Mutual conversion between SK hynix American depositary receipts (ADR) and domestic common shares is expected to become possible from the end of this month, but the type of arbitrage individual investors are hoping for will likely be difficult. In principle, conversion is possible, but it will be hard to use as freely as ordinary shares because of constraints such as issuance limits, conversion procedures, and differences in how each securities firm handles the process.
According to Korea Securities Depository (KSD) on the 16th, mutual conversion between SK hynix ADRs and domestic common shares will be possible after the scheduled domestic common share listing date on the 29th.
KSD said, "Domestic distribution is not allowed until the day before the domestic common share listing date, so applications to convert or cancel DRs are restricted," and added, "The specific time when mutual conversion becomes possible will be determined by the DR depositary (Citibank) and notified to KSD."
Recently, among investors, expectations have spread that if the ADR price is set higher than the domestic common share, they could convert the common share into an ADR to capture a spread. But in practice, several conditions apply to the conversion process.
First, converting domestic common shares into ADRs is possible only within the ADR issuance limit set by the issuer. KSD explained, "When converting DRs, KSD checks the ADR issuance limit set by the issuer and then notifies the DR depositary of the applicant's detailed DR issuance within that limit."
For example, if the volume available for ADR issuance is 1 million shares on a common-share basis and 900,000 shares are currently issued, additional conversions are possible only up to 100,000 shares. Conversely, when converting ADRs into domestic common shares, there is no separate issuance limit.
However, there is an assessment that it will not be easy for individual investors to use this as an actual investment strategy.
To convert common shares into ADRs, investors must go through a separate application process via a securities firm, accompanied by foreign exchange–related procedures. Each securities firm handles it differently, so it is not an immediate conversion like ordinary shares via a mobile trading system (MTS) or home trading system (HTS).
KSD also explained, "Application and processing procedures for mutual conversion may differ by securities firm."
Among some investors, there are expectations that if an ADR premium forms, arbitrage or short-selling strategies could be deployed. But the market suggests that structurally free arbitrage is difficult, raising the possibility that the price gap between the two markets could persist for a considerable period.
Nodong-gil, a researcher at Shinhan Investment Securities, said, "For TSMC, canceling U.S. ADSs and withdrawing into Taiwan common shares is unrestricted, but converting common shares into U.S. ADSs is subject to aggregate approval and regulatory constraints," adding, "Because of these arbitrage constraints, TSMC's premium has remained at 19.1% since 2024 and has averaged 17.5% in 2026."