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Tuesday, July 31, 2007

Of Cross Border Listing and Cross Trading (Part I)

Cross Border Listing (CBL) has become important in the last decade as companies have become international in their orientation. Technological progress and liberalization of capital flows has fostered considerable competition amongst global stock exchanges for equity listings and trade. The US exchanges over then last few decades have attracted a sizeable share of the cross listed firms.

Emerging Issues:
There issues currently brewing in Kenya yet investors may have taken a back seat, not out of will but, due to inadequate understanding of the issues at hand.
1. First and foremost is the much hyped East African Exchange that will bring together the Exchanges of Kenya, Uganda and Tanzania.
2. Secondly, is the issue of listing securities of our locally quoted companies in other exchanges as well as allowing foreign companies to list at the NSE.
3. The other issue is the clause in the budget of 2007/08 that would allow East african residents to invest in our bourse (NSE) as locals without going through the rigours of the selection process for east african corporate and individual residents.

Cross Border Listing (CBL):
Cross-border listing refers to the listing of securities issued by a foreign issuer on a domestic securities exchange. Therefore when a foreign company decides to expand its horizons and wants to go public in another jurisdiction, this is considered a Cross border Initial Public offering" or Cross border IPO.
The implications of cross border listing are immense and with every country stipulating its own listing regulations for companies it is noteworthy that corporate entities seeking to list elsewhere are no exception to the rigorous vetting process. Several factors still hampers cross border listing which encompass, language barriers, currency conversion, and different regulations.
Clearly, cross-border IPOs are often complex and challenging transactions that demands strict adherance to laid down rules of the exhange in question whereupon the company intends to list.

Reasons for Cross border Quotation:
Cross border listings can help the company raise more capital by targeting new shareholders. However not all cross border listing are accompanied by share placements as this may affect liquidity and share price. Publicly-listed foreign corporations would therefore undertake to list on overseas exchanges for a variety of reasons:
1. To boost its status as a truly global player.
2. To raise Capital through debt or equity.
3. To increase trading volume.
4. To improve shareholder relations.
5. To enhance its visibility among overseas investors and consumers.
6. To tap into retail and institutional funds and benefit from changing global attitudes toward equity investing.

Media Interests:
Normally, cross-border listing would attract media interest in the host country thereby improving brand awareness and corporate image. This can be a valuable asset for companies in the consumer products sector and other groups that depend on product or service recognition and visibility, possibly leading to spill over benefits for product or service-market sales.

Implications of CBL:
Shareholder Base: It leads to the diversification of a company's shareholder base thus spreading their financial risk in the same way that diversifying a portfolio can spread investment risk. This can alter the volatility and liquidity levels of a stock. For most companies this is a positive development.
Institutional Interest: Fund managers consider the company's fundamentals, quality, skill and accessibility of management, leadership position in the market, the scope and scale of the competition, and the stock's liquidity, important particularly for small and mid-cap stocks.
Retail Interest: Cross-border listing is an effective vehicle for increasing demand by overseas retail investors, who currently invest in foreign equities.
Liquidity: Increased liquidity can inspire market makers to compete with the new market to the lower bid/ask spreads. The increase in average daily trading-volume through new investors from foreign markets often results in an increasing share-price, higher market-cap and additional sponsorship. Moreover, a targeted equity offering through a new share placement may ensure deeper liquidity.
Raising Capital: Cross-border listings often assist foreign company in targeting new shareholders for fresh capital. However, not all cross-border listings must be accompanied by a share placement. There's always the possibility that a share placement might affect liquidity and share price.


smith said...

hi,You have a very good blog that the main thing a lot of interesting and useful!thanks Frankfurt Stock Exchange IPOs

p said...

thanks for your well educating article in this have realy helped me in tackling my finance paper.thanks

frankmwenda said...

Bingo!Dude,you just gave me priceless points for my term paper!!You good!