Finance Shell

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Re: Global Equity Markets: The Case of Royal Dutch and Shell

Structure: The Royal Dutch/Shell Group is different because it appears that it is functioning as a single company instead of two separate companies. Yet, they are functioning as two separate companies. The Shell Company in the Netherlands, the Shell Company in the UK and the Shell Petroleum Company in the USA all appear to be maintaining their own identities in their respective countries. The Royal Dutch and Shell Company share equally in the Shell Company in the Netherlands, The Shell Company in the UK and the Shell Company in the U.S. They are not separate companies since they are linked by corporate charter. There is a separation of the two entities on the holding
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The third option would be to enter into a swap with the Wall Street firm.

Net Payoffs: The case stated that the one way commission is 5cents per share. New York has a two way commission of 10 cents giving us a 25 cent commission. Shell (London) has 30 basis points for commission for small trades since we are going for a round trip the total basis points would be 60 plus the 50 basis points for the Stamp Tax. Shell was quoted a spread of .03 divided by 8.63 x 10,000equals 35 plus 03 plus 03 (going both ways gives us a total of 151 bps Royal Dutch (Amsterdam has a spread of 227.8 which is divided into .3 x 10000 giving us a 13 bps plus commission of 30 cents per share going both ways for a total of 60 cents per share and a FX spread of 06 (03 +03 ((down and back)) giving us a total of 79 per share.

Buy/Sell Option
The first arbitrage option will be 395,088 x 25 cents transaction cost =$98,772
You would then add the transaction cost in London $5000 x 151= $755,000
The total transaction cost for this would be $853,000.

Buy/Short Option
The second arbitrage opportunity would involve a transaction cost of:
$5600 of Royal Dutch x 73 in Amsterdam =$408,800
Plus $5000x151
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