Secondary Listing: Why Firms List Abroad Too

Key Takeaways

• A secondary listing strategy admits shares on a second exchange while the primary listing stays at home, often with lighter rules.
• The main goals are a wider investor base, deeper liquidity, and exposure to a market that values the company more highly.
• A common mistake is expecting strong volume on the secondary venue; trading often stays concentrated on the primary exchange.
• A secondary listing can fail to deliver index inclusion, which usually requires a primary listing in that market.

What a Secondary Listing Strategy Is

A secondary listing is when a company whose main listing sits on one exchange obtains admission to trade on another market, typically with lighter requirements than a full primary listing. The home exchange remains the primary venue and carries the heavier regulatory load.

This sits between two extremes. A depositary receipt repackages the shares into a new instrument for the foreign market. A full primary listing abroad subjects the company to that market's complete rulebook. A secondary listing is the middle path: the same shares, admitted to a second exchange, but under a reduced compliance burden.

The Intuition

A company pursues a secondary listing when it believes a foreign market will give it something its home market cannot. That might be a deeper pool of capital, a higher valuation, or simply visibility with a new set of investors.

Firms often cite the wish to close a valuation or liquidity gap against peers listed in a larger market, and to expand their investor base there. Extended trading hours across time zones are a bonus. The strategy works only if those benefits outweigh the extra reporting, governance, and the risk that the new listing draws little volume.

How It Works

To set up a secondary listing, the company applies to the second exchange and meets its admission rules, which are lighter than the primary standard. The shares traded there are usually the same instrument as at home, so the prices track each other after currency adjustment.

Liquidity is the central uncertainty. With two trading venues for one stock, there is no guarantee of an active market on both. In practice, most volume often stays on the primary exchange, leaving the secondary venue thin and its spreads wide.

Index inclusion is a key strategic limit. Major index providers generally require a primary listing in their home market, along with minimum size and liquidity thresholds, before a company can join a flagship index. A secondary listing alone usually does not qualify, which is why some firms eventually consider moving their primary listing rather than just adding a secondary one. Governance is the other cost, since the company must manage a second set of reporting and corporate-action rules.

Worked Example

Suppose a London-listed technology company feels it trades at a discount to United States peers and wants a bigger US investor base.

A secondary listing on a US exchange lets American investors buy the same shares in dollars without the company giving up its London primary listing. The hope is to close the valuation gap, broaden the shareholder register, and lengthen the trading day.

But two outcomes temper that hope. First, most trading may stay in London, so the US line could be thin and offer little real access. Second, a secondary listing typically will not get the company into a major US index, which usually requires a primary US listing plus size and liquidity tests. If index inclusion is the real prize, the company may have to relocate its primary listing, a far bigger and costlier step than a secondary listing.

Common Mistakes

1. Expecting deep liquidity on the new venue. Trading often stays on the primary exchange, leaving the secondary listing thin with wider spreads.

2. Assuming index inclusion follows. Flagship indices generally require a primary listing in that market. A secondary listing rarely qualifies on its own.

3. Confusing it with a depositary receipt. A secondary listing trades the actual shares. A depositary receipt is a separate, repackaged instrument with its own identifier.

4. Underrating compliance. Even with lighter rules, a second listing adds reporting and corporate-action obligations and management time.

5. Ignoring where price discovery happens. The primary venue usually leads. The secondary price tends to follow it after currency conversion.

Frequently Asked Questions

What is a secondary listing strategy in simple terms? A secondary listing strategy puts a company's shares on a second exchange while keeping its main listing at home, usually under lighter rules. The goal is to reach new investors and deepen liquidity.

How does a secondary listing strategy affect investment decisions? It can let you buy a foreign company on your home exchange in your own currency. But check liquidity, because volume often stays on the primary venue, leaving the secondary line thin.

What is a real-world example of a secondary listing? A London-listed tech firm can take a secondary listing in the US to court American investors, while keeping London as its primary venue and not abandoning its home rulebook.

How can investors use a secondary listing effectively? Trade where the liquidity is, usually the primary exchange, and convert currencies before comparing prices. Do not assume the secondary listing brings index inclusion or active volume.

How is a secondary listing different from a primary listing abroad? A secondary listing carries lighter requirements and keeps the home market primary. A full primary listing abroad subjects the company to that market's complete rulebook and can support index inclusion.

Sources

1. Skadden, Arps, Slate, Meagher & Flom LLP. "Factors for London-Listed Companies To Consider Before Dual Listing or Relisting in the US." https://www.skadden.com/insights/publications/2023/04/factors-for-london-listed-companies-to-consider
2. HWL Ebsworth Lawyers. "How Dual Listings Enhance Market Access and Liquidity." https://hwlebsworth.com.au/how-dual-listings-enhance-market-access-and-liquidity/
3. Corporate Finance Institute. "Dual Listing, Overview, Reasons, Examples, and Prices." https://corporatefinanceinstitute.com/resources/equities/dual-listing/
4. Stockopedia. "Dual Lists and Depository Receipts." https://www.stockopedia.com/learn/our-data/dual-lists-depository-receipts-462768/

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.