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4.6. Disadvantages of being listed

4.6.1. Introduction

Associated with being listed are certain drawbacks, responsibilities and costs:

• Price of issue is made at a discount to perceived market value.

• Monetary cost.

• Disclosure of strategic information to competition.

• Pressure by public shareholders.

• Costs after listing.

4.6.2. Price of issue is made at a discount to perceived market value

A listing usually takes place at a price that is a discount to the "normal" price at which the company's shares should trade. Companies price their listing with reference to listed companies that they regard as their peers, and the discount could be 10-20% below what should be the market price, in order to ensure that the listing is successful.

4.6.3. Monetary cost

The monetary cost incurred by the company in listing is substantial. The firms involved in a listing are broker/s, attorney/s, banker/s accountant/s and sponsor/s. The time expended by the management of the company itself, including the "road show" to introduce the company to the institutions, is also usually of substantial (indirect) monetary cost.

4.6.4. Disclosure of strategic information to competition

Because listing requirements on most exchanges are strict in terms of disclosure, much information about the company is made public. This is a positive factor, but the information is also available to competitors.

4.6.5. Pressure by public shareholders

A listed company desires to be seen to be responsible in respect of, for example, social issues. This may not always be in the interests of the company (and its shareholders). Certain fanatical shareholders at Annual General Meetings may pressurize a listed company on this and various other issues.

Another piece of information that is made available to the public is the remuneration of directors, which is particularly pertinent under Corporate Governance requirements. Shareholders may object to remuneration that is considered by them to be too generous, which may prevent the appointment of the best man for the job.

4.6.6. Costs after listing

There are numerous additional costs after a listing has taken place, including the costs of annual and interim reports, public notices such as cautionary announcements, and time spent with broker-dealer analysts.

In addition, the company is required to comply with the listings requirements of the exchange, which impose harsh requirements on the company beyond those required by the statute relating to companies. More management time is required to comply with the exchange requirements.

If listed companies breach the listings requirements, they can be sanctioned by the exchange. If this knowledge becomes public it could have a negative effect on the share price. (This of course can be seen as a positive factor rather than a negative factor.)

4.7. Listing requirements

4.7.1. Introduction

The listing requirements differ from exchange to exchange, and from "board" to board" within exchanges, and they are usually onerous. One of the major requirements is the financial requirements that companies are obliged to disclose in the prospectus, which they are required to issue (see below). Before discussing this and other issues related to listing, we need to take a look at the segmentation of an exchange.

segmentation of an exchange

Figure 4: segmentation of an exchange

Many equity exchanges have an Equities Market and a Specialist Instruments Market. The latter will include instruments such as gold coins, warrants, ETFs, preference shares and so on (as indicated in Figure 4).

The Equities Market will usually have a Main Board (for the large companies) and an Alternatives Exchange (for smaller companies). Examples of the latter are AIM in the UK and Alt-X in South Africa. There could also be sub-boards such as a Venture Capital Board and a Development Capital Board.

The term "board" originates from the use in the past (and still used in some countries) of a physical board upon which prices were recorded as member brokers made offers and bids. The listing requirements of the Main Board, the two Sub-boards, and the Alternative Exchange are discussed briefly below.19

 
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