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Technology Stocks : JDS Uniphase (JDSU)
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To: Ned Land who wrote (3387)12/29/1999 1:52:00 PM
From: David Graham  Read Replies (3) of 24042
 
RE: TSE & NASDAQ shares

The shares traded on the TSE and on NAZ are different, and as you say, will have different CUSIPs. The TSE shares are actually JDS Uniphase Exchangeable Shares. Each one can be exchanged for a share of JDSU. They were set-up to accommodate Canadian shareholders of JDS Fitel when the merger took place. Canadians can't hold JDSU in the retirement plans because it is and American stock, so they set-up what is essentially a tracking stock and called them exchangeable shares. (This happens often with takeovers/mergers between Canadian and U.S. firms). The Exchangeable Shares are treated as Canadian property in retirement and institutional pension plans.

What is happening is that MM's get to arbitrage between the TSE and NAZ. They buy the shares cheaply in Toronto (lower volume, wider bid/ask spreads) and sell them on NAZ. Technically they are short JDSU until they convert the Exchangeable Shares. This is a one-way process, meaning that Canadian shares can only be converted in JDSU, not the other way around. So every time a conversion takes place, more shares leave the Canadian marketplace.

In the end, this is bad news for Canadian investors. As Exchangeable Shares disappear, volume will continue to thin out. The problem is that Canadian institutions will not be able to buy the stock in bulk in the future. Eventually the bid/ask could deteriorate to the point where retail investors won?t buy it either. Another result is that JDU's weighting on the TSE 300 keeps decreasing - a stock that does nothing but go up is actually losing weight in the Index, all because of the southbound exchange of shares.

(I think there are occasional EDGAR filings relating to the conversion.)

David
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