What is an Interlisted Stock?

Last Updated: 14 Jun 2024

When a company is looking to raise capital from the public, they consider listing itself on the top stock exchanges via an IPO. There are various types of listings on the stock exchange: primary listing, dual listing, cross-listing, and interlisting are among a few. This article covers all that you need to know about the meaning of interlisted stock.

Interlisted Stock

Interlisted stocks are stocks listed on multiple stock exchanges in a company’s home country, as well as, one or more other countries. Typically, companies seek to interlist because they expect to benefit from a lower cost of capital as their shares become more accessible to global investors whose access is otherwise restricted because of international investment barriers.

The term interlist is most commonly used in Canada; also known as cross-listing and sometimes referred to as dual listing. However, it should not be confused with other methods that allow a company stocks. to be traded in two different exchanges, such as:

• Dual-listed companies: Two distinct companies (with separate stocks listed on different exchanges) function as one company, typically as a result of a merger
• Depositary receipts: These are only a representation of the stock, issued by a third-party bank and not by the company itself. In practice, however, the two terms are often used interchangeably.
• Admitted for trading: This is where a foreign share is accessible in a different market through an exchange convention and not registered within that market.

In case a company is interlisted, generally, its ‘primary listing’ is on the stock exchange in its country of incorporation, and the ‘secondary listing(s)’ is/are the one listed on a stock exchange of another country. Interlisted stocks are especially common for companies that started in a small market but swiftly grew into a larger market.

Many large non-U.S. companies are listed on the New York Stock Exchange or NASDAQ, and even on their respective national exchanges. Some company names include BlackBerry, Equinor, Nokia, Toyota, and Sony.

How does interlisting work?

To understand the meaning of interlisted stock, consider the following situation. A Canadian company wishes to list its shares on both — the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). That is if it complies with the requirements of both Canadian and US regulators.

Elaborating on interlisting stock definition, a real-world example would be Sun Life Financial — a Canadian financial services company. It is listed on both NYSE and the TSX. That means, investors can buy and sell company stock on either exchange.

Many companies have stock that trades on multiple exchanges in several countries. CNOOC Ltd., a Chinese energy producer, is listed in Hong Kong, New York, and Toronto.

Shares traded in an interlisted scenario are processed, matched, and settled via the mechanisms specific to the local exchange. For example, even though shares of IBM are bought on NYSE and shares of IBM are purchased on LSE (London Stock Exchange). These are technically the same instrument. The shares bought on NYSE will settle via the mechanisms associated with NYSE and the Depository Trust & Clearing Corporation (DTCC) in the United States. The shares purchased on the LSE will settle via the mechanisms of the LSE and the Certificateless Registry for Electronic Share Transfer (CREST) in the United Kingdom.

Interestingly, IBM is also interlisted in Frankfurt, in which case, those transactions will settle via the local German market processes.

Advantages of interlisting

• The benefits of listing on multiple exchanges include gaining access to more investors, and the increased liquidity of the stock. This consequently reduces the cost of financing.
• By listing in the United States, a Canadian company may want to increase their network to include international investors, which includes non-US investors who trade on US exchanges. There are dozens of such companies listed on TSX, that are also listed on a US stock exchange.
• Interlisting in a foreign market can reduce the cost of capital by improving the firm’s information environment. It may raise brand awareness for the company. Adding to its credibility and status, especially if the second listing is on Wall Street. Interlisting tends to be associated with increased media attention, better analyst coverage, and higher quality of accounting information.

Disadvantages of interlisting

The main drawback of interlisting stock include the cost of listing on more than one exchange and the potential for additional and tougher regulatory requirements in the second country.

Interlisted stocks and arbitrage

Extremely experienced traders can take advantage of fluctuations in the stock prices of interlisted stocks on various stock exchanges, or the currencies of the countries in which they are listed. In the financial world, this is known as arbitrage. It is a complex and risky transaction that depends on the converging price.

Final word

Interlisted stock definition is stock that is listed on more than one exchange—in a company’s home country and one or more additional countries. Whether interlisting generates long-term value is a perpetual debate. However, it is generally associated with positive reactions in the home market.