Cross-listing

Cross-listing is listing company shares on more than one stock exchange. Primarily firms list their shares on the domestic stock exchange. However, some firms venture beyond domestic stock markets. A board of directors opts for this provision when the domestic exchange cannot meet the firm's capital requirements. Cross-listing platforms give companies the advantage of being listed in different time zones.

Cross-listed companies must comply with the rules and regulations about a particular foreign stock exchange—especially accounting policies. Firms have multiple options to choose from. They analyze the pros and cons associated with each possible stock exchange. Usually, large multinational companies list not only on their domestic stock exchange but also on exchanges of other countries with major operations.

• Cross-listing is a business practice where a company lists its shares in multiple stock exchanges. To do that, the firm must comply with the policies of the particular stock exchange.
• Cross-listed companies acquire fresh capital, resolving immediate liquidity issues. Most cross-listed companies are multinational conglomerates.
• Regulations vary between stock exchanges, be it the filing process, the minimum number of shares, or required market capitalization.
• Cross-listed companies benefit from diversification advantages. MNCs that list globally is insulated from economic fluctuation occurring in a part of the world.

Cross-listing is a common practice among many multinational companies. Whenever a company launches an IPO (goes public by listing its shares on the stock exchange), the domestic stock exchange is the first choice. A domestic stock exchange is located in the same country as the firm. So, when a company explores other exchanges beyond the domestic stock exchange, it is called cross-listing.

To list shares overseas, a firm must fulfill certain rules and regulations—depending on the particular stock exchange. Primarily, this involves accounting policies, listing rules, market capitalization, and the minimum number of shares to be listed. But, like every business decision, companies evaluate the pros and cons of each option before listing overseas. For example, in 2008, McKinsey published an article stating that developed countries do not benefit from listing shares across borders.

The cross-listing software shows that this provision is usually undertaken by multinational companies that possess a strong brand image in the global market. Listing companies require prior recognition in the global market to derive profits from international stock exchanges. On the flip side, many globally recognized firms fail to attract investors when they list shares overseas.

Now that we understand the basics of the concept and its related factors, let us apply the theoretical knowledge to practical application through the examples below.

Example #1

ABC Corporation is a firm that is located in India. The firm is listed on the National Stock Exchange of India (NSE). Therefore, NSE is the firm's domestic market.

Now to expand its horizons, the company can list its shares globally. If the company applies for cross-listing on the New York Stock Exchange (NYSE), it has to abide by the NYSE listing policies. Listing overseas requires more formalities than domestic stock exchanges. In addition, compliance documentation takes time. However, if ABC Corporation continues, it gets to trade in the American stock market—now, American investors can also buy shares of ABC Corporation.

Example #2

The Ali Baba group is a popular example of cross-listing. Ali Baba shares trade on the Hong Kong Stock Exchange and the New York Stock Exchange (NYSE).

Similarly, British Oil and Gas Company is listed on the London Stock Exchange, NYSE, and the Frankfurt Stock Exchange. Tata Motors from India is listed both on NSE and NYSE.

Let us now discuss both sides of the coin of using a cross-listing software to list on more than one exchange through the detailed discussion below.

Advantages

• Companies that list shares across the globe attract varied investors belonging to different countries. This means more capital. But it also facilitates diversification advantages. MNCs that list globally are insulated from economic fluctuation occurring in a part of the world.
• Only popular corporations try to list globally. Having shares in multiple exchanges buys the firm goodwill and a reputation in the international market. In addition, it adds to the firm’s international presence.
• It can resolve a company's liquidity issues. Cross-listed companies have more capital requirements.
• The company enjoys access to a new base of investors, and at the same time, it becomes easy for an investor to buy the shares.

Disadvantages

Cross-listed firms face the following disadvantages:

• First, many economists consider international listing an overrated strategy. They claim that the increase in the capital acquisition is limited.
• Companies must abide by and follow listing regulations for each stock exchange. The procedures are lengthy and tiresome.
• Filing and regulatory procedures eventually require time, money, and effort.
• There is an increase in the company's stakeholders. In addition, post-listing, the company acquires international stakeholders. Before, all shareholders were located in the same country.
• The endeavor can backfire. When cross-listing fails, it can tarnish a firm brand image globally.
• When the shares of a company are listed on multiple exchanges, the political and business environment of different nations can affect shares price—it is a corporate risk. In addition, it becomes difficult for firms to keep track of each stock exchange and the country where it is located.

Both approaches have their benefits and challenges. Companies need to carefully consider their goals, resources, and regulatory obligations before pursuing either option. Let us understand the differences through the comparison below.

Cross Listing

• Cross listing involves a company listing its shares on multiple stock exchanges in different countries, allowing investors from those countries to trade the company's shares without having to go through currency conversion or regulatory complexities.
• Cross listing provides access to a larger pool of international investors, potentially increasing liquidity and attracting diverse sources of capital.
• The company gains exposure to different markets and investor bases, which can enhance its visibility and reputation globally.
• Cross-listed companies must adhere to the regulations and disclosure requirements of multiple jurisdictions, which can be complex and time-consuming.
• Cross-listing exposes the company to currency exchange rate fluctuations, which can impact financial performance.
• Financial reporting may need to be adjusted to comply with the accounting standards of each exchange, potentially leading to additional costs.
• The company needs to manage differing listing rules, corporate governance practices, and shareholder expectations across exchanges.

Dual Listing

• Dual listing involves a company's shares being listed on two separate stock exchanges simultaneously, often in the company's home country and a foreign market.
• Dual listing increases the company's visibility in both domestic and international markets, potentially attracting a broader range of investors.
• The company maintains a strong presence in its home market while also benefiting from exposure to a foreign market.
• Dual listing can enhance liquidity as the company's shares are accessible to investors from different regions, enabling trading during different time zones.
• The company must adhere to the regulations, disclosure requirements, and reporting standards of both listing exchanges, which can be demanding.
• Dual listing can lead to additional costs related to compliance, reporting, legal fees, and administrative processes.
• Dual listing allows the company to diversify its shareholder base across different geographical regions.

This has been a guide to what is Cross-Listing. We have explained its examples, advantages, and disadvantages, and compared it with dual listing in detail. You can learn more about it from the following articles -

• Delisting
• Open Listing
• Direct Listing