Hi, Does anyone know whether retail brokers, and specifically Interactive Brokers, supports the conversion of ADRs? That is, can I buy London-listed stock (say 1000 shares of RBS), and then hit a button and automatically convert it into RBS ADRs listed on the NYSE? (And vice versa?)
Never mind, checked with IB and they said this isn't supported. But I think I've found something that looks like a work-around. Say that I wanted to work with RBS, as per the above example. I could just start by shorting 5000 shares of RBS in the US, and going long 5000 shares in the UK. Net exposure = zero (minus currency risk). Say that I wanted to go long, during UK market hours. I'd just buy 1000 shares. 6000 long UK, 5000 short US, net: +1000. If I wanted to close out this position during US market hours, I'd just short another 1000 shares at that point, etc, etc. If I wanted to go long during US hours, I'd cover 1000 shares... so I'd be short 4000 in the US, long 5000 in the UK. And when I'm finally tired of this game and want to get out of UBS entirely, I can just close out both positions simultaneously (while both markets are open). The only reason I want to do this, is because of the significant gap-up/gap-downs at market open I see with ADRs.
Your currency risk is greater than you probably think. You're arbing ADRs, not a game for retail traders unless you have a very good program that can scan and execute. If you must try, I hear Brazilian companies are the easiest to squeeze a nickel out of this way, for some reason.
Not trying to arb ADRs... in fact hope the market is efficient so I'm not losing too many pennies on the exchange! Re: Brazilian companies... actually just read a paper about this. US market + Brazilian market = same time zone, and volatility is greatest in the first/last hour of trading. Therefore, greatest change for arb when both markets are in the first hour and prices shifting quickly.