Cross Listing Definition

1.0 Introduction

The purpose of this paper is to assess the viability of whether "CASS plc" should consider Cross Listing in the US. It will commence defining Cross Listing describing its different forms, then focusing on the theoretical benefits and shortfalls in view of raising equity domestically. To allow for a structure conclusion the paper will also look at the practical side by looking at recent examples of firms that participated in Cross Listings. Here we will be looking at the reasoning behind the firm's decision to Cross List, highlighting its objective, approach and measured success through market reaction both locally and internationally preceding the issuance. The paper will conclude with a recommendation on whether CASS plc should participate in Cross Listing by considering all theoretical and practical analysis.

2.0 Defining Cross Listing

Cross-Listing is where a company seeks to issue equity capital outside its existing domiciled listed exchange. Companies generally decide to cross list when either size or liquidity of their financial needs exceeds their domestic market capacity to fulfil their objective. This can be achieved in one of two ways, either via an ordinary Cross Listing or by issuing a Depositary Receipt; both involve listing on international exchanges but adopt differing methodologies and rationales (Romana NYVLOTVA, pg 66-67, 2006).

A Depositary Receipt (DR) is when a company wishes to transfer part of its existing equity capital from its existing local exchange to an international exchange. It does this through using an international broker, usually a financial intermediary that purchases the company's desired equity it wishes to list on the foreign exchange via a local broker (J Downes, J.Elliot Goodman, pg 22, 1998). There are several types of DR, though the most common are American Depositary Receipts (ADR) and Global Depositary Receipts (GDR). An ADR is where a company listed on an international exchange decides to list on a US exchange, whereas a GDR is where a company decides to list on any international exchange (excluding the US) from its local domiciled exchange (Meziane Lasfer, pg 1). A company's main driver for issuing a DR is not to generate more equity capital rather to create more liquidity in its stock by extending its investor base internationally.

As per NYVLTOVA (2206) an ordinary cross listing is where a company issues additional capital on an international exchange from its local domiciled exchange in the form of a secondary issuance. As the exchange is domiciled overseas, listing rules for issued new capital are governed under the regulatory framework of that country's jurisdiction. This means a company must meet the same accounting policies, corporate governance and reporting requirements as any other listed members of that exchange.

Historically ordinary Cross Listings have been commonly associated with company's seeking listing on US exchanges. The reason is that the US has long been considered the world's financial hub with the most practical and reputable set of regulatory rules and corporate governance. As a result companies once viewed listing in the US as prestigious form