What are Interlisted Stocks?

Key Highlights

• Interlisted stocks are listed on multiple stock exchanges, typically in the company's home country and one or more additional countries.
• Companies choose to interlist to benefit from a lower cost of capital and gain access to a broader pool of international investors.
• Interlisted stocks drawbacks include the expenses of listing on multiple exchanges and the additional regulatory requirements in the secondary country.

Interlisted Stocks Meaning

An interlisting of stocks occurs when a company's stock is listed on more than one exchange. The main reason companies seek to interlist is that they expect to benefit from a lower cost of capital, as international investment barriers prevent them from accessing global investors.

The term interlist is most commonly known as cross-listing and dual listing. However, these terms should not be confused with other methods that allow a company to trade stocks on two separate exchanges, such as:

• Dual-listed companies: Dual-listed companies are essentially two separate entities that operate as one company. Each has its own stocks listed on different stock exchanges, usually due to a merger.

• Depositary receipts: Depositary receipts represent a company's stock but are issued by a third-party bank, not the company itself. Even though people often use the terms interchangeably, they aren't the same.

• Admitted for trading: When a foreign share is admitted for trading, it means it's available for trading in a different market through an exchange agreement, even though it's not officially registered in that market.

If a company is interlisted, its primary listing is on the stock exchange in the country in which it was incorporated. As for the secondary listing, it is listed on a stock exchange in another country. Typically, interlisted stocks are issued by companies that started in a small market but have quickly expanded into a larger one.

Interlisted Stocks Example

Assume that a Canadian company wishes to interlist its shares. In that case, it can trade on both the Toronto Stock Exchange and the New York Stock Exchange, provided the company meets the requirements of both Canadian and American regulators.

A Canadian financial services company, Sun Life Financial, is listed on both the NYSE and TSX, allowing investors to purchase and sell shares on either exchange.

Advantages of Interlisted Stocks

Listing on multiple exchanges gives companies access to more investors and increases liquidity. In turn, this reduces financing costs.

Assuming the example mentioned above, a Canadian company may wish to increase the number of international investors by listing in the United States, which includes non-US investors who trade on US exchanges. So, these companies are also listed on US exchanges in addition to TSX (Toronto Stock Exchange)

Interlisting in a foreign market can reduce the firm's cost of capital by improving its information environment. As a result, the brand awareness of the company may increase. The second listing will enhance its credibility and status, particularly if it is on the top stock exchange. Also, it has been shown that interlisting is associated with increased media attention, better analyst coverage, and higher accounting quality.

Disadvantages of Interlisted Stocks

However, interlisted stocks have some drawbacks. These include the cost of listing on multiple exchanges and the additional and tougher regulatory requirements in the second country.

Interlisted Stocks and Arbitrage

It is possible for highly experienced traders to profit from fluctuations in the stock prices of interlisted stocks. Traders can make a profit from fluctuations on various stock exchanges or in the currencies of the countries in which they are listed. This is known as arbitrage in the financial world. It is a complex and risky transaction that depends on the convergence of prices.

Conclusion

An interlisted stocks is one that is listed on multiple exchanges, both in the company's home country and in one or more additional countries. The question of whether interlisting creates lasting value is an ongoing debate, but it is commonly linked to favourable responses in the company's home market.