After witnessing the popularity of Velti plc (Nasdaq: VELT) as it went public on January 28, 2011, I realized that the company trades on the Alternative Investment Market of the London Stock Exchange under the symbol VEL. How can the company trade on the London Stock Exchange and also go public on the NASDAQ? It turns out Velti, a global provider of mobile advertising and marketing software solutions, is in a category of unique companies known as dual-listed companies or DLC.
First, a little background regarding publicly-owned companies: if a company wants to be publicly owned, it needs to be traded on an exchange. A company is free to choose any exchange to be listed on. To be listed on an exchange – e.g. NASDAQ – a company must meet all of the exchange’s specific listing requirements and pay all associated fees (which vary per stock exchange).
If a company wants to be listed on more than one exchange, it is referred to as dual listing. In a dual listing, the company is listed on multiple exchanges, an none of the listings are considered secondary. From an organizational structure standpoint, the dual listing is typically achieved by creating an ownership structure of two holding companies, each of which is listed in a different market. The holding companies then each own 50% of the group of companies comprising the business.
There are a few reasons a company would be interested in becoming a dual listing company. One reason is that it increases a stock’s liquidity, in other words, increasing the company’s exposure to investors across multiple markets. The bid-ask spread also tends to be lower for dual-listed companies, which also allows more investors access to trade the security.
Of the dual listing companies, many are multinational corporations that tend to list their shares on both their domestic exchange along with the major exchanges in other countries. The classic examples of dual listing companies are the Anglo-Dutch groups Unilever and Reed Elsevier. Other dual listed companies include:
Although the advantages of dual listing appear obvious, many are quick to point out the problems created by dual listed companies as well. Most notably, dual listing creates price variations on the same company which has lead to investors taking advantage of the subsequent arbitrage positions. The important part is to be aware of companies who may be dual listed and do your homework before investing!
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