What is Dual Listing?
Dual listing is when a particular security is listed on more than one exchange. DLC is a commonly used abbreviation for dual-listed companies. A dual-listed company is made up of more than one legally registered corporation that operates as a single business.
Barrick Gold is an example of a dual-listed company. Barrick Gold is a Canadian gold mining company that has its stocks listed on both the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). It trades under the ticker ABS on the TSX and under the ticker GOLD on the NYSE. Because of the listings on the two different exchanges, Barrick is said to be a dual-listed company.
Any company that is listed on more than one exchange must fully comply with the legal and listing requirements of all the countries and their respective exchanges that it is listed in. Complying with the regulations of only one of the countries or exchanges is not sufficient.
- When a company’s shares are listed on more than one exchange, it is said to be dual listed.
- Dual listing allows a company to increase its access to capital and makes its shares more liquid.
- The price of shares of a dual-listed company on two different exchanges should be exactly the same after accounting for the exchange rate.
Reasons Behind Dual Listing
A company may choose to have its stock listed on more than one exchange for a variety of reasons.
1. Access to a larger capital base
One of the reasons a company may resort to dual listing is the opportunity to raise more capital. It provides the company with access to a larger investor base.
2. Greater liquidity
Additionally, dual listing increases the liquidity of the traded stock. It is because it allows a larger number of participants to engage in the buying and selling of the stock.
3. More trading time
Furthermore, if a company is listed on an exchange in a different time zone, it provides participants opportunities to trade more often in a 24-hour period.
Examples of Companies with Dual Listings
There are many companies worldwide that are listed on more than one exchange. The table below lists some of these companies with dual listings.
- Unilever – Listed in the UK and the Netherlands
- Rio Tinto – Listed in Australia and the UK
- BHP Billiton – Listed in Australia and the UK
- Brambles – Listed in Australia and the UK
- Investec – Listed in South Africa and the UK
Prices of Dual-Listed Securities
The price of a security that is listed on more than one exchange should be the same after accounting for the difference in exchange rates. The price remains the same due to arbitrage.
If a security trades at different prices on different exchanges, an individual can earn a risk-free profit by simply buying the security on the exchange where it is priced lower and selling on the exchange, where it is priced higher. It is known as an arbitrage trade.
Such trading activity ensures that any spread between the two prices does not last over a sustained period, and the two prices converge swiftly.
Depositary Receipts vs. Dual-Listed Stocks
A depositary receipt is a third-party-issued financial security that represents a foreign company’s shares. There are different types of depository receipts, such as American Depositary Receipts (ADR) and European Depositary Receipts (EDR), among others.
A depositary receipt differs from a dual-listed company since it is not actual shares in the company; it simply represents shares. Depository receipts can, however, be converted to shares through a conversion process.
Another difference between the two is that a depositary receipt is issued by a third party rather than the company itself.
Dual-listed stocks tend to be more liquid than depositary receipts. They are, however, exposed to greater settlement risk since the different listings may need to go through the re-registration process. It makes trading of the same security across exchanges less smooth.
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