Potential arbitrage, different exchanges?

Hi,

My question is relatively simple: if a company is listen on multiple exchanges, is it possible to buy shares on one exchange, and then sell those same shares on the other exchange and extract an arbitrage?

For example, if I bought RIO on the NYSE at USD$ 53.74 (AUD$59.25) and sold them on the ASX at AUD$ 62.11 (current price), could I not extract a $2.86 arbitrage?

I suppose I could take a long position on NYSE and a short on ASX and assume they'll revert to the mean, but this is a much less convenient option (risky, increased costs, long-term, may not happen, not a 'true' arbitrage, etc).

Is there any way to do this?

Cheers,

Herzy

herzy said:

Hi,

My question is relatively simple: if a company is listen on multiple exchanges, is it possible to buy shares on one exchange, and then sell those same shares on the other exchange and extract an arbitrage?

For example, if I bought RIO on the NYSE at USD$ 53.74 (AUD$59.25) and sold them on the ASX at AUD$ 62.11 (current price), could I not extract a $2.86 arbitrage?

I suppose I could take a long position on NYSE and a short on ASX and assume they'll revert to the mean, but this is a much less convenient option (risky, increased costs, long-term, may not happen, not a 'true' arbitrage, etc).

Is there any way to do this?

Cheers,

Herzy

Click to expand...

Short anwer is No. If it was that easy and completely risk free then such opportunity wouldn't exist anymore for you to capitalise on anyway.

I seem to remember with some shares you can apply for your stock to be transferred onto another exchange. But that'd be a long process with you having to fill out a form and wait some days/weeks before it is transferred. I also can't be certain that I didn't just make that up.

Re: Long one exchange and short next exchange... There are people who do that, arbing ADR's against locally listed scripts. Your risks include currency, gaps (e.g. there is no overlap between the openning hours of NYSE and ASX) and the fact that they just don't converge (e.g. foreign holders don't benefit from franking, and are exposed to Fx risks on their $Aud dividends). But you'd be largely insulated from major directional market risks.

skc said:

Short anwer is No. If it was that easy and completely risk free then such opportunity wouldn't exist anymore for you to capitalise on anyway.

Click to expand...

Thanks - I had assumed this, and was more asking why this wasn't done.

skc said:

I seem to remember with some shares you can apply for your stock to be transferred onto another exchange. But that'd be a long process with you having to fill out a form and wait some days/weeks before it is transferred. I also can't be certain that I didn't just make that up.

Click to expand...

Thanks again: I might look into this - A few weeks wouldn't necessarily both me if the difference has existed for a long time (or exists because of franking credits etc). But again, I assume there are reasons this isn't done.

skc said:

Re: Long one exchange and short next exchange... There are people who do that, arbing ADR's against locally listed scripts. Your risks include currency, gaps (e.g. there is no overlap between the openning hours of NYSE and ASX) and the fact that they just don't converge (e.g. foreign holders don't benefit from franking, and are exposed to Fx risks on their $Aud dividends). But you'd be largely insulated from major directional market risks.

Click to expand...

Exactly. This isn't really an option I'm interested. Fundamentally, if there's a reason they're divergent, there's no real reason they'll divert. It becomes much riskier, considering the risks you mentioned, than the arbitrage I was hoping for. In fact, I was after the opposite of an insulation from a major direction market risk (rather, hoping to capitalise... ). Alas.

Thanks again SKC, insightful as always.

herzy said:

Hi,

My question is relatively simple: if a company is listen on multiple exchanges, is it possible to buy shares on one exchange, and then sell those same shares on the other exchange and extract an arbitrage?

For example, if I bought RIO on the NYSE at USD$ 53.74 (AUD$59.25) and sold them on the ASX at AUD$ 62.11 (current price), could I not extract a $2.86 arbitrage?

I suppose I could take a long position on NYSE and a short on ASX and assume they'll revert to the mean, but this is a much less convenient option (risky, increased costs, long-term, may not happen, not a 'true' arbitrage, etc).

Is there any way to do this?

Cheers,

Herzy

Click to expand...

Also, you're looking at RIO US (UK Rio PLC) which closed at $53.74
vs
RTNRF US (Aus RIO) which clsoed at $56.87

Same thing how RIO AU isn't fungible with RIO LN.

There is also plenty of literature out there that tries to explain why BHP AU/BLT LN or RIO AU/RIO LN have a price difference.