Converting ADRs

[TwoCitiesCapital]

Looking at arbing some Russian ADRs versus the value of the underlying shares on the MICEZ exchange. 

 

Have never done it before though. I know IB charges a $500 fee for the process, but can't find anything on the timing of conversion, the fees the sponsoring bank (JPM) might charge, or anything else that I might need to anticipate as part of the process. 

 

Anyone here ever done the share/ADR arbitrage or conversion before to help a newbie through it? 

[TwoCitiesCapital]

Spoke with Schwab on this. Sponsoring bank charges $0.05/share for the conversion, Schwab charges a $39 reorganization fee, and a $20 fee for the transfer. 

 

Seems reasonable. Suggested time is 1 week to convert all shares, but rep wasn't positive that they could actually trade on the Russian exchange to sell for rubles to complete the arbitrage and couldn't give me guidance on the sales commission b/c of that. 

 

Also, she mentioned the ADR was added to their restricted list today so no repurchasing the shares for a risen/repeat or to replace the position if done through Schwab. 

 

Still haven't heard back from IB yet, but I'm not seeing any notice of restrictions on their trade platform for Sberbank currently. 

 

Just trying to be the arb instead of waiting for the arb to happen. Spreads are still 30+% and if you could do this 2-3 times over the course of a month? Really attractive risk/return prospects IMO

Edited February 25, 2022 by TwoCitiesCapital

[Benderok]

Interesting situation and arb possibility. Noticed something similar when i was looking at Polymetal yesterday. But it's the other way around. POLY is listed at LSE and Moscow exchange trade its ADRs. As i have never done it, i wasn't exactly sure how do currency fluctuations factor into the spread? Also what happens to ADRs if let's say the main security like POLY.L gets delisted under some imaginary sanctions from LSE? I remember reading extensive conversations in BABA thread regarding ADR delistings, but it seems it doesn't apply to my question. 

[TwoCitiesCapital]

5 hours ago, Benderok said:

Interesting situation and arb possibility. Noticed something similar when i was looking at Polymetal yesterday. But it's the other way around. POLY is listed at LSE and Moscow exchange trade its ADRs. As i have never done it, i wasn't exactly sure how do currency fluctuations factor into the spread? Also what happens to ADRs if let's say the main security like POLY.L gets delisted under some imaginary sanctions from LSE? I remember reading extensive conversations in BABA thread regarding ADR delistings, but it seems it doesn't apply to my question. 

 

Currency fluctuations matter for price changes, but not the spread between the price and underlying value. That should be easily arb'd by market participants and the spread didn't exist pre-invasion that I know of. 

 

SBER closed at 130.5 rubles per share in Moscow. Each ADR is worth 4 shares or 522 rubles. RUB to USD exchange rate is currently 0.012 dollar per ruble, so 522 rubles is equal to $6.26/ADR. 

 

ADRs closed @ $4.43. The currency fluctuations impacts the $ price for sure could go from $6.26 to $5.75 if the exchange rate drops to $0.011 where it was at a day or two ago - but impacts to price just means the ADR would drop to reflect that new exchange rate - not trade at a 40% discount to that exchange rate. 

 

Can't speak to what happens to ADRs if the underlying gets delisted. Foror Sberbank, I don't believe that's a risk. 

Edited February 27, 2022 by TwoCitiesCapital

[Benderok]

The Bank of Russia is  temporarily suspending selling orders from foreign holders of Russian equities starting 28.02. @TwoCitiesCapital be careful arb'ing this thing. 

 

https://cbr.ru/press/pr/?file=28022022_072328SUP_MEAS28022022_072619.htm 

[COBFInfinity]

Any logic for why RSX is trading at a 40% premium to NAV?

[TwoCitiesCapital]

12 hours ago, COBFInfinity said:

Any logic for why RSX is trading at a 40% premium to NAV?

 

Haven't looked into it, but during April of 2020 USO traded at a 40% premium to it's underlying NAV despite that NAV decaying at 2% a month with the negative roll yield. 

 

In these types of dislocations, arbitrage traders tend to step back and retail does at wishes. Also, it could be this is the only way some of these people can get exposure since some brokerages are restricting trading in the individual names. 

 

As long as the MICEX is closed, you really don't know what these should trade for. All you have is a bunch of illiquid proxy securities being traded by people who have limited insight into what is actually happening on the ground. 

Edited March 1, 2022 by TwoCitiesCapital