[Edaily Reporter KIM YOON-JEONG ] SK hynix(000660) American Depositary Receipts (ADRs) surged more than 12% above the initial public offering (IPO) price on their first day of trading on the Nasdaq, closing at a price approximately 16% higher than the domestic underlying shares. Domestic investors are focusing on whether the premium formed in the U.S. will be reflected in the domestic underlying shares as well. While arbitrage trading exploiting the price difference between the domestic shares and the ADRs could link the prices of the two markets, analysts note that the actual effect may depend on how many domestic shares can be deposited and converted to serve as the underlying assets for additional ADR issuances.

◇Soared 12.76% on the first day…Traded 16% higher than domestic shares
According to the financial investment industry on the 12th, SK hynix ADRs began trading on the Nasdaq Global Select Market on the 10th (local time) at $170, 14.1% higher than the initial public offering (IPO) price of $149. After rising to $177 during the session, they closed at $168.01, marking a 12.76% increase from the IPO price.
More than 52 million shares were traded within the first 30 minutes of trading, and the total daily trading volume reached 107.67 million shares, with a total trading value of $18.4644 billion (approximately 27.7593 trillion won).
Converted to Korean won, the first-day closing price equates to approximately 2,532,000 won per domestic common share. This is about 16% higher than the closing price of 2.18 million won for the domestic common stock on the 10th. However, just because U.S. ADRs traded at a 16% premium does not mean the domestic common stock will immediately rise by the same margin.
◇ If U.S. ADRs Rise, Will Korean Underlying Shares Follow?…Arbitrage and Custody as Future Linkages
One of the pathways linking prices across the two markets is arbitrage. If U.S. ADRs are trading at a premium to the equivalent price of the domestic underlying shares and the underlying shares can be converted into ADRs, investors seeking arbitrage opportunities—such as hedge funds—can take advantage of the price difference by purchasing the relatively cheaper domestic underlying shares, depositing them with a domestic custodian, and then issuing ADRs based on those shares to sell them on the U.S. market.
In this context, “custody” refers to the process by which a domestic custodian deposits and holds the domestic underlying shares that serve as the basis for ADR issuance. When the underlying shares are deposited into a custody account, the shares themselves do not disappear; however, that quantity is tied up as the underlying asset for the ADRs and may be excluded from the freely tradable supply on the domestic stock market.
In this process, demand for the underlying shares flows into the domestic market, while the supply of new ADRs increases in the U.S. market. This structure creates upward pressure on domestic underlying shares and downward pressure on U.S. ADR premiums, which can narrow the price differential between the two markets.
The larger the convertible volume, the wider the scope for such arbitrage opportunities. For example, assuming the limit on the number of underlying shares that can be placed in custody for additional ADR issuance is 10 times the initial issuance volume, this would correspond to approximately 177.9 million common shares. Since the initial ADR issuance represents 2.5% of the total shares, this hypothetically creates room to use up to approximately 25% of the total shares as the underlying assets for ADR issuance. Excluding the initial issuance, this means that existing domestic shares equivalent to a maximum of 22.5 percentage points could be additionally deposited.
Consequently, as a premium forms on U.S. ADRs and arbitrage trading intensifies, both purchases of domestic common stock and the volume of shares held in custody could increase. In this scenario, the actual volume of shares traded in the domestic market would decrease, which could affect the supply and demand of common stock.
However, this is an example based on the assumption that the potential additional deposit volume is 10 times the initial issuance volume. SK hynix’s actual potential for additional ADR issuance, as well as the conversion procedures and restrictions, require further verification; even if a separate issuance limit is set, it cannot be equated with the actual volume of shares in custody or subject to conversion.

◇Views Differ on ADR Impact… Actual Conversion Volume Is Ultimately the Key
Opinions are divided within the securities industry as to whether the ADR listing will lead to a revaluation of the domestic parent stock. KB Securities expects that the valuations of both the U.S. ADRs and the Korean parent stock will be revalued together through expanded access for global investors. On the other hand, BNK Investment & Securities assessed that “the ADR issuance is neutral,” stating, “While it provides convenience for local trading overseas, the valuation of the parent stock is not expected to change.”
Noh Dong-gil, an analyst at Shinhan Investment Securities, noted, “SK hynix also does not have a structure allowing for completely free conversion between its domestic shares and ADSs (American Depositary Shares),” but added, “Based on publicly available information alone, it is difficult to confirm the existence of strict regulatory limits similar to those at TSMC.” He further explained, “While the possibility of an initial premium is high, this is why it is difficult to immediately conclude that a TSMC-style structural premium will become entrenched.”
While it is possible to convert TSMC’s U.S. ADRs into Taiwanese common stock, the reverse process—depositing Taiwanese common stock to issue new ADRs—is subject to approved volume limits and regulatory constraints. As a result, TSMC is known to have a structure that makes it difficult to flexibly expand ADR supply even if demand in the U.S. increases. This has allowed the price difference between the common stock and ADRs to persist for an extended period, as it cannot be quickly resolved through arbitrage alone.