On Monday Touchstone Exploration (TXP) (and TXPR for 4 months, as I explain further down) came to market at 7.25p per share, with a £6million market cap. There is plenty to be positive about with this company, not least the highly favourable valuation compared to its direct peers on AIM. However thanks to a technicality with Canadian market rules and some market maker shenanigans, there is a pricing discrepancy in the stock that private investors need to be aware of.
The issue is pretty simple Touchstone will have two ticker symbols on AIM for four months; TXP and TXPR.
The reason for this is that Touchstone was originally a Canadian stock. As a result of Monday’s admission it now has a dual listing on AIM. Under Canadian market rules when a TSX-listed stock seeks admission to another exchange globally, any new shares that are issued in that local market are “non-fungible” for four months. This means that the newly issued stock cannot be used to settle trades in the original market (the TSX) or the new market (in this case AIM).
This does not stop people from trading the newly issued shares, but for four months a separate ticker symbol exists for four months until the “non-fungible” restriction clears.
If this sounds complicated, it isn’t. As Touchstone shows the explanation is really straightforward.
When Touchstone was admitted to AIM it raised £1.45million via a placing. Anyone who participated in that placing received the “non-fungible” stock, which now trades under the ticker symbol “TXPR”. This stock is freely tradeable, but until the four month restriction comes to an end any trades made in “TXPR” must be settled in “TXPR”. Once the four month restriction ends then “TXPR” shares will become straightforward “TXP” shares.
In the meantime Touchstone’s primary ticker “TXP” will continue to trade. However there are a number of interesting points to note about “TXP” trades for the next four months.
As things stand today “TXP” shares do not exist. If anyone buys “TXP” the market maker which takes the order must go to the Canadian market and buy “TXP.TO” shares (Touchstone’s Canadian stock) to settle those trades. In four months time the market makers will be able to use “TXPR” shares to settle the trades, which is when the “non-fungible” restriction expires.
By rights “TXPR” and “TXP” shares should trade at the same level. They are after all the same stock. However, at present there is a big pricing gap between the two;
So why is it that “TXPR” is trading well below “TXP”?
Well, far be it for me to cry foul of certain market maker practices on AIM, but this looks to me like a good old-fashioned spoof.
If the market maker sells “TXP” stock at 10p to unsuspecting punters and then uses all manner of chicanery to delay settlement of trades (which of course never ever happens in this market….) he could then seek to settle those trades in four months using “TXPR” stock, which he has bought at 7.5p This would lock in a guaranteed 25% gain; not a bad profit margin when all he has done is enable some poor unsuspecting private investor to buy stock!
The solution to this is extremely simple. If you are interested in buying Touchstone stock then for the next four months buy “TXPR”. As soon as people realise this and start doing it the price gap between “TXP” and “TXPR” will close and we will have a far more representative market.
As a final aside there is another interesting reason to buy “TXPR” stock. Currently “TXP.TO” is trading at C$0.155. When converted into Sterling this works out at 9.2p per share (a near 10% premium compared to “TXPR”). At some point our sleep Canadian cousins are going to wake up to this potential arbitrage opportunity and start dumping “TXP.TO” stock in favour of buying “TXPR”. They will end up with the same number of shares and also lock in whatever the profit is from the price differential between the Canadian stock and the AIM-listed stock. There will be some exchange rate risk in this trade, but that could go either way. Stripping that out and if you own £1,000 worth of “TXP.TO” you could buy the same number of shares and make about a £100 cash profit to boot. Easy money!
More on Touchstone to follow soon….
The author of this piece owns shares in Touchstone Exploration