How does the synchronization of the title of a company that trades, for example, both on the Toronto Stock Exchange and on the NASDAQ or the New York Stock Exchange work? The price evolution curve on each market is almost always identical while the transaction volumes are not exactly the same. – François Leblanc
There are numerous examples of large Quebec companies whose shares can be bought and sold on both the Canadian and American markets. This is particularly the case for Gildan, CGI, CAE, Lightspeed, Nuvei, Lion and others.
Price synchronization occurs naturally with the purchases and sales made by investors. However, it is not always an exactly equivalent price that is displayed.
Most investors have access to both the Canadian and American markets. By having a view of these two markets, investors are able to see the quote of a given symbol that is cross-listed in Canada and the United States, and normalize it according to the currency, says the holder. words of the Toronto Stock Exchange, Catherine Kee.
Investors specializing in these types of transactions are called arbitrageurs. They usually work for large companies and use fast, powerful computers and algorithms that account for exchange rates. Opportunities often have to be seized in a fraction of a second and can generally only be identified and exploited using advanced software. The work of arbitrageurs is important in the sense that it contributes to improving the efficiency of financial markets.
When they notice a price discrepancy, investors can buy the security on one market and, at the same time, sell it on the other. This operation constitutes what is called arbitrage of interlisted securities.
Catherine Kee, spokesperson for the Toronto Stock Exchange
“This practice helps maintain consistency in trading between these markets. Since many investors monitor arbitrage opportunities, these are usually very slim and gaps correct quickly. »
In a way, it involves identifying “inefficiencies” in the market and trying to take advantage of them. It’s not impossible to get there, but these opportunities are difficult to identify.
As an example, let’s take the share of the company Électrique Lion which would be trading at $2.40 on the Toronto Stock Exchange at a given moment while at the same time, the share would be trading at a non-equivalent value. on the New York Stock Exchange taking into account the exchange rate.
An investor could buy Lion’s stock on one of the two stock exchanges and immediately sell the same shares on the other stock exchange, making a profit on the difference in value in the process. This investor could exploit this vein until the opportunity disappears.
Firms specializing in arbitrage will manage to make their volume transactions profitable by making profits which can often be calculated in fractions of a cent per share.
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