A stock can trade on any exchange on which it is listed. And to be listed it must meet all of the exchange’s listing requirements and pay for any associated fees, required by the relevant authorities. Exchange is a market place in which securities, commodities, derivatives and other financial instruments are traded. It is a market place like any other market; such as Nyabugogo, Kimironko etc… only differ in the commodities in which particular markets deal in.
The core function of an exchange such as a stock exchange is to ensure fair and orderly trading, as well as efficient dissemination of price information for any securities trading on that exchange. Exchanges give companies, governments and other groups a platform to sell securities to the investing public.
An exchange may be a physical location where traders meet to conduct business or an electronic platform. It may also be referred to as “share exchange” or “bourse” depending on geographical location.
Exchanges are located all around the globe, with some of the more famous ones being the New York Stock Exchange, and the Tokyo Stock Exchange.
Nairobi Stock Exchange NSE, Uganda Securities Exchange, (USE), Rwanda Stock Exchange (RSE), and then The Dar- es -Salaam Stock Exchange can also be identified in our region.
More and more trading is being done on electronic exchanges as markets become more advanced and as the exchanges themselves are able to ensure fair trading without requiring all members to be on the same trading floor.
Each exchange will have certain listing requirements for any company or group that wishes to offer securities for trading. Some exchanges are more rigid than others, but basic requirements for stock exchanges include regular financial reports and audited earnings reports.
Listing: Listing is being included and traded on a given exchange. Most exchanges have specific requirements which companies must meet in order to be listed and continue to stay listed.
Companies are frequently being added to a given exchange. And occasionally companies that have not fulfilled all necessary listing requirements become de-listed for a period of time until they again meet the requirements.
A company’s securities are listed on more than one exchange for the purpose of adding liquidity to the shares and allow investors greater choice in where they can trade their shares.
Therefore, if a company chooses to do so, it can list its shares on more than one exchange, which is referred to as dual listing, although few companies do.
A company may for instance decide to register on both Rwanda Stock Exchange (RSE) and Nairobi Stock Exchange (NSE).
This gives a variety of opportunities, not forgetting the costs involved anyway! The higher the risks, the higher the returns and the reverse is true!
You may consider listing on NSE whose market currently has listed 52 companies and all classified under two main segments.
NSE has at present over 50 different shares and over 50 types of bonds. Listing on both exchanges therefore requires high technical, investment and financial analysis, analysis, so as to be able to align your strategies.
However, dual listing is not a widely used technique though it is thought to improve the spread between the bids and ask prices which help investors obtain a better price for their security.
One reason for listing on several exchanges is that it increases a stock’s liquidity, allowing investors to choose from several different markets in which to buy or sell shares of the company.
Along with the increased liquidity and choice, the bid-ask spread on the stock tends to decrease, which makes it easier for investors to buy and sell the security in the market at any time.
What about liquidity? The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity, the ability to convert an asset to cash quickly; also known as “marketability”.
It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment. Examples of assets that are easily converted into cash include blue chip and money market securities.
Bid-ask spread: The amount by which the ask price exceeds the bid. This is essentially the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it.
For example, if the bid price is FRW 200 000 and the ask price is FRW 210 000 then the “bid-ask spread” is FRW 10 000. Multinational corporations also tend to list on more than one exchange.
They will list their shares on both their domestic exchange and the major ones in other countries. You consider this strategy, as long as you plan ahead, and implement your strategies appropriately.