Public life

Which stock exchange is most suitable for a company getting ready to IPO? The choice of a listing venue is largely a business decision. Important considerations include whether the exchange will help ensure a successful IPO, provide a favourable valuation and support a liquid aftermarket.

An IPO provides many advantages for a growing private company, such as improving access to capital and liquidity, increasing a company’s public profile and providing an acquisition currency. If the stock exchange of the company’s home country does not offer the liquidity, profile or other advantages the company seeks, it may consider listing on an international exchange.

Which listing venue should it choose? International financial centres which feature among the principal venues for non-domestic IPOs include: London, Frankfurt, Hong Kong or New York.

This tab considers the principal factors relevant to a company’s choice of listing venue. This should be based on factors such as its sector and its particular needs relative to the characteristics and requirements of the exchange under consideration. For example, a company in the natural resources sector might consider listing in London, Hong Kong or Australia.

Companies and their advisers typically consider:

  • What size of free float is required? This is the percentage of the share capital post-IPO that will need to be in public hands. In EU countries, a minimum free float requirement of 25% is dictated by EU legislation but exemptions may apply (e.g. a 10% free float is possible in Germany). In London, it may be possible to reduce the limit down to approximately 20% with the consent of the FCA. In Hong Kong, there is also a minimum free float requirement of 25% but if the expected market capitalisation of an issuer is sizeable (at least HK$10 billion), the Hong Kong Stock Exchange may at its discretion reduce the limit down to as low as 15%. In the United States, the NYSE and Nasdaq listing standards require a minimum number of shareholders and a minimum number of publicly held shares, but do not have minimum free float percentage requirements.
  • Is there good market liquidity? Is the exchange able to provide access to significant pools of investor capital? This helps ensure the initial success of the IPO and aftermarket trading.
  • Is the location of an issuer’s peers an important factor? When a company is listed on the same exchange as its peers, investors can more easily benchmark the company’s value against competitors.
  • Is there local investor and analyst industry knowledge? Sophisticated and knowledgeable investors and analysts are more likely to understand the company’s equity story. This is important for a successful IPO.
  • Is there good aftermarket performance? Is the state of the market strong in the listing venue generally and as it relates to the company’s industry and peers?
  • Do investor expectations have a role in choosing a listing venue? Are there factors which might mean the investors expect that a company will choose one listing venue over another?
  • Is index inclusion an important consideration? Inclusion of a company’s shares in a recognised index (e.g. London’s FTSE 100 or the Frankfurt DAX) is likely to enhance liquidity and enhance exposure to the company’s shares.
  • Is the geographical location of the issuer’s business significant? A company may seek a listing in a jurisdiction or region in which it has a significant or growing commercial presence in order to enhance its local profile or to promote acceptability from local markets, regulators or governments.
  • Is access to retail investors important?
  • Is it important that the issuer’s shares provide acquisition currency?
Securities law compliance

Commercial concerns usually dominate a company’s choice of a listing venue. However, a company and its advisers should also carefully examine the initial and ongoing listing, corporate governance and disclosure requirements that apply to listed companies in each venue. In particular, they should consider:

  • Eligibility requirements for listing and the listing process
  • The corporate governance rules applicable to listed companies
  • Ongoing reporting obligations
  • Potential liability or other consequences for non-compliance with governance and reporting requirements
  • The degree of shareholder activism and the possibility of shareholder litigation in each market.

An IPO provides many advantages for a growing private company, such as improving access to capital and liquidity, increasing a company’s public profile and providing an acquisition currency. If the stock exchange of the company’s home country does not offer the liquidity, profile or other advantages the company seeks, it may consider listing on an international exchange. Our comparison of the eligibility criteria and ongoing obligations for listing in London, Euronext Amsterdam, Frankfurt, U.S. or Hong Kong is set out in the box to the right. 

Watch Linklaters partners Jason Manketo and Dan Schuster Woldan discussing the factors that affect a company's choice of international listing venue.