How Dual Listings Allow Stocks to Trade on Multiple Exchanges

Companies can choose to list their stocks on more than one exchange. This approach, called dual listing, can boost liquidity and give investors more opportunities to trade shares across different markets. Each exchange has its own listing requirements and fees that companies must meet to qualify. Dual listings are common among multinational corporations seeking to expand their investor base and strengthen their presence in different countries.

Reasons for Stocks Listing on Multiple Exchanges 

Although companies can list their stocks on multiple exchanges, very few companies actually do it. Companies such as Charles Schwab (SCHW) and Walgreens Boots Alliance (WBA—formerly known as Walgreens—previously experimented with being dual-listed on the NYSE and NASDAQ, but have since returned to being listed only on a single exchange.

How Dual Listings Enhance Stock Liquidity 

One reason for listing on several exchanges is that it increases a stock's liquidity, which means that there are plenty of shares available for market demand. A dual listing allows investors to choose from several different markets in which to buy or sell shares of the company.

A stock's liquidity can be measured by the bid-ask spread, which is the amount by which the selling price, called the ask price, exceeds the buy price, called the bid price. The increased liquidity for stocks on multiple exchanges makes the stock's bid-ask spread decrease, making it easier for investors to buy and sell the security at any time.

Why Multinational Companies Opt for Multiple Listings

Multinational corporations also tend to list on more than one exchange. These companies may list their shares on both their domestic exchange and the major ones in other countries. For example, the multinational corporation BP (BP)—formerly British Petroleum—trades on the London Stock Exchange and the New York Stock Exchange (NYSE).

Using Depositary Receipts for Multiple Exchange Listings

The popularity of depositary receipts has increased the number of companies trading on exchanges in different countries. A depositary receipt (DR) is a negotiable certificate that represents equity shares in a foreign company that's traded on an international stock exchange.

Depositary receipts are helpful to investors since they allow the purchase of equity shares of foreign companies without trading directly on a foreign market. In other words, companies can list their shares on their local exchange and also through a depository receipt in another market so that foreign investors have access. A depositary receipt can be issued on a foreign exchange by the bank holding the shares with or without the endorsement of the company being traded.

Investors in the U.S. can access foreign stocks through American depositary receipts (ADRs). An ADR is denominated in U.S. dollars whereby a U.S. financial institution overseas holds the shares. ADRs are a great way to buy shares in a foreign company while earning capital gains on the investment and dividend income—or cash payments by companies to their shareholders.

Depositary receipts allow investors around the world to purchase and sell large international companies' stock. An example of a well-known company with a heavily traded depositary receipt trading on the NASDAQ is the Chinese technology giant, Baidu (BIDU).

The Bottom Line

A company can engage in dual listing, where its shares are available on multiple exchanges to increase liquidity and accessibility. This can result in increased stock liquidity and reduced bid-ask spreads, which benefits investors. Multinationals often opt for dual listings in their domestic markets and major foreign exchanges to widen their investor base. Depositary receipts allow foreign companies to access U.S. investors without direct foreign market trading.