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Cross-Listing

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. In order 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, initial filing and ongoing filings with regulators, minimum number of shareholders, minimum capitalization and others.

BREAKING DOWN ‘Cross-Listing’

Some of the advantages to cross-listing include having shares trade in multiple time zones and in multiple currencies. This gives issuing companies more liquidity and a greater ability to raise capital. 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 of China, Sanofi of France, Siemens of Germany, Toyota and Honda of Japan, UBS of Switzerland and Royal Dutch Shell of the U.K.

The term often applies 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.
The adoption of Sarbanes-Oxley (SOX) requirements in 2002 made cross-listing on U.S. exchanges more costly than in the past; the requirements put a heavy emphasis on corporate governance and accountability. This, along with generally accepted accounting principles (GAAP), makes for a challenging hurdle for many companies whose home exchange may have laxer standards.

However, there was a notable exception to this general statement. Listing standards on stock exchanges in the U.S. are stringent. There was a case, though, in 2014 when Hong Kong demonstrated it was tougher than the exchange in the U.S. with respect to corporate governance practices. Alibaba, the Chinese internet behemoth, sought listing on the Hong Kong Stock Exchange, but was turned away due to Alibaba’s dual-class structure, which concentrates power to elect the board members in the hands of a small number of individuals at the company. Alibaba proceeded with its initial public offering (IPO) on the NYSE. 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. It is ironic that at the beginning of 2018, Alibaba said it will “seriously consider” a cross-listing in Hong Kong, now that the exchange there indicated that a dual-class structure might be acceptable after all. With the NYSE as Alibaba’s ‘home base,’ going back to Hong Kong would be a type of reverse cross-listing.

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Jackson Neo has written on money, investing and risk management for more than a decade. His current interests are cryptocurrencies, fintech, and micro-finance.