John Michael Pennington

Head of BD at JST Digital. Fmr Macquarie, Circle, ZX Ventures.

[John Michael Pennington @lamichaelpenny]

The Korean stock market opens in <6 hours. Seeing some people expecting a massive follow through in #SKHynix local shares after $SKHY traded to a ~17% premium Friday in NY. Here's why I don't think that happens:

1. this isn't a pure arb trade. as mentioned previously, there is no available creation capacity for SKHY ADRs. in a fully two-way fungible market you'd see follow through buying locally but that trade isn't possible here.
2. different pools of capital at play. part of why the ADR listing was particularly attractive for SK Group is that Korea remains a complex market for outside capital to enter
3. whether by coincidence or not, SKHY is trading at a very similar premium to $TSM which has similar headroom constraints. I doubt arb players are going "short premium" (sell ADR buy local)

While I don't expect a big rally in the local, that has nothing to do with whether the market thinks the AI hardware rally is done / not done, nor does it mean $SKHY reverses its rally Monday in NY. Just market structure and different pockets of capital at play.

Best guess is the local line trades within a few % of flat and we actually see the DR premium expand from here in the near future.

[John Michael Pennington @lamichaelpenny]

@degentradingLSD Yup. Headroom the key here. My thread from yesterday predicting this dynamic if interested in digging into the nuances of a former ADR arb trader: https://t.co/GT6BTiOhEe

[John Michael Pennington @lamichaelpenny]

I haven't posted here in years. Tomorrow's SK Hynix listing is worth breaking the silence.

It prices tonight — reportedly $149/ADR, a ~$26.5B raise. If that holds, it passes Alibaba as the largest US listing by a foreign company ever.

But it's an ADR offering, not a traditional IPO. And buried in the prospectus is a structural quirk most people aren't thinking about: the US line is built to trade at a persistent premium to the Korean one.

I traded ADR arb in Asian markets for a living. Here, it all comes down to one word: headroom. 🧵

[John Michael Pennington @lamichaelpenny]

@EricJhonsa I use to trade EM ADR arb and expected this to trade at a premium. Given market structure dynamics I think we actually see premium over the local expand even further in the near term. Wrote some thoughts on the dynamic at play here: https://t.co/GT6BTiOPtM

[John Michael Pennington @lamichaelpenny]

I haven't posted here in years. Tomorrow's SK Hynix listing is worth breaking the silence.

It prices tonight — reportedly $149/ADR, a ~$26.5B raise. If that holds, it passes Alibaba as the largest US listing by a foreign company ever.

But it's an ADR offering, not a traditional IPO. And buried in the prospectus is a structural quirk most people aren't thinking about: the US line is built to trade at a persistent premium to the Korean one.

I traded ADR arb in Asian markets for a living. Here, it all comes down to one word: headroom. 🧵

[John Michael Pennington @lamichaelpenny]

@BrettHarrison Small world @BrettHarrison. I too started in ADRs. Agreed on your thoughts here. Finite creations / headroom limits something folks don't appreciate.

[John Michael Pennington @lamichaelpenny]

Former ADR arb trader here...yes, there's immense US $ chasing this trade, BUT there's also a structural premium trade going on. The ADRs are officially two way fungible, but in reality, will have creations constrained due to limited headroom. Full explanation I wrote up here: https://t.co/riKDCnF3j4

[John Michael Pennington @lamichaelpenny]

I haven't posted here in years. Tomorrow's SK Hynix listing is worth breaking the silence.

It prices tonight — reportedly $149/ADR, a ~$26.5B raise. If that holds, it passes Alibaba as the largest US listing by a foreign company ever.

But it's an ADR offering, not a traditional IPO. And buried in the prospectus is a structural quirk most people aren't thinking about: the US line is built to trade at a persistent premium to the Korean one.

I traded ADR arb in Asian markets for a living. Here, it all comes down to one word: headroom. 🧵

[John Michael Pennington @lamichaelpenny]

@jukan05 @edwardtoung Former ADR arb trader here. My explanation of the dynamic that I expected to create this premium in my thread here: https://t.co/GT6BTiOhEe

[John Michael Pennington @lamichaelpenny]

I haven't posted here in years. Tomorrow's SK Hynix listing is worth breaking the silence.

It prices tonight — reportedly $149/ADR, a ~$26.5B raise. If that holds, it passes Alibaba as the largest US listing by a foreign company ever.

But it's an ADR offering, not a traditional IPO. And buried in the prospectus is a structural quirk most people aren't thinking about: the US line is built to trade at a persistent premium to the Korean one.

I traded ADR arb in Asian markets for a living. Here, it all comes down to one word: headroom. 🧵

[John Michael Pennington @lamichaelpenny]

And as expected when an ADR is trading at a premium....SK Hynix chairman telling Bloomberg they're open to issuing more ADRs. All about the headroom...

$SKHY

https://t.co/YrCbtv9z44

[John Michael Pennington @lamichaelpenny]

I haven't posted here in years. Tomorrow's SK Hynix listing is worth breaking the silence.

It prices tonight — reportedly $149/ADR, a ~$26.5B raise. If that holds, it passes Alibaba as the largest US listing by a foreign company ever.

But it's an ADR offering, not a traditional IPO. And buried in the prospectus is a structural quirk most people aren't thinking about: the US line is built to trade at a persistent premium to the Korean one.

I traded ADR arb in Asian markets for a living. Here, it all comes down to one word: headroom. 🧵

[John Michael Pennington @lamichaelpenny]

Same company, two tickers, two prices.

The one thing that breaks it: SK Hynix consenting to expand the facility. Watch for that consent.

Not investment advice. But now you know what you're looking at when SKHYV opens tomorrow — and when it re-prints as SKHY on Monday: same company, same premium, new ticker.

OK...now back to crypto.

[John Michael Pennington @lamichaelpenny]

$SKHYV opens at $170...already a 17.5% premium to the local

[John Michael Pennington @lamichaelpenny]

And the kicker: the premium didn't need to develop in trading. It showed up at pricing.

$149/ADR is ~3% above where Seoul closed Thursday. (Yes, it's below the stale July 3 reference price the deal was marketed off — but Seoul fell hard in between, and the arb trades against the live price, not the reference.)

A 7x oversubscribed book, priced above spot. The demand imbalance is already visible.

One wrinkle: Seoul trades a full session tonight before the Nasdaq open — and a ~$13B levered ETF on the local line adds noise — so tomorrow's first print gets measured against a moving target.

The level will move. The structure won't: whatever premium exists has no creation valve to pull it back down.