchange as well as its home one. A business headquartered in one country might list on a major exchange in another to access a larger pool of investors and to be more visible to analysts there.
Each listing has its own trading hours, regulations and quoted currency. The listing company must meet the disclosure and governance standards of every exchange it joins, which adds cost but can improve credibility with global investors.
Because the shares are the same, their prices on different exchanges should stay closely aligned once exchange rates are taken into account. If the price in one market drifts away from the other, traders buy in the cheaper market and sell in the dearer one, which pulls the prices back together.
For managers, an interlisting can lower the cost of raising capital and widen the shareholder base. It can also bring extra reporting duties, higher legal fees and more exposure to different securities laws.
Investors benefit too, because they can trade in their own time zone and currency without opening an overseas brokerage account. Index providers and fund rules sometimes require a listing in a given market before a fund may buy the shares, so a second listing can open doors that were closed before.
The nuance is that interlisting is different from a depositary receipt, where a bank holds the underlying shares and issues certificates in another market. With an interlisting, the actual shares can trade on both exchanges, and investors can usually move them between markets through their brokers.
In practice
Real-world examples.
Example
A mining company based in one country lists its shares on a second exchange in another country where many mining investors are located. Its shares now trade in both places, and the extra analyst coverage raises its profile among specialist funds. Trading volume is split between the two markets, but total liquidity usually improves.
Example
A European manufacturer interlists in New York to pay a share-based bonus to American managers. The employees can sell their shares during American hours without waiting for the home market to open.
Example
A technology firm with a primary listing at home adds a second listing abroad before a large acquisition. The wider market helps it issue new shares to fund the deal on better terms than a single listing might have allowed. Management also gains a second set of investors to speak to during roadshows.
Formula
Calculation
Price parity: Price in dollars = Price in foreign currency / Foreign currency units per $1
Suppose a company's shares trade on its home exchange at 36.80 euros and its second listing in New York is quoted in dollars. The exchange rate is 0.92 euros per $1. Converting the home price gives 36.80 / 0.92 = $40.00. If the New York price were $40.50, a trader could buy at home, sell in New York and gain $0.50 per share before costs. Trading activity of this sort pushes the two prices back together.Case study
Seen in the real world.
This is an illustrative story about a fictional company, Northgate Renewables, a wind power developer listed on a mid-sized home exchange. Its home investors were few, and the stock traded thinly, which made large capital raises difficult. The board decided to interlist on a larger foreign exchange where several sector funds were active.
The listing took nine months and cost several million dollars in legal, audit and filing work. The company also had to prepare accounts and governance reports to meet the second exchange's rules.
After the listing, trading volume rose and the gap between buying and selling prices narrowed. Northgate raised new capital at a lower cost than before, and the finance team judged the extra reporting effort worthwhile. The case is illustrative and shows the trade-off between wider access and heavier compliance. The finance director also noted a quieter benefit: analysts in the new market started publishing research, which kept the company in front of investors between results announcements.
Watch out
Common mistakes.
- Assuming the price must be identical on every exchange. Currency rates, trading hours and transaction costs cause small, short-lived differences.
- Treating an interlisting as the same as a depositary receipt. In an interlisting the shares themselves trade in both places, while a receipt is a certificate issued against shares held elsewhere.
- Thinking the second listing is free. Legal, audit, listing and ongoing reporting costs can be significant, so they should be weighed against the benefit.
Questions
People also ask.
Why do companies cross-list their shares?
To reach more investors, raise capital more cheaply, improve visibility and make it easier to pay staff or acquisitions with shares.
Do investors get different rights on different exchanges?
No. Shares of the same class carry the same voting and dividend rights wherever they trade.
What stops the prices from drifting apart?
Arbitrage, where traders buy where the shares are cheaper and sell where they are dearer until the gap closes.
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