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Stocks : Trading on the US OTC market vs overseas

Discussion in 'Non-Vegas Chat' started by JWBlue, Aug 21, 2013.

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  1. JWBlue

    JWBlue VIP Whale

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    I would like to purchase stock in H&M clothing company.

    There are offerings on the Stockholm and US OTC exchanges.

    Should I spend a little more on fees to buy the Stockholm shares?

    Is volume something I should consider?

    OTC (Symbol : HNNMY): avg. daily volume : 69,510, (Trading (Fee $9.99)

    Stockholm (Symbol SE :SMB) : avg. daily volume : 2.32 M (Trading fee: ~$40.00)
     
  2. shifter

    shifter Degenerate Gambler

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    Volume's only a consideration if you're buying enough shares to matter. If you're buying 100k shares and the daily volume is only 60k you're going to have a harder time buying and off loading the shares if it doesn't go your way. But if you're buying 100 shares or something it doesn't matter.
     
  3. undathesea

    undathesea Grandissimo

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    As shifter stated, liquidity is only an issue if when you go to unload your stock (sometimes when you buy, but to a much lesser degree). If the average daily volume far exceeds the amount you want to purchase, you probably won't have any issues unloading the stock.

    Personally, I would avoid the huge fees.
     
  4. Kickin

    Kickin Flea

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    I invest in international securities for a living (bonds and CDS but some equity by circumstance). A couple of things you want to keep in mind:

    - I would definitely not buy the US listed stock with that little liquidity and that lack of sponsorship. Its doubtful you're going to buy only 100 shares of a $7 stock, and even if its just a couple thousand I would not want to buy/sell that block into such a thin market especially as a retail investor. You can easily get smoked on the spread.

    - This is an unsponsored ADR, i.e. the company has no involvement in it. Its essentially a pass-through security held by another bank so the company doesn't have to comply with US listing requirements and regulations.

    - Its rate is 0.2 shares of the onshore stock to 1 share of the adr. You can see that in the fx too. Stock is 239 SEK, 6.56 SEK/USD = 36.43 USD. ADR is 7.23. So 36.43/7.23 ~ 5

    So just buy 1/5th the number of the local shares as you would the onshore shares. You'll have to open up an fx account with your broker to buy the SEK, but you can hedge that if you want by either selling it or see if they sell you a forward. With the onshore stock you still carry the same fx risk, its just baked right in.

    I don't deal with securities in Switzerland or most developed markets but there are no hurdles to investing there versus a place like China, where you need a special license to purchase onshore securities. Since that's where the deeper (and sponsored) market is that's where I'd buy.
     
  5. JWBlue

    JWBlue VIP Whale

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    Great information.

    To be clear, I am going to buy abou 700 shares. $5K

    What exactly are possible consequences of this?
     
  6. Kickin

    Kickin Flea

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    There may not be any negative consequences, it all depends on the depository bank. The main thing is there is the limited legal protection regarding various corporate actions. If H&M sends out a corporate action there is no requirement for the depository bank to pass that on to you, including any type of shareholder proxy documents, restructurings, etc. No institutional (i.e. large) investor would purchase these for those reasons. So essentially you'd be playing around in a thin market with no strong shareholders.

    Just google unsponsored ADR and read up on it, you'll get a lot better info than you will from me. It's an idiotic new business that used to have common-sense regulation preventing it....but of course that was rolled back during the last decade to give banks another source of revenue at the expense of individual retail investors. :rolleyes2:
     
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