Cross Listing

Cross listing refers to listing a company’s shares on several stock exchanges. Companies often list their shares on the domestic stock exchange. However, some companies expand outside domestic stock markets. When the domestic exchange cannot fulfil the firm’s capital requirements, the board of directors uses this clause. Cross listing systems allow businesses to be listed in many time zones.

Cross-listed firms must follow the laws and regulations governing a certain foreign stock market, particularly accounting practices. Firms have several alternatives to select from. They consider the advantages and disadvantages of each proposed stock exchange. Large global corporations typically list not just on their native stock exchange but also on exchanges in other countries with significant operations. Read on to know more about what is cross listing.

What do you mean by cross listing?

So, what is cross listing? Cross listing of shares occurs when a company’s shares are listed on stock exchanges in numerous countries, allowing for interchangeability between shares traded on separate markets. Companies listed on several stock markets must follow each foreign exchange’s regulations, particularly accounting policies. These businesses have several options, and they carefully weigh the cross listing benefits and drawbacks of each prospective stock exchange. Typically, large international corporations want to be listed on their own country’s stock exchange and exchanges in countries with significant operations. Cross listing systems provide businesses the advantage of having a presence on stock exchanges in many time zones.

Listing requirements

A corporation must fulfil the exchange’s severe standards before it may be cross-listed. These duties include following accounting principles, submitting initial filings, and providing continuous filings to regulators. Additionally, corporations must maintain a certain number of owners and a certain amount of capitalization.

Importance of cross listing

Cross listing, which includes listing a company’s shares on various stock exchanges in different countries, is critical for corporations looking to increase their worldwide visibility and investor base. It improves liquidity by providing access to a larger pool of investors, which may increase trading volume and lower transaction costs. Furthermore, cross listing gives firms access to new sources of finance, allowing them to obtain cash from a wide spectrum of investors. 

Furthermore, it can boost a company’s visibility, legitimacy, and status, especially when listed on famous overseas exchanges. Cross listing also helps diversify the shareholder base, reduce concentration concerns, and provide a natural buffer against currency swings, allowing for more effective foreign exchange risk management.

Examples

Now that we’ve covered the fundamentals of the notion and its connected aspects let’s put our theoretical knowledge into practice using the examples below. 

ABC Corporation is a corporation based in India. The National Stock Exchange of India (NSE) lists the company. As a result, the National Stock Exchange is the firm’s local market. 

The corporation can now list its shares on the worldwide market to broaden its horizons. The firm must follow the NYSE listing rules if it seeks cross listing on the New York Stock Exchange (NYSE). Listing on an international stock market takes more paperwork than listing on a local stock exchange. Additionally, compliance documentation takes time. However, if ABC Corporation persists, it will be able to trade on the American stock market, allowing American investors to purchase shares in the company.

Benefits to cross listing

Cross listing benefits are as follows-

Branding

Cross listing increases the company’s foreign exposure. Increased worldwide presence assists it in strengthening its brand image in foreign markets. This might have a direct influence on the company’s revenue. Cross listing also raises media interest and improves analyst expectations for the firm. The fact that a cross-listed firm must adhere to more strict listing criteria enhances its reputation.

Access to resources

Cross listing allows domestic companies to tap into foreign capital markets, providing access to additional funding sources to support their global operations. Moreover, cross-listed firms gain exposure to a broader talent pool, enabling them to recruit from a wider range of human resources across different regions. With their shares trading across multiple markets spanning various time zones and currencies, cross-listed companies benefit from increased liquidity and diversification, mitigating risks associated with operating in a single market.

Benefits to shareholders

From the shareholders’ viewpoint, cross listing enhances their shares’ liquidity, broadens their investment portfolio, and reduces investment risk by having stocks listed on exchanges across various jurisdictions.

Attract more and better talent

Every company relies on skilled personnel or frontline workers to excel in the stock market and customer service. A company expands its reach through cross-border listing, enhancing its ability to attract top talent. Moreover, cross-border listing necessitates that a company’s Equity Incentive Plan be more competitive than non-listed companies, enabling it to cultivate a dedicated and dynamic talent pool.

Challenges and obstacles associated with cross listing

Merely cross listing a company overseas doesn’t ensure the attraction of foreign shareholders, and the presumed benefits of this strategy might be overstated. Below are some potential risks and cross listing challenges:

1. Exposure to risks: The company that undergoes cross listing becomes increasingly exposed to risks, especially amidst political and economic volatility. The effectiveness of cross listing hinges on the harmonization between the economic and financial policies of the foreign country and those of the company’s home country.

2. Increased compliance requirements: Cross-listed companies are tasked with managing intricate dual regulatory frameworks, which include auditing, internal controls, and corporate governance regulations. They must meet the listing standards of the host country, and foreign jurisdictions frequently require compliance with their accounting protocols. These supplementary requirements can present considerable hurdles for companies, substantially elevating compliance expenses.

Will cross listing matter in the future?

In recent times, cross listing has been both influenced by and contributed to the rise of globalization and digitization. Globalization, for instance, may foster the integration of stock exchanges. One conceivable outcome is establishing a unified GCC exchange comparable to significant centres like London, New York, and Tokyo. 

Moreover, technological advancements and electronic trading have facilitated increased integration among local and regional exchanges. Additionally, tracking and analytical technologies will aid companies in cross listing by mitigating compliance obstacles, which are costly and can complicate listing on multiple exchanges due to the intricate global regulatory landscape.

Nevertheless, cross listing is expected to remain relevant in global markets for the foreseeable future, even amid a deceleration in certain developed economies. Significantly, companies from emerging markets are anticipated to pursue dual listings with prominent exchanges. By adhering to what is perceived as stricter corporate governance standards and regulations in the UK or US, for instance, firms from non-traditional exchanges can deliver tangible value and advantages for shareholders.

Cross listing tax implications

The firm may be liable to extra taxes in the countries where it cross-lists, such as withholding taxes on dividends given to foreign shareholders. Tax treaties between home and host nations can help to prevent double taxation. The corporation must also follow transfer pricing standards to guarantee the correct pricing of transactions between subsidiaries. 

Cross listing tax implications may also influence the tax status of shareholders, particularly overseas investors holding shares. Cross listings can make tax reporting and compliance needs more difficult. Effective management of the possible tax effects of cross-listing requires proper planning and structure.

Conclusion

Cross listing represents a strategic financial manoeuvre enabling companies to broaden their investor base and bolster liquidity by listing their shares on various stock exchanges. This approach grants access to a wider array of investors and promotes transparency and regulatory adherence. Cross listing has the potential to fortify a company’s global footprint, amplify visibility, and possibly allure more institutional investors.

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