I think I've sort of figured out why the Frankfurt shares are not fungible with the Tokyo shares. Sort of. If the Tokyo and Frankfurt shares were fungible then by the very nature of the German market there would be no effective up/down limits on SB. SB would trade up or down to its daily limit in Tokyo and simply move on to Frankfurt when those limits were reached. My guess is the Tokyo listing requirements would impose some kind of explicit or implicit restrictions on your ability to circumvent their volatility-dampening good intentions.
Furthermore, what happens to Jay's warrants if some macro blow up occurs and prices need to adjust? We know Tokyo can only adjust X dollars per day and no more. Warrants out of Frankfurt, on the other hand, would need a bid to be on the table at all times and the bid, under ideal conditions, has a deterministic relationship to the underlying. If the only underlying were Tokyo, then, theoretically, the warrant holders would make out like bandits while the writing houses and the rest of the world goes to hell in a handbasket. The solution -- a seperate class of shares in Germany which can trade all the way down to zero or up to a zillion, in accordance with local law, and which also serve as the benchmark/proxy for derivative pricing. So if Tokyo falls by its limit of 50k, the Frankfurt class would give an indication if the real current value of the shares is minus an additional 5k or 30k or even plus Xk or whatever and life goes on as usual. In the absence of a clear underlying price I suppose you could jack up your volatility and drop the bid but maybe that creates more complications than it solves...margin requirements and unworkable asks?
have a good weekend,
manohar@justanothertheory.com |
