Comparative Study and Analysis of Elements, Results and Aspects of the Financial - Legal of the Securitie's Cross-listing in The Tehran Stock Exchange (Focusing on Islamic Republic of Iran and US law)

Document Type : Scientific research

Authors

• Saeed Mohammadi Aghdam ¹
• Ebrahim Dianatinasab ²

¹ P.h.D student of financial engineering, Allameh Tabatabae University

² P.h.D of Private law, University of Tehran

https://doi.org/10.22067/lowecon.2021.39476

Abstract

 
Extended Abstract
Introduction
Financial markets are the markets which conditions are changing quickly with considerable intensity compared to the other markets; therefor, policy makers have to adjust their appropriate decesions and strategies based on that circumestances with the use of accurate and multilateral cognition. Designing instruments in practice, is one of the status of the changes. This change could lead to competition during the time and the variables capture a number of possible determinants of effective competition in different formats like size, types of orders, trading infrastructures, execution procedures, acceptance and listing at the domestic or international level. More importantly, that competition among market centers appears to lead to specialization and fragmentation not convergence to a single artichecture. (Lipson, 2003) That means everything that could intensify competition like listing could be useful.
 
Theoretical frame work
When the firm decides to fund raised, it has to pass general stages in finincing chain, include get the regulator's license about addmision companies' symbols, listing, initial public offering and finally secondary transactions. Each level has its own requirements and regulations. This article aimed to study and review the listing stage. Cross-listing is one of the listing types and is known as listing a security on more than one exchange and leads to increase the competition for bid and offer prices, the liquidity of the securities, the length of time in trading, (The NASDAQ Listing Rules), bonding, more fund rasing, price making, reputation.(Miao, 2012) These effects could transfere between exchanges inside or outside of the countries.
 
Methodology
In this research, reviewing the financial aspects of the phenomenon is the first stage, then we cover the rules and documents of the research by using analytical-interpretive method based on compliance with the nature and regulatory elements in the Iran and United sates of America. this methodology was done base on the logic of the comparative studies.
 
Results & Discussion
Practicing of the cross-listing depends on the adoption of different approaches, each of which has its own dimensions and effects. According to the first approach, regulator treat with a foreign applicant similar to a domestic company, despite of exceptions and exemptions in certain circumstances. Based on the second approach, known as subsituted compliant, based on the structural and regulatory similarity, the regulatory regime of the counterparty recognizes structural and regulatory similarity, if there is no conflict with internal regulations, it was accepeted. All in all, in this regime, some jurisdictions do not apply all local requirments to foreign intermediaries that engage in cross-border transactions with sophisticated investors from the host jurisdiction. The third approach is known as licensing transactions under a memorandum or international - institutional guidelines and standards which both countries are defined and accepted. It means, some jurisdictions utilize a system of unilateral or mutual recognition to deciede whether to apply local regulations to a foreign intermediary. Based on this regime, a jurisdiction generally will not apply local requirements to a foreign intermediary if the home regulatory regime to which that intermediary is subject meets certain investor protection criteria. A mutual recognition system is similar to unilateral recognition system in that the "access" jurisdiction recognize the adequacy of a foreign intermediary's "home" regulation. (IOSCO, 2004)
 
Conclusions & Suggestions
Cross-listing of securities has its own complexity with multilateral aspects in theroy and practice. In the Iranian capital market regulatory ragim, there is just mention the concept of cross-listing and dual-listing but in practice no action was done. Regulatory institution should cover fund-rasing chain by taking some steps, including define the initial public offering and secondary foreign investment transactions in the law and regulations. They sould pay attention to technical-regulatory considerations at regulatory levels, including the encouragement and protection Law, Foreign investment and related regulations, foreign investment executive regulations in stock exchanges and over-the-counter markets, various offer and registration instructions, transactions and disciplinary, and various dispute resolution procedures in the regulations.
Subsequently, according to the capital market reaulation of iran, lisint of foreign securities and their transactions are within the competence of the Supreme Council of the Stock Exchange. Thus, in the second phase as the executive status, this institution can choose a similarity approach to domestic companies and increase exemptions in order to facilitate fund absorbtion and trading activitybeside that, it should be noted that the application of exemptions should be done in terms of the nature of the exemptions so as not to damage the elements of the main regulations such as commercial law or capital market law. It also has to consider general and spicific of the structure of the Iranian securities market including institutions, instruments, legal systems and regulations.
In this regard, the Supreme Council of the stock exchange should classify different requirements in order to be compatible with the structure of the capital market and the general and specific legal systems and select the cases that may be exempted in term of the legal system of the target market. In addition, in case of structural and regulatory similarity, exceptions or exemptions may be applied to issuers, traders / brokers or foreign investors while contracte a memorandum of cooperation. In addition, sould be behave with those exchange that are joint members of an international institution such as the World Federation of Exchnage or IOSCO according to the standards and principles of the relevant institution.
Finally, in order to solve the various challenges of this phenomenon, it has to sign the Memorandum of Understanding and state all the financial-legal considerations in the clauses of the Memorandum of Understanding in terms of different norms and technical requirements. In the near future, Iran has to consider this ability in practice and adjust its regulation and structure to be in conjuction with its consideration and chractristics and it has to improve its cognition about that
 

Keywords

• Cross-listing (Dual-listing) of Securities
• Stock Exchanges
• Capital Market
• Camparative law
• United State's law
• Islamic Republic of Iran's law

References

[1]     Ackerly, T, Dana, J. Pan & Eric J. (2002). Dual listing securities in Europe and the united states, Covington & Burling, Washington, D.C., U.S.A.

[2]     African market. (2019). https://www.african-markets.com/en/stock-markets/egx/egypt-bahrain-stock-exchanges-sign-cross-listing-agreement. Paris, France. Watched at 20190815.

[3]     Ansari, Ali, Esaee tafreshi, Mohammad & Hosseini, Seyedmilad, (2013). Analysis of the legal structure of self-regulatory institutions in the Iranian capital market with a comparative study in the US legal system, The Financial Research, No. 15(2), pp. 149-160. (in Persian)

[4]     Armour, J., Bengtzen, M., & Enriques, L. (2017). Investor Choice in Global Securities Markets.‏, http://www.law.columbia.edu

[5]     Beny, L. N. (2005). Do insider trade laws matter? Some preliminary comparative evidence. American Law and Economics Review, 7(1), 144-183.

[6]     Bookman, J. (2017). https://www.securitieslitigation.blog/2017/08/dual-listed-companies-beware/. Norton Rose Fulbright, Canada. 20190711.

[7]     Brummer, C. (2008). Stock exchanges and the new markets for securities laws. The University of Chicago Law Review, 75(4), 1435-1491.

[8]     Carpentier, C., L'Her, J. F., & Suret, J. M. (2008). Competition and survival of stock exchanges: lessons from Canada. Review of Pacific Basin Financial Markets and Policies, 11(02), 255-286. ‏

[9]     Carson, J. (2011). Self-regulation in securities markets. The World Bank. WPS5542, Policy research working paper.

[10] Chemmanur, T. J, & Fulghieri, P. (2006). Competition and cooperation among exchanges: A theory of cross-listing and endogenous listing standards. Journal of Financial Economics, 82(2), 455-489.

[11] Cheng, B., Srinivasan, S, & Yu, G. (2014). Securities litigation risk for foreign companies listed in the US. ‏

[12] De landsheere, Janathan (2011).21st century benefit of ADR-listing: an ending story. Thesis, Faculty of law, Tilburg university, Dpt. International Business law.

[13] Emma de, R. (2015). https://www.regulationtomorrow.com/asia/iosco-public-consultation-on-cross-border-securities-regulation/ Norton Rose Fulbright Canada 20190519.

[14] Enriques, l & Troger, Tobias. (2007). European corporate governance institute, issuer choice in Europe, Working paper N. 90/2007

[15] Erkan, Huseyin. (2005) Areas of cooperation among stock exchange of OIC counties, executive vice chairman, Stanbul stock exchange.

[16] EU press (2014). ‘Upgrading EU financial regulatory cooperation with the United States’ at http://ec.europa.eu/newsroom/fisma/itemlongdetail.cfm?item_id=33100. EU. 20190615.

[17] Evans, R.N. & Pinedo, Anna, T. capital markets in United States: regulatory overview. Morrison & Foerster LLP. Global. Practival law. Com/ 9-501-3333

[18] Fan, Z. (2014). The long-run effect of cross-listing on firms: Evidence from China (Doctoral dissertation, Auckland University of Technology). ‏

[19] Fischel, D. R., & Grossman, S. J. (1984). Customer protection in futures and securities markets. Journal of Futures Markets, 4(3), 273-295.

[20] Foucault, T, & Menkveld, A. J. (2008). Competition for order flow and smart order routing systems. The Journal of Finance, 63(1), 119-158. ‏

[21] Gerakos, J, Lang, M., & Maffett, M. (2011). Listing choices and self-regulation: The experience of the AIM.

[22] Guseva, Y. (2012). Cross-listings and the new world of international capital: Another look at the efficiency and extraterritoriality of securities law. Geo. J. Int'l L., 44, 411.

[23] Halling, M., Pagano, M., Randl, O, & Zechner, J. (2007). Where is the market? Evidence from cross-listings in the United States. The Review of Financial Studies, 21(2), 725-761.

[24] Hemel, Danial (2011). Issuer Choice after Morrison. Yale Journal on regulation, Volume 28. Issue2

[25] IOSCO technical committee. (2006). Regulation of remote cross-border financial intermediaries. International Organization of Securities Commissions, Madrid, Spain

[26] IOSCO Technical Committee. (2006). Regulatory issues arising from exchange evolution. International Organization of Securities Commissions, Madrid, Spain.

[27] IOSCO (2002). https://www.iosco.org/about/?subsection=mmou. Spain. Watched at 20190409.

[28] IOSCO (1998). International disclosure standards for cross-border offering and initial listing by foreing issuers, Spain.

[29] Iran Fara Bourse Exchange. (2008) Article of Association of the Iran Fara Bourse. (In Persian)

[30] Islamic Parlimant of Iran. (2005) Capital market law of the Islamic Republic of Iran. (In Persian)

[31] KAROLYI, G,A (2006), “The World of Cross‐Listings and Cross‐Listings of the World: Challenging Conventional Wisdom”, Review of Finance, 10, pp. 99– 152.

[32] Koh, Y. (2012). Economic consequences of involuntary cross-listing of US restaurant companies on the Frankfurt open stock market in Germany. Temple University.

[33] Lang, M., K. V. Lins & D. Miller (2003) ADRs, analysts and accuracy: Does cross listing in the U.S. improve a firm’s information environment and increase market value? Journal of Accounting Research, 41, 317–45

[34] Licht, A. N. (2003). Cross-listing and corporate governance: Bonding or avoiding? Chicago Journal of International Law, 4(1), 122-141.

[35] Lipson, M. (2003). Competition among market centers, University of virginina

[36] Litvak, K. (2007). The effect of the Sarbanes-Oxley Act on non-US companies cross-listed in the US. Journal of corporate Finance, 13(2-3), 195-228. ‏

[37] Liu, Clark & Seasholes, Mark S. (2011) Dual-Listed Shares and Trading. In SSRN Electronic Journal. DOI: 10.2139/ssrn.2022556.

[38] Miao, Y. (2012). Oversea Listing and State-owned Enterprise Governance in China: Role of the State. Harvard Law School. Harvard University. April.

[39] Moneyland (2019). https://www.moneyland.ch/en/secondary-listing-definition. Swiss watched at 20190809.

[40] Mu, J. (2014). Firms' Choices to Cross-list Stocks on the US and the UK Markets: An Earnings Quality Perspective (Doctoral dissertation, ResearchSpace@ Auckland). ‏

[41] Nasdaq (2019). http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?searched=1&selectednode=chp_1_1_4_3_4_5&CiRestriction=dual&manual=%2FNASDAQ%2FMain%2Fnasdaq-equityrules%2F USA

[42] Nasdaq (2019). https://business.nasdaq.com/mediacenter/pressreleases/1630394/nasdaq-and-sgx-establish-collaborative-listings-agreement USA, watched at 20190719.

[43] Nasdaq (2015). The Nasdaq listing rule. https://listingcenter.nasdaq.com/rulebook/nasdaq/rules.  USA. Watched at 20190205.

[44] NewYork Stock Exchange. (2019) www.NYSE.com USA. Watched at 20190201.

[45] Petrella, G. (2010). MiFID, Reg NMS and competition across trading venues in Europe and the USA. Journal of Financial Regulation and Compliance, 18(3), 257-271. ‏

[46] Practical law-ThomsonReuters (2019). https://uk.practicallaw.thomsonreuters.com/0-107-7215?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1. United-Kingdom.watched at 20190803

[47] Reiter N. (2017) Investor communication and the benefits of cross-listing, Doctor of philosophy business administration in the university of Michigan.

[48] Ribstein, L. E. (2005). Cross-listing and regulatory competition. Review of Law & Economics, 1(1), 97-148.

[49] Roosenboom, P, & Van Dijk, M. A. (2009). The market reaction to cross-listings: Does the destination market matter? Journal of Banking & Finance, 33(10), 1898-1908.

[50] Securities exchange organization. (2007). Securities Listing Regulation in the Tehran stock exchange. (In Persian)

[51] Securities exchange organization. (2009). Lisiting, Offer and Transfer of the securities in the Iran Fara Bourse. (In Persian)

[52] Securities Exchange Commission. (2019). Https://www.sec.gov/fast-answers/answerslistinghtm.html. USA. Watched at 20190319.

[53] Securities Exchange Commission. (1934). Securities Exchange Act of 1934, USA.

[54] Seigel, J., 2005, Can foreign firms bond themselves effectively by submitting to U.S. Law? Journal of Financial Economics, 75, 319–359

[55] Stewart, J. T (2015). A Review of Market Segmentation and Inefficiencies of the Chinese Stock Market. International Journal of Finance & Banking Studies, 4(4), 18.

[56] Serra, A. P. (1999). Dual‐listings on international exchanges: the case of emerging markets’ stocks. European Financial Management, 5(2), 165-202.

[57] Tehran Stock Exchange. (2006) Article of Association of the Tehran stock exchange. (In Persian)

[58] Wallstreet journal (2019) .http://wallstreet.cch.com/LCMTools/PlatformViewer.asp?selectednode=chp_1_2_3&manual=%2Flcm%2Fsections%2Flcm-sections%2F USA. Watched at 20190318.

[59] Wanjiru, C. K. (2013) The relationship between cross listing and liquidity: a study of shares cross listed in the east African securities exchanges. Unpublished MSc project, University of Nairobi. ‏