Equities

The term equity means different things in different contexts. In the business world, equity usually refers to stocks or other securities that represent ownership rights (to a company or some other business entity). A person possessing any amount of equity in a company owns the corresponding portion of that company. If a legal person (a person or a business entity) owns more than 50 percent of the outstanding shares of a company, then the person possesses a controlling [Page 611]share of that company. A company owning a controlling share of another company is called the parent company while the latter is called the subsidiary company. Equity can also mean the difference between the value of an asset (for example, a house) and the debt (mortgage) amount the owner still owes.

In the context of margin trading, equity is the value of the margin account less the amount borrowed from the brokerage firm. Margin trading is trading of securities using a margin account with a brokerage firm. Margin trading allows the investor to invest in securities with borrowed money from the brokerage house and thereby leverage their investment (magnify both the gains and losses from the investment).

In the context of global business, however, equity primarily refers to the stocks or other securities representing ownership rights to companies across the nations. The trading of global equity has created global capital flow across countries, and has created a single world financial market that truly spans all the economies. The economic impact of a single global financial market has been enormous. The growing businesses of the world now can raise capital faster than ever and the investors have the widest range of investment pool available to them. But it has also given rise to problems like capital flight, which has devastated different economies from time to time.

In a globalized world, a person can own equities in multiple foreign business entities. Foreign stocks are traded in all the major stock exchanges in the world. Global equity trading increased sharply beginning in the 1980s. Equity trading across borders has allowed companies to be cross-listed and dual-listed, has enabled the formation of parent subsidiary relationships between foreign companies, and has given rise to unique business structures like that of Renault-Nissan Alliance.

Cross-Listing or Co-Listing Companies

Shares of many large companies are traded in multiple stock exchanges, so that investors from different countries can have easy access to their securities. For example, Fortis, a banking, insurance, and investment management company that has a presence in Europe and North America, is listed on three stock exchanges: Euronext Brussels (Ticker symbol FORB), Euronext Amsterdam (FORA), and Luxembourg stock exchanges (FOR). Getting listed on a stock exchange in a country other than the country of incorporation has certain business advantages. Many large Canadian companies are listed both on the Toronto Stock Exchange and the New York Stock Exchange (NYSE). Getting listed on the NYSE has helped these Canadian companies to expand in the large U.S. market. The disadvantage of cross-listing is, of course, the extra work necessary to adhere to the regulations (financial reporting) of different countries.

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