What Is Cross-Listing?
Cross-listing is the listing of a company's common shares on a different exchange than its primary and original stock exchange. To be approved for cross-listing, the company in question must meet the same requirements as any other listed member of the exchange with regard to accounting policies. These requirements include the initial filing and ongoing filings with regulators, a minimum number of shareholders, and minimum capitalization.
Cross-listing is the listing of a company's common shares on a different exchange than its primary and original stock exchange.
Companies must meet the exchange's listing requirements in order to be cross-listed.
Advantages to cross-listing include having shares trade in multiple time zones, boosting liquidity and providing access to fresh capital.
Alibaba Group is an example of a cross-listing since the e-commerce giant is listed on the NYSE and the Hong Kong Stock Exchange.
The term cross-listing is often in reference to foreign-based companies that choose to list their shares on U.S.-based exchanges like the New York Stock Exchange (NYSE). But firms based in the U.S. may choose to cross-list on European or Asian exchanges to gain more access to an overseas investor base.
Multinational corporations tend to list on more than one exchange. These companies may list their shares on both their domestic exchange and the major ones in other countries. For example, the multinational corporation BP (BP)–formerly British Petroleum–trades on the London Stock Exchange and the NYSE.
Benefits of Cross Border Listing
Because of the benefits of being cross-listed, more and more companies are getting themselves listed on stock exchange markets based outside of their home countries. Here are the benefits of such a move.
1. Gain exposure and access to more capital
Cross-listed companies are able to access more potential investors, which means access to more capital. Their stock may also gain more attention by being traded in more than one part of the world. With this, there is a better chance to raise capital because the company gets more exposure in the market.
2. Help in improving a company’s structure of corporate governance
Cross-listings often require companies to establish a clear and well-defined set of rules that govern its corporate structure. This means that it must be open regarding its operations. Many cross-listed companies improve their governing structure that guides the company’s directions and goals.
3. Attract more and better talent
Every company needs good talent or front-liners in order to perform well in the stock market and in serving its customers. With a cross border listing, the company gains exposure, increasing its chances of attracting top talent.
Also, being cross-border listed requires a company’s Equity Incentive Plan to be more lucrative than those of companies that are not. This helps it create a pool of hardworking and devoted talent.
Access to Capital
Some of the advantages to cross-listing include having shares trade in multiple time zones and multiple currencies. The international exposure provides companies with more liquidity, meaning there's a healthy amount of buyers and sellers in the market. The added liquidity provides companies with a greater ability to raise capital or new money to invest in the future of the company. Companies can raise money by issuing new shares of stock or corporate bonds, which are debt instruments that pay interest to investors in exchange for cash.
Enhances a Company's Image
Companies that cross-list on international exchanges often do so, in part, to bolster a company's brand. By listing on multiple exchanges, any positive news will likely be carried by international media outlets. A company with an international brand tends to be seen as a major player in an industry. Companies can use that brand name to boost sales and garner more media attention in the local foreign markets.
Also, some companies may perceive a higher corporate standing of having its shares listed on two or more exchanges. This can be particularly true for foreign companies that cross-list in the U.S. Those who gain listings in the U.S. do so via American depositary receipts (ADRs). The ADR list is long, with many familiar names such as Baidu Inc. of China, Sanofi of France, Siemens of Germany, Toyota and Honda of Japan, and Royal Dutch Shell of the U.K.
For example, companies that are headquartered in developing countries could cross-list on major exchanges in the U.S. or London to enhance the company's image, particularly since the major exchanges have more stringent listing requirements.
A cross-listing can help companies that have offices or manufacturing facilities overseas by enhancing their image with the local people. As a result, the company might not be seen as a foreign corporation. As an active participant in the local markets, companies can better recruit talented workers.
Requirements and Hurdles with Cross-Listing
A company's stock must meet the exchange's listing requirements for any exchange they're listed on as well as pay all of the fees to be listed. The adoption of Sarbanes-Oxley (SOX) requirements in 2002 made cross-listing on U.S. exchanges more challenging due to the requirements regarding accounting, auditing, and internal controls, which places an emphasis on corporate governance and accountability. There are also variations of the required accounting standards for financial reporting between international markets. U.S. companies, for example, must adhere to GAAP or generally accepted accounting principles, which might be a challenging hurdle for some companies whose home exchange may have laxer standards.
Real World Example of Cross-Listing
Although the U.S. has traditionally had tougher listing requirements, there was a notable exception in 2014 with the Hong Kong Stock Exchange (HKG).
Alibaba Group Holdings Ltd. (BABA), the Chinese e-commerce behemoth, sought listing on the Hong Kong Stock Exchange but was turned away due to corporate governance practices. Alibaba's dual-class structure allowed too much power in the hands of a small number of individuals at the company when it came time to elect board members. As a result, Alibaba proceeded with its initial public offering (IPO) on the NYSE in September of 2014, which became the largest IPO in U.S. history at that time.1
The company stated that it preferred to list in Hong Kong, but it ended up in the U.S. with an eager and deep base of institutional investors to support its equity. In November of 2019, Alibaba finally got cross-listed on the Hong Kong Stock Exchange with an offering of 500,000,000 new equity shares.2
Cross Border Listing
Innovative approaches to cross-listings -- Financier Worldwide
Why cross-listing shares doesn't create value
Richard Dobbs, Marc H. Goedhart
November 1, 2008