Business

What is interlisting, and why do other companies engage in it?

Did you know that stocks can be listed in more than one exchange? If the stock is listed in two exchanges, we call it a dual listing. But how about if the stock is listed in two or more exchanges? We call this “inter-listing.” This is when a stock is listed on several exchanges. And when we say multiple exchanges, we are talking about listing in the company’s home country and one or numerous additional countries. Many companies who engage in inter-listing do so because they want to receive the benefits that they can receive. We can say that one of the most significant benefits that they are eyeing include access to more but cheaper capital.

How to get interlisted?

Companies can opt to list their stocks on multiple exchanges. However, these exchanges have different sets of requirements, criteria, and minimum standards. These are the ones that companies need to meet, or else they will not get listed. Let us say that a company in Canada is listed on the Toronto Stock Exchange. However, it can also get listed on the New York Stock Exchange, provided that it meets NYSE’s listing requirements. Companies that want to get listed on other exchanges aside from their jurisdiction will choose countries with similar cultures and languages. Hence, many massive Canadian companies are also listed on the New York Stock Exchange because their culture and language are pretty similar. For instance, if this Canadian company is listed in both Toronto Stock Exchange and New York Stock Exchange, the shares are available for investors to buy and sell o both exchanges.

Why bother to interlist?

If it is not required to get listed on multiple exchanges and getting listed in a single exchange is acceptable, why bother getting interlisted? Many do so because they want to have more liquidity for their stocks. A theory says that it can lessen the cost of raising capital. Let us take the Canadian company again as an example. If it aims to have more access and exposure to international investors, one way is to get also listed in a US exchange. If they do so, people who are beyond the US border but buy stocks on US exchanges can also see the stocks of that Canadian company. Hence, many big companies listed on Toronto Stock Exchange are also on the NYSE and Nasdaq.

Companies also interlist because they want people to be more aware of their brand. Getting interlisted somehow adds credibility to a company. For instance, a company with a second listing on Wall Street would feel more credible since Wall Street creates massive impacts on investors and stocks.

In fact, many big companies have shares that can be traded on multiple exchanges aside from their home country. For instance, a company in Japan can also be listed in New York and Toronto aside from Japan.

What does arbitrage have to do with interlisted stocks?

Before we end our topic, we ought to say that sophisticated traders generate profits from the share price deviation of interlisted stocks. And when we say interlisted stock in this manner, we refer to the stocks found on various exchanges. They can also be currencies in which the stocks are listed. We call this arbitrage. It is a challenging and risky trade because it only depends on prices that will converge after some time.

Colton Eva
the authorColton Eva