Listing of Securities: Formalities and Advantages | Stock Exchange

After reading this article you will learn about:- 1. Meaning of Listing 2. Formalities for Listing 3. Advantages 4. Disadvantages.

Meaning of Listing:

Listing forms the very basis of the operations of stock exchange. A stock exchange does not deal in the securities of all the companies. Instead, it deals only in the listed securities of certain selected companies. Listing here means an act of inclusion of securities in the official list of a stock exchange for the purpose of trading.

The company issuing securities for public subscription has to apply to a recognised stock exchange to get its securities listed. If the permission is granted, then the securities are said to have been listed. Listing, therefore, is a sort of sanction of the stock exchange permitting dealings in the specific securities. In technical language, listed securities are also called ‘scrip’s’.

Formalities for Listing:

A company wishing to have its securities listed has to apply in the prescribed form supported by following documents and particulars:

(a) Copies of Memorandum and Articles of Association, Prospectus or Statement in lieu of Prospectus and agreements with underwriters.

(b) Specimen copies of shares’ and debentures’ certificates, letters of allotment, etc.

(c) Particulars of bonuses and dividends declared during the last 10 years.

(d) Particulars of shares or debentures for which permission is sought.

(e) A statement showing the distribution of shares.

(f) A brief history of the company’s activities since its incorporation with reference to its assets, liabilities and capital structure.

After a careful examination of the application, the stock exchange authorities may call upon the company to execute a listing agreement. This contains the obligations and restrictions on the part of the company.

The company undertakes:

(a) That it would offer not less than 49 per cent of its issued capital for public subscription;

(b) That it would be fair to all applicants for shares while making allotments;

(c) That it would keep the stock exchange fully informed about vital matters affecting the company.

(d) That it would ensure equitable voting rights and dividend rights.

The stock exchange reserves the right to cancel or suspend the permission granted following any breach of the obligations mentioned above.

Advantages of Listing:

1. Listing provides effective publicity and wide marketability of the securities.

2. It enhances the reputation of the concern which brightens its image in the investment market.

3. It protects investors’ interests through the enforcement of set rules and regulations.

4. It provides price continuity for securities.

5. It facilitates the correct evaluation of securities in terms of their real worth.

Disadvantages of Listing:

1. Listing encroaches upon the freedom and secrecy of the activities of concerned companies.

2. Listed securities may fall victim to erratic fluctuations in values.

3. Unscrupulous speculators often manipulate the values of listed securities to the disadvantage of the company.

4. Gambling may thrive under the garb of genuine speculation.