SK Hynix is set to enable mutual conversion between its domestic shares and American Depositary Receipts (ADRs) starting on July 29. This development has sparked interest in whether domestic shares will benefit from the ADR premium as arbitrage trading demand flows into the local market.
The Korea Securities Depository announced on Wednesday that applications for mutual conversion between SK Hynix’s domestic shares and ADRs will be possible after the related new shares are listed on the domestic stock market on July 29. The specific timeline for mutual conversion will be disclosed later, following instructions from Citibank, the depositary institution for the DRs.
Like other previously issued ADRs, the conversion between SK Hynix’s domestic shares and ADRs will be processed through the Korea Securities Depository’s infrastructure. However, no actual conversion applications have been submitted yet, as the new shares have not been listed in Korea.
Initially, market observers expected that after SK Hynix’s ADR listing, a premium would emerge in the U.S. market, driving arbitrage demand for domestic shares and positively impacting their price. However, the sharp decline in domestic share prices shortly after the listing has widened the price gap between the two markets.
The growing price discrepancy is attributed to the current inability to convert domestic shares into ADRs for sale, even when ADRs trade at a higher price than domestic shares.
Market analysts predict that once mutual conversion begins at the end of this month, institutional investors will actively engage in arbitrage by purchasing domestic shares and converting them to ADRs. This could potentially allow domestic shares to benefit from the ADR premium.
However, some experts suggest that the ADR premium may partially persist due to issuance limits and friction during the conversion process.
The Korea Securities Depository states that there are no restrictions on converting ADRs back into domestic shares. Upon application, the domestic shares will replace the ADRs in the applicant’s local securities account.
In contrast, the process of depositing domestic shares and issuing new ADRs in the U.S. faces limitations. The Korea Securities Depository only processes conversions of domestic shares to ADRs within the remaining limit set by the issuer.
This situation raises the possibility of U.S. ADRs trading at higher prices than domestic shares for an extended period, similar to the case of Taiwan’s TSMC.
TSMC also allows unrestricted conversion of U.S. ADSs into domestic shares, but converting domestic shares into U.S. ADSs is subject to approval limits and regulatory constraints.
Shinhan Investment Corp. reports that due to these arbitrage restrictions, TSMC’s U.S. ADR premium has averaged 19.1% since 2024 and has maintained an average of 17.5% in 2026.