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how does one buy stock on NYSE, delist it and sell it on the LSE (and take advantage of the price arbitrage ?

(Last Updated On: August 4, 2011)

i have a question…..how does one buy stock on NYSE, delist it and sell it on the LSE ( if doing something like this is possible at all) and take advantage of the price arbitrage ?

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Probably management of the company would be surprised to find out one day that they suddenly became listed on another stock exchange…

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• but if the stock is listed on 2 exchanges…say for example HSBC is listed on hongkong as well as london stock exchange.
can i now buy from hongkong and sell the stock on lse ??

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• I think it’s better if you contact your broker ans ask about what they offer. This needs to be done internally (within the same clearing house), in order to avoid huge time delays.

Furthermore, if the transaction involves different currencies, you need to clarify how they choose by which price the transaction will take place. You may find out that the price chosen by the clearing house is way off the price you had in mind, therefore the arbitrage advantage goes down the drain…

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“can i now buy from hongkong and sell the stock on lse ??”

Of course, this is done by many arbitrageurs, now especially with HFT. A stock is not tied to a market but to a company. If the company’s stock is traded on different exchange, you can trade it on different exchanges. But as said, it depends on your broker.

Note that there exist ADR/GDR (Google for more details) but this is more complex. It allows a company to be “as if” it was listed on different market exchanges. Some traders do also arbitrage on that

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Interexchange triangle arbitrages like this are a bread-and-butter HFT strategy. Note that the security in London will be priced in pounds and the security in NY for example will be priced in dollars. So you must be able to simultaneously trade both stocks AND the needed currency to capture the arbitrage.

The transfer agent for the ADR’s would be able in theory to effect the exchange, but will require a fee to do so, and likely some minimum quantity.This would be handled by your clearing broker’s back office. In practice a professional trader or fund would have a prime broker which offers some type of risk-based financing for arbitrage positions, and you would just hold the position until it could be unwound for value or better. Better yet you might never even execute the complete the arb, but rather use the price of two of the component to arrive at a fair value for the third, around which you could make a market.

In practice, the success of this strategy will be a function of how much you are willing to invest in IT to achieve lower-latency for your prices and orders relative to your competitors.

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For a start, not all dual listed stocks are fungible, you need to establish that first if you are only looking to trade underlying stock (i.e. there is no attached ADR or GDR).
You may find that stocks trade in NY as ADRs which can be converted through the relevant custodian bank. You can trade ADrs vs underlying stock and then arrange for conversion but youwill need to take into account any relevant costs. Do also bear in mind that ADRs may not be 1:1 with the underlying, they may be parceled.
You can also trade GDRs which can be listed on a number of exchanges in Europe.

 

 

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

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