ADR Pricing Gaps and the Implied Currency Conversion
Summary
The document examines an apparent price gap between Telecom Argentina’s New York listed American depositary receipts and its locally traded shares. The question is whether the difference creates a cross-market arbitrage opportunity, given the apparent share-price mismatch and a stated official exchange rate. The response identifies a key conversion detail: one depositary receipt represents five local shares. Applying that ratio to the quoted prices implies an exchange rate of roughly 12 Argentine pesos per US dollar, rather than the cited rate near 8.20.
This reframes the discrepancy as potentially related to the currency conversion available to investors, rather than a simple mispricing between equivalent securities. The discussion is brief and offers no execution analysis, evidence about capital controls or market access, or assessment of trading costs and settlement constraints. The implied rate is based on the quoted prices and share ratio, so it should not be treated as proof that a risk-free arbitrage can be executed.
Key ideas
- An ADR may represent multiple locally traded shares, so its conversion ratio matters when comparing prices.
- The quoted ADR and local share prices imply a different exchange rate from the cited official rate.
- A visible cross-market price gap alone does not establish an executable arbitrage opportunity.
- Market access, settlement, and trading constraints are not analyzed in the brief response.
Tags
Full text
# ADR vs Foriegn Stock Price Arbitraguers # ADR vs Foriegn Stock Price Arbitraguers So I am sure you all know about the whole Argentina default that has been in the papers lately, no need to delve into it. This so called "technical" default has lead some interesting investment opportunities (Soros Doubles YPF Stake) and a conundrum that I cannot answer. The Telecommuncation company,, Telecom Argentina, has ADR's listed on the NYSE. They are also locally traded on the Buenos Aires Stock Exchange. The ADR price, denominated in $USD, is currently ~19 USD. The locally traded stock is worth ~45 ARS (~5 USD) last I checked on Bloomberg at work today, creating a 14 USD discrepancy. There might some voting right differences but the share are pretty much at parity and certainly not enough to explain a 14 USD difference. Many of you might argue that spread is due to currency but that is not the case, the ARS is pegged to the USD at ~8.20 ARS for each USD. Country risk premium?? maybe so but wouldn't that be priced in mostly the currency/bonds which then would be reflected in the stock? To give you an idea, the stock trades at 12X Earnings on the B.A.S. Exchange but at 8X here on th NYSE, something is not adding up. Aren't there quant shops that do cross country arbitrage between ADR's and their respective domiciled stock. And why aren't they arbitraging this spread? There is clearly something wrong. ## Answer by Mathias Körner (score 1) https://quant.stackexchange.com/a/14447 One depository receipt corresponds to 5 shares (see here), so you pay ~19USD for ~225ARS which corresponds to an implied exchange rate of ~12ARS/USD.
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.