Dual Listing

Anyone who wants to co-own a company normally buys shares in it. These shares are called stocks, and they are traded on a stock exchange. A stock exchange is an organized marketplace where buyers and sellers come together under fixed rules. Most companies are listed on only a single such marketplace, often in their home country. With a dual listing, however, a company is represented on two marketplaces at the same time, for example in Frankfurt and in New York. It remains a single company; it is simply traded in two places.

What companies hope to gain from two trading venues

The main reason is money. Companies sell shares to pay for factories, research, or acquisitions. The more buyers there are, the easier it is to raise large sums of money. A second stock exchange abroad opens access to investors who otherwise would not bid at all. US exchanges in particular are attractive because there is especially large amounts of capital in circulation there.

A second reason is visibility. A technology company traded on the US technology exchange Nasdaq automatically appears in American financial media. This helps with recruiting skilled workers and with doing business with US customers. Comparing share prices with competitors also becomes easier if everyone is listed in the same place.

There are also political reasons. Some Chinese conglomerates are listed both in Hong Kong and in New York. Should one of the two governments make trading more difficult, the other trading venue remains available. The dual listing then acts like an emergency exit. This is not free of charge: fees, reports, and audits are incurred twice.

How a security retains the same value in two places

Technically, there are two ways. In the first, the same share is simply admitted to trading on a second exchange. In the second, a bank abroad issues substitute securities, each representing one share or a fraction thereof. In the US, such securities are called American Depositary Receipts, or ADRs for short. The investor formally holds the substitute security, but economically holds the share.

One might now think that two different prices would emerge on two exchanges. Traders prevent exactly that through a simple transaction. If the share is cheaper in Frankfurt than in New York, they buy in Frankfurt and sell in New York. This exploitation of price differences is called arbitrage. Through the many purchases, the cheaper price rises, and through the sales, the more expensive price falls, until both are nearly equal.

Small differences remain nonetheless. The exchanges have different opening hours, and the prices are quoted in different currencies. Anyone comparing the Frankfurt price with the New York price must therefore factor in the current exchange rate. A common misconception is also to confuse a dual listing with a stock split. In a split, additional shares are created; in a dual listing, they are not.

Dual listings in stock market news

In news reports, the term is usually encountered in connection with an IPO, that is, when a company sells shares to the public for the first time. It might then say that the company is aiming for a secondary listing in New York. The term also comes up in withdrawals, when a company gives up one of the two listings in order to save on costs and reporting obligations.

This becomes practically relevant for anyone who wants to buy a share. In trading apps, the same company then appears multiple times, with different security identifiers and trading venues. Which variant is cheaper depends on fees, trading hours, and trading volume at the respective venue. A trading venue with high volume usually offers fairer prices, because many offers converge there.

There are plenty of well-known examples. The chipmaker ARM is listed in New York even though the company is based in the United Kingdom. The software company SAP is traded in Frankfurt and in New York. Especially for technology and AI companies, listing on a US exchange is common, because particularly many investors there are betting on this sector.