Stock Exchanges Are Fighting a Global War for Listings

Can Ferrari Save the IPO Market?
  • At the biggest exchanges, number of cross-border IPOs jump
  • China seen as a major source of new foreign listings

These days, it’s not enough to be the symbol of American capitalism.

The New York Stock Exchange is going global -- and in a big way. In a trend that’s swept stock markets around the world, exchanges like the Big Board are stepping up efforts to attract more foreign companies looking to go public. In just two years, the number of cross-border IPOs on the biggest venues has more than doubled, according to data compiled by Bloomberg.

Ferrari NV signage outside the NYSE
Ferrari NV signage outside the NYSE
Photographer: John Taggart/Bloomberg

It’s not hard to see why. As Alibaba’s record-breaking $25 billion debut last year -- which the NYSE wrested from Hong Kong -- and this month’s splashy U.S. listing of Ferrari showed, there’s plenty of hoopla and prestige that go along with landing big-name international IPOs. And for the winners of this intensifying global turf war, foreign listings have become a key source of growth in an industry that’s being buffeted by a slowdown in trading revenue as more transactions move away from exchanges.

“International IPOs have increased in importance and in prominence,” said Tom Farley, the president of NYSE Group Inc., the division of Intercontinental Exchange Inc. “No question.”

Even as the recent turmoil in financial markets slowed IPO demand, exchanges haven’t stopped scouting for companies around the world for potential new listings. Apart from the obvious bragging rights, a public company’s annual listing fees generate steady income, which are immune to the ups and downs of trading.

Recurring Income

At NYSE, revenue from listings rose 12 percent in the second quarter, four times the increase of its trading business and double the overall growth at ICE, its parent. The same pattern is evident at Nasdaq Inc., where listings revenue outstripped growth at its market services unit, which includes trading.

NYSE and Nasdaq also increased the recurring fees they charge to companies listed on their venues this year, a clear indication of why exchanges are focusing on that part of the business, according to Ashley Serrao, an analyst at Credit Suisse Group AG.

“You wouldn’t be able to raise prices if you didn’t have a competitive moat around your business,” Serrao said. “That in itself to me is the ultimate sign that the listing business is more attractive.”

Trading, however, has “been commoditized” as costs fall and alternative venues such as dark pools proliferate, he said.

Foreign Affair

Long the gold standard in the U.S., NYSE dominated trading of American equities until the early 2000s. Now, it accounts for less than a quarter of total volume as off-exchange venues have become a popular way to trade stocks.

The exchanges with the biggest share of foreign IPOs -- NYSE, Nasdaq, London Stock Exchange and Hong Kong Stock Exchange -- currently earn about 10 percent to 20 percent of their income from listing fees.

A larger slice of that pie is coming from cross-border listings. More than 150 foreign companies debuted on exchanges in New York, London, Hong Kong and Frankfurt last year, raising about $67 billion, data compiled by Bloomberg show. That compares with roughly 70 IPOs valued at about $14 billion in 2012. The surge in foreign listings has outpaced the market for IPOs globally, which has increased about 38 percent in the past two years.

The big prize is China. Alibaba remains the undisputed high-water mark, but exchange officials are busily courting Chinese companies large and small. Since 2012, mainland companies have accounted for the majority of foreign IPOs for both NYSE and Nasdaq, data compiled by Bloomberg show.

Money Talks

For companies from China and other developing nations, there are plenty of reasons to look further afield as globalization accelerates.

One is money. Companies can often raise more in deeper, more developed equity markets and attract a broader range of investors. Another is the regulatory environment, which came became an issue this summer when China’s government intervened during the run-up and subsequent collapse of its stock market.

Chinese authorities have also quietly quashed attempts of companies from going public at price higher than 23 times earnings, a seemingly arbitrary number that local bankers have said is a way for the government ensure investor demand.

Nasdaq Chief Executive Officer Robert Greifeld in July pointed to such local-market controls as a selling point for his own venue.

Alibaba (the white line) has underperformed, falling about 20 percent.
Alibaba (the white line) has underperformed, falling about 20 percent.

Still, the chance to poach from other exchanges also increases the risk of getting poached yourself. That’s what happened when NYSE lured Alibaba away from Hong Kong. The Asian exchange tried to fight back by introducing looser shareholder voting rights, but was rebuffed by its regulator.

“It’s increased competition, but it’s also increased opportunity,” said Amar Budarapu, the chair of global capital markets at law firm Baker & McKenzie. “You can go into other jurisdictions and say, ‘You should list on my exchange.”’

Hong Kong Exchanges & Clearing, the parent company, said in an e-mailed statement that “Hong Kong has attracted numerous listings from overseas and HKEx believes it will continue to do so in the future.”

Whatever the outcome, the global battle over IPOs show no signs of abating.

“It’s going to continue to be a part of U.S. markets and listings for, I would expect, decades to come,” said Bob McCooey, Nasdaq’s senior vice president of listing services.

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