Bionomics (ASX: BNO) (NASDAQ: BNOX) shares are down 41% in Australia. The BNO share price decline is the result of the company's decision to delist in Australia. However, that Nasdaq quote for Bionomics, BNOX, is unchanged on the news. Of course, this is partly to do with time zones. But if that price gap is maintained then for those willing to do some boring paperwork there's an arbitrage here. An arbitrage is also known as “free money”.
The issue here - an unquoted share is worth less than a quoted one. The liquidity of a listing on an exchange means that we can exit a position more easily. That is, the risk of being locked in is reduced, therefore the thing - whatever it is - is worth more. Less risk, higher value, just the way things work.
Bionomics is to delist from the Australian exchange. So, Bionomics should be worth less, right? Well, yes, and also perhaps no. Because there's also that NASDAQ listing. As in the announcement: “Since its US IPO and listing on Nasdaq in December 2021, the average
daily trading volume of the Company's ADSs traded on Nasdaq was 26,595 (equivalent to
4,787,100 Shares based on a ratio of 180 Shares to 1 ADS) compared to an average daily
trading volume of 220,528 Shares per day on ASX. The lower level of liquidity on ASX means there are reduced trading opportunities for shareholders who wish to exit their holdings. Accordingly, the Company wishes to move to having Nasdaq as its sole listing.”
That is, most of the liquidity in Bionomics shares will still remain - just on Nasdaq.
Bionomics share price from ASX
Given that most of the liquidity will indeed remain a 41% drop looks excessive. Which provides that possible arbitrage. Buy the Australian stock at this depressed price, go through the paperwork of converting it to the Nasdaq quoted ADS and cash in. There will be fees, of course. Which will be minimal per share and there will be another fee per transaction - so, larger transactions get cheaper. It might also be possible to sidestep the ADS question and sell into the broker sponsored US quote, BNOEF.
There is a problem here as well. Which is that the transfer of shares, from one quote to the other, will take time. So, there's price risk over that time period. That can also be covered - go short the US quote, long the Australian, while that paperwork has to be done. By now we're getting into quite a sophisticated trade. Which does indeed depend upon that price differential surviving as the American markets open.
But it is possible that the trade will persist. The rush for the doors in Australia could be overdone and so leave a price gap for those willing to fund a position over the time it takes to do the paperwork. Obviously requires substantial investigation of all the costs here but it is possible that there's free money here in Bionomics.
