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Home > Financing Best Practice > Acquiring a Secondary Listing, or Cross-Listing

Financing Best Practice

Acquiring a Secondary Listing, or Cross-Listing

by Meziane Lasfer

Table of contents

Executive Summary

  • Over the last three decades an increasing number of companies have sourced their equity capital in foreign countries by listing their stock abroad.

  • This strategy of parallel listing on both domestic and foreign stock exchanges, referred to as “cross-listing,” is used by companies from both developed and emerging markets.

  • In 2008, for example, 121 companies from BRIC countries (Brazil (7), Russia (24), India (24), and China (66)) were listed on the London Stock Exchange Alternative Investment Market (LSE-AIM), an equivalent to NASDAQ in the United States.

  • Although the major stock markets for cross-listing are in the United States (NYSE and NASDAQ) and London (LSE and LSE-AIM), with a 43% market share in 2007, firms are also likely to cross-list in other markets of the world, such as the Singapore, Euronext, Hong Kong, and Mexico stock exchanges.

  • According to the Bank of New York Mellon, during the first half of 2008 more than $2.4 trillion of depository receipts (DRs) traded on US and non-US markets and exchanges, up 85% from the previous year.


Cross-listing is controversial and raises a number of academic and practitioner questions, particularly: Why and how does a firm cross-list, and does cross-listing create additional value for existing stockholders? The purpose of this article is to discuss the institutional framework of cross-listing, the classification of depository receipts (DRs), the types of DR available in the United States, the reasons why companies list abroad (by contrasting the advantages and disadvantages of raising equity capital in foreign markets), and the cross-listing process.

Institutional Background

Companies cross-list by issuing depository receipts. These are certificates that are first issued by the company to a bank in a foreign country, which in turn issues the certificates to investors in that country. Indirectly, DRs represent ownership of home market shares in the overseas corporation. The underlying shares remain in custody in the home country, and DRs effectively convey ownership of those shares. DRs are quoted and normally pay dividends in the foreign country’s currency (for example, US dollars or euros). DRs can be established either for existing shares that are already trading, or as part of a global offering of new shares. Each DR normally represents some multiple of the underlying share. This multiple allows the DR to possess a price per share that is appropriate for the foreign market, and the arbitrage normally keeps foreign and local prices of any given share the same after adjustment for transfer costs. DRs can be exchanged for the underlying foreign shares, and vice versa.

Classifications of Depository Receipts

There are a number of classifications of depository receipts, two of which are:

  • Trading location: Global depositary receipts (GDRs) are certificates traded outside the United States; American depositary receipts (ADRs) are certificates traded in the United States and denominated in US dollars.

  • Sponsorship: A sponsored ADR is created at the request of a foreign firm that wants its shares to be traded in the United States. In this case, the firm applies to the Securities and Exchange Commission (SEC) and to a US bank for registration and issuance. In contrast, an unsponsored ADR occurs when a US security firm initiates the creation of an ADR. Such an ADR would be unsponsored, but the SEC still requires all new ADRs to be approved by the firm itself.

Types of Listing

In the United States there are four types of depositary receipt: Levels 1 and 2 apply to cases where the DR is created using existing equity; Levels 3 and 4 apply to cases where new equity is issued, such as an initial public offering (IPO).

Level 1 is the least costly, as the DRs are traded over the counter in the United States, in the pink sheet market. There is little additional disclosure requirement, apart from the translation of the home country’s financial statements into English. On average, about 56% of the approximately 1,500 DR programs are classified as Level 1.

Level 2 is relatively more costly. The DRs are traded on the NYSE, NASDAQ, and AMEX exchanges, with greater cost as the initial fee can exceed US$1 million. A cross-listed firm must also reconcile to US GAAP, report quarterly, and meet the listing requirements of the US exchange on which it trades.

Level 3 is similar to Level 2 for existing quoted companies, except that it applies to IPOs; the firm raises new equity capital in a public offering and trades on the NYSE, NASDAQ, or AMEX. A company must meet full SEC disclosure requirements, comply with US GAAP, report quarterly, and meet the listing requirements of the exchange.

Level 4, now referred to as 144A, applies to firms that raise new equity capital through a private placement. The securities are not registered for sale to the public; rather, investors follow a buy and hold strategy. Firms that use this method are exempt from disclosure requirements of a new equity issue in the United States, such as the SEC disclosure and the US GAAP. In April 1990 the SEC approved Rule 144A, which permits qualified institutional buyers to trade privately placed securities without SEC registration. These securities are traded on a screen-based automated trading system known as PORTAL, established to create a liquid secondary market for those private placements.

In other countries, the requirements depend mainly on the type of markets in which the company is going to be cross-listed. For example, requirements to list on the London Stock Exchange Official List are more extensive than those for the Alternative Investment Market.

The choice between listing in the United States (ADR) and in other markets through GDR depends on a number of factors. In particular, companies are likely to prefer listing in the United States through ADRs only if their objective has a powerful appeal to US retail investors and they are able to cover the significant cost of Sarbanes–Oxley compliance and major exposure to liability for management and board of directors. ADRs are also useful if they can benefit by selling new shares at a premium. Cross-listing through GDR may be cheaper and quicker, and could achieve the same purpose with fewer downsides. For example, cross-listing in the London Stock Exchange involves two main rounds, where the firm receives comments from the UK Listing Authority (UKLA) in about two weeks. Furthermore, since July 2005, the UKLA no longer requires 25% of GDR issues to be distributed to European investors.

As an alternative to depository receipts, companies can have “Euroequity public issue.” Under this method, instead of listing a share on the home market and then cross-listing, shares are issued simultaneously in multiple markets. The term Euroequity has nothing to do with Europe per se. Euroequity public issue simply refers to equity issues that are sold globally. Often these are used for very large equity issues, and different tranches are sold in different markets.

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Further reading


  • Baker, H. Kent, John R. Nofsinger, and Daniel G. Weaver. “International cross-listing and visibility.” Journal of Financial and Quantitative Analysis 37:3 (September 2002): 495–521. Online at:
  • Coffee, John C., Jr. “Racing towards the top? The impact of cross-listings and stock market competition on international corporate governance.” Columbia Law Review 102:7 (November 2002): 1757–1831.
  • Dobbs, Richard, and Marc H. Goedhart. “Why cross-listing shares doesn’t create value.” The McKinsey Quarterly (November 2008). Online at:
  • Doidge, Craig, G. Andrew Karolyi, and René M. Stulz. “Why are foreign firms listed in the U.S. worth more?” Journal of Financial Economics 71:2 (February 2004): 205–238. Online at:
  • Doidge, Craig, G. Andrew Karolyi, and René M. Stulz. “Has New York become less competitive in global markets? Evaluating foreign listing choices over time.” Working paper 2007-03-012, Fisher College of Business, Ohio State University, 2007. Online at:
  • Karolyi, G. Andrew. “Why do companies list their shares abroad? A survey of the evidence and its managerial implications.” Financial Markets, Institutions and Instruments 7:1 (February 1998): 1–60. Online at:
  • Karolyi, G. Andrew. “The world of cross-listing and cross-listings of the world: Challenging conventional wisdom.” Review of Finance 10:1 (January 2006): 99–152. Online at:
  • Korczak, Adiana, and Meziane A. Lasfer. “Does cross listing mitigate insider trading?” Working paper, Cass Business School, City University, London, 2009.
  • Leuz, Christian. “Cross listing, bonding and firms’ reporting incentives: A discussion of Lang, Raedy and Wilson (2006).” Journal of Accounting and Economics 42:1–2 (October 2006): 285–299. Online at:
  • Leuz, Christian. “Was the Sarbanes–Oxley Act of 2002 really this costly? A discussion of evidence from event returns and going-private decisions.” Journal of Accounting and Economics 44:1–2 (September 2007): 146–165. Online at:
  • Licht, A. N. “Cross-listing and corporate governance: Bonding or avoiding?” Chicago Journal of International Law 4 (Spring 2003): 141–164. Online at:
  • Pagano, Marco, Ailsa A. Roell, and Josef Zechner. “The geography of equity listing: Why do companies list abroad?” Journal of Finance 57:6 (December 2002): 2651–2694. Online at:
  • Sarkissian, Sergei, and Michael J. Schill. “The overseas listing decision: New evidence of proximity preference.” Review of Financial Studies 17:3 (Fall 2004): 769–810. Online at:


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