CHAPTER 10 THE LISTING OF MINING COMPANY SECURITIES ON DOMESTIC AND INTERNATIONAL EXCHANGES

• Jurisdiction: United States

Gold Mine Financing
(Jan 1988)
CHAPTER 10
THE LISTING OF MINING COMPANY SECURITIES ON DOMESTIC AND INTERNATIONAL EXCHANGES
John F. Bankes
The First Boston Corporation
New York, New York

POTENTIAL BENEFITS OF AN EXCHANGE LISTING

A company's decision to list or not to list its securities on an exchange is a highly complicated decision. While the decision is multi-dimensional, the issue that merits closest consideration is the quality of the market itself, since the decision is essentially a choice between markets.

There are a variety of potential benefits associated with listing a company's securities on an exchange. These benefits include the following:

• To broaden share ownership.

The number of shareholders is a matter of importance to companies for several reasons: (1) the number of shareholders has a direct bearing on stock performance. A larger shareholder base contributes to a more continuous order flow which, in turn, promotes higher market liquidity, lower price volatility and, theoretically, a lower cost of capital; (2) a larger shareholder base usually means wider acceptance of new offerings of stock and debt securities; (3) having a large number of shareholders affords a measure of protection against unwanted takeovers; as share ownership is increasingly dispersed, the exercise of control over the affairs of a company by outsiders becomes correspondingly difficult; (4) shareholders represent a potentially solid and loyal constituency for the company in a number of respects: they can be a voice of support in public policy matters, a core of potential customers in the marketplace, and a pool of expertise upon which the company may draw for opinion and advice.

In a study conducted by the American Stock Exchange (ASE), the number of public shareholders in 36 U.S. corporations which were newly listed on the ASE between January 1978 and June 1979 increased by an average of 29% from the time the listing application was filed to late summer/fall of 1980.

• To increase the liquidity^* of a company's securities.

The liquidity of a company's securities — that is, the relationship between volume in trading and changes in market price — is considered an important measure of how well a market is functioning in relation to these securities.

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Lack of liquidity is an undesirable characteristic of a security since — all things being equal — relatively high "liquidity risk" should lower the price and increase the required return of a security. One method of increasing liquidity is to list securities on organized exchanges; this explains why corporations submit willingly to the expense and regulatory oversight associated with exchange listing in order to increase share liquidity and enhance the attractiveness of their securities to investors.

• To insure the quality of the market in a company's securities.

The regulatory framework of the organized securities exchanges is rigorous. A listed company and its securityholders can be assured that the company's securities in the marketplace are under continuous, stringent surveillance. On-line computer surveillance, on a minute-by-minute basis, monitors prices, volumes, block trades, quote/trade comparisons, insider transactions and other trading data in listed securities to ensure orderly price movements, continuous liquidity and protection to the investor community. In addition, floor brokers evaluate specialists on a periodic basis, thereby serving as an important check in making sure that the high standards of the exchange are maintained.

• To narrow the underwriting spreads for future public offerings.

If by listing, the liquidity of a security increases, then the risk associated with underwriting such a security should be less. It follows that future underwriting costs for the company will be lower.

• To stimulate broader coverage of the company by research analysts.

While increased coverage and sponsorship and, generally, a higher profile often result from a new exchange listing, research coverage is principally a function of the company's size, performance, industry and future prospects.

• To create a marketable currency for acquisitions.

Listing is frequently cited as a benefit for companies that plan to use their securities as a currency for acquisitions. There are clear benefits to an acquiror that tenders with a security that is listed for trading on an organized exchange.

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• To broaden the company's access to institutional investors.

Many observers note an institutional preference for listed securities. In some cases, institutional investors are limited by their charters to investing in securities listed on a recognized exchange.

• To broaden the appeal for the company's stock purchase plans.

The existence of a listing and the availability of regular stock quotations in the local and national financial media will facilitate the implementation of stock purchase/stock option programs for employees.

• To send a signal of assurance to potential investors.

Listing securities on a recognized exchange sends a signal of assurance to potential investors. For example, listing on a major exchange implies that: (1) investors can be reasonably certain that the company is organized legally and its securities are properly issued; (2) at the time of listing, the company was solvent, of reasonable size, and had a large and well-distributed float; (3) investors are reasonably protected against the counterfeiting and over-allotment of securities; and (4) investors are assured of access to relatively full and timely disclosure about the firm, its operations and management.

• To complement the company's existing marketing/public relations strategies.

The listing announcement and associated news releases provide added prestige and advertising for the firm and its products or services. Continuing free advertising of active issuers is provided through news and financial media coverage.

• Listing may be perceived as a signal of management's confidence in the future prospects of the company.

This argument is similar to the contention that dividend changes may signal information regarding management's degree of optimism for the company's future.

• Listed securities have a higher loan collateral value.

Margin requirements are generally higher on unlisted securities; hence, investors who desire high leverage may prefer listed securities.

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• Listing allows for enhanced flexibility in future debt financings as conversion features involving listed securities are most attractive to potential investors.

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MARKET VALUE OF EQUITY SHARES OF DOMESTIC COMPANIES LISTED ON SELECTED EXCHANGES

(TRANSLATED TO US $)¹

Exchange	December 31, 1985 (US $ millions)	December 31, 1986 (US $ millions)
American	63,235.90	70,254.40
Assoc. Australian	59,876.75	94,035.37
Amsterdam	59,362.55	83,713.67
Basel	76,347.56	111,112.90
Barcelona	18,034.41	46,233.56
Brussels	20,871.33	37,336.91
Buenos Aires	2,037.15	1,590.93
Copenhagen	15,096.33	17,361.63
Feder. German S.E.	183,764.65	257,677.22
Geneva	79,548.66	122,519.37
Helsinki	5,854.86	11,691.93
Hong Kong	N.A.	53,843.76
Italy	58,498.76	140,241.42
Johannesburg	55,436.93	102,651.83
Korea	7,380.82	13,924.02
Kuala Lumpur	16,316.55	14,861.23
London	353,475.37	472,896.32
Luxembourg	12,658.29	26,162.64
Madrid	19,509.34	48,925.50
Mexico	4,163.24	5,952.18
Montreal	135,456.18	151,695.16
New York	1,882,667.42	2,128,510.98
New Zealand	8,784.36	22,215.47
Osaka	802,920.60	1,548,565.79
Oslo	10,062.64	10,121.62
Paris	79,096.03	153,422.35
Rio de Janeiro	33,365.18	39,083.99
Sao Paulo	42,768.56	41,192.74
Singapore	11,069.26	16,620.00
Stockholm	37,295.71	63,355.08
Tel-Aviv	7,625.85	9,884.28
Tokyo	948,263.46	1,783,636.08
Toronto	157,419.23	185,200.52
Vienna	4,601.56	6,656.37
Zurich	84,104.98	128,647.98

Source: FIBV

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VOLUME OF TRADING IN EQUITY SHARES, 1985, 1986 and 1987 ON SELECTED EXCHANGES

(TRANSLATED TO US$)²

Exchange	1985 (US $ millions)	1986 (US $ millions)	1987 (US $ millions)
American	26,710.13	43,648.55
Assoc. Australian	15,263.05	22,626.00
Amsterdam	19,999.36	26,055.80
Basel	40,747.78	47,070.10
Barcelona	529.55	2,045.40
Brussels	3,630.71	5,682.50
Buenos Aires	602.67	264.10
Copenhagen	N.A.	1,631.40
Feder. German S.E.	94,211.18	130,326.10
Geneva	99,630.20	111,230.90
Helsinki	498.80	1,597.10
Hong Kong	--	15,316.60
Italy	15,349.24	38,351.20
Johannesburg	2,723.77	4,296.70
Korea	4,159.08	9,253.20
Kuala Lumpur	2,433.30	1,100.30
London	76,355.61	113,003.20
Luxembourg	74.77	129.90
Madrid	3,155.90	10,706.40
Mexico	4,139.30	4,919.00
Montreal	7,565.56	9,749.70
New York	970,478.70	1,374,349.60	1,873,597.20
New Zealand	909.44	2,151.50
Osaka	61,810.54	128,192.90
Oslo	2,109.07	1,449.80
Paris	19,824.49	47,601.30
Rio de Janeiro	9,761.76	10,121.90
Sao Paulo	9,877.40	15,122.10
Singapore	2,820.61	3,116.30
Stockholm	10,849.11	16,971.50
Tel-Aviv	718.90	1,233.30
Tokyo	392,290.62	819,569.70
Toronto	31,684.35	38,848.30	70,177.06
Vienna	801.73	1,195.60
Zurich	214,595.94	266,815.80

Source: FIBV.

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³

1985	1986
Exchange	Total	Domestic companies	Foreign companies	Total	Domestic companies	Foreign companies
American	783	737	46	796	747	49
Assoc. Australian	1,054	1,028	26	1,193	1,162	31
Amsterdam	474	232	242	509	267	242
Basel	291	109	182	294	102	192
Barcelona	353	353	--	324	324	0
Brussels	336	192	144	331	191	140
Buenos Aires	227	226	1	217	216	1
Copenhagen	249	243	6	281	274	7
Feder. German S.E.	649	472	177	673	492	181
Geneva	310	113	197	329	122	207
Helsinki	51	50	1	52	49	3
Hong Kong	279	260	19	253	248	5
Italy	147	147	0	184	184	0
Johannesburg	488	462	26	562	536	26
Korea	342	342	0	355	35

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