4
THEORY AND TOOLS
seem to support the opposite view, that trading halts, even systematically implemented without any surprise effect, are actually detrimental and create an additional layer of volatility.65 Beyond thesearguments the fundamental philosophical question is whether stockexchanges have any responsibility to protect investors against themselves and whether the existence of such an explicit protection mightcreate moral hazard and encourage irresponsible trading behavior.Naturally, the question of the very existence of circuit breakers, andeven more their appropriate design, is of critical importance to arbitrageurs, as to any other investor. Like market structure, the problem isfar-reaching and the solutions adopted throughout the world varydepending on a number of factors, including cultural preferences andlegal environments. This diversity prevents us here again from drawing any general conclusion, except that these devices should be veryclearly identi®ed and understood by traders on their market.Beyond the interruption of trading, other devices and mechanismshave been proposed and implemented to address the same issue ofinvestor protection against excessive volatility. Two examples willillustrate this point: the United States and Japan.U.S. Controls on Excessive VolatilityTwo particular trading rules have been in existence for some time in theUnited States to control two possible sources of excessive volatility: shortselling and index arbitrage. The ®rst is Rule 10a-1, the so-called up-tickrule, and the second is Rule 80a, the so-called trading collars rule.The up-tick rule was enacted in 1938 by the Securities and ExchangeCommission, and it forbids short selling of exchange-listed securitieson a down-tick or zero-minus tick.66 This is extremely painful in termsof trading because it effectively prevents execution to occur, regardlessof the price. The United States is the only market to have implementedsuch a drastic measure; European exchanges having nothing similar.65
See, for example, Kryzanowski Lawrence, ``The Ef®cacy of Trading Suspensions: ARegulatory Action Designed to Prevent the Exploitation of Monopoly Information,''Journal of Finance, 35, 5, 1979; Charles Lee, Mark Ready, and Paul Seguin, ``Volume,Volatility and the New York Stock Exchange Trading Halts,'' Journal of PoliticalEconomy, 85, 3, 1997; Matthew Harrison, ``Stopping the Market,'' The Stock Exchangeof Hong Kong Regional Monitor, 7, 1997; or Mason Gerety and Harold Mulherin, ``AnAnalysis of Volume at the Open and the Close,'' Journal of Finance, 47, 1992, for adiscussion of these issues and more.66A down-tick is a transaction that occurs at a price strictly lower than the last tradedprice. A zero-minus tick is a transaction that occurs at the last traded price, when the®rst previous transaction effected at a different price was at a higher price.
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This is also a decision that has been openly criticized over the yearsbecause several studies suggest that it does not achieve its stated goalof preventing market manipulation while preserving execution quality.For example, it appears that it actually damages the execution qualityof short sell orders even in advancing markets.67The trading collars rule was originally implemented on the NewYork Stock Exchange in 1988 as a result of the October 1987 events.68In 1990, it was revised and strengthened, in a move prompted againby unusual market circumstances, this time the 1989 minicrash.69 Therationale behind the original proposition and subsequent amendmentwas to reduce market volatility associated with program trading andspeci®cally index arbitrage. The rule states that index arbitrage tradesare subject to a ``tick test'' if the Dow Jones index has moved by 50points or more compared to its previous close during a session.70 Abuy program has to be executed on a down-tick if the move isupward, and a sell program on an up-tick if the market move isdownward. The tick test is lifted if the Dow Jones comes back to a25-point range from its previous close. The 50-point limit was originally intended to isolate days with excessive volatility, but with theuninterrupted bull market of late, it has become a common move andthe collars have been triggered very regularly over the past fewyearsÐsometimes several times a day, and occasionally both wayson the same day.71 This state of affairs prompted a revision of therule, which went into effect at the beginning of 1999. The threshold isnow variable, set at 2 percent, and revised every quarter. As anexample, it was 210 points for the last quarter of 1999, with thecollars lifted if the market came back to 100 points above or below
67
See, for example, Gordon J. Alexander, ``Short Selling on the New York StockExchange and the Effects of the Uptick Rule,'' Journal of Financial Intermediation, 8,1999, pp. 90±116.68The up-tick rule is a marketwide rule, and it is effective on stocks listed on anyexchange. The trading collars rule, however, has been implemented by the NewYork Stock Exchange only.69For a detailed chronological table of these developments, see G. J. Santoni and TungLui, ``Circuit Breakers and Stock Market Volatility,'' The Journal of Futures Markets, 13,1993, pp. 261±277.70Index arbitrage here is loosely de®ned as the sale or purchase of 15 or more securities,for a total nominal of $1 million or more, if this basket is executed in conjunction withthe sale or purchase of an index derivativeÐfutures or option.71They were triggered 29 times on 28 days in 1995, 119 times on 101 days in 1996, and303 times on 219 days in 1997. Out of 250 open days, 219 days represents around 87percent, fairly close to ``almost every day'' (Source: NYSE).
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THEORY AND TOOLS
its previous close.72As was the case with the short sell rule, there isevidence that the collars do not necessarily perform as expected inreducing volatility.73Not surprisingly, short sell and index arbitrage restrictions have asigni®cant impact on investors and particularly arbitrageurs becauseby nature they always end up with a short, either stock or future. Ineither case one of the rules potentially makes transactions dif®cult toexecute in volatile markets, at a time when arbitrageurs may be neededmost to help the market keep its consistency and coherence.Furthermore, it is interesting to note that the trading collars, unlikeany other restrictionsÐeven those in Tokyo, detailed belowÐhavethe questionable privilege of segregating market participants in distinctcategories. This raises again an interesting point about whether anexchange has a mandate to interfere and effectively discriminateamong its market participants.Japanese Controls on Excessive VolatilityTokyo has a slightly different mechanism than New York.Functionally the purpose is identical, to slow trading down to prevent manipulation and allow investors to react appropriately whilethe price is under control. The adopted solution consists of ``real-timeprice limits'': If an orderÐmarket or limitÐcannot be ful®lled at threeticks above or below the last traded price, the stock acquires a particular statusÐW for waiting, or SP for special if the imbalance issizableÐand no trade is effected for three minutes.74 After that interval, the stock is authorized to trade at a price above or below thesethree ticks, under the condition that outstanding orders be ful®lledwithin six ticks. If that is not possible, three more minutes have tolapse before a trade is authorized within nine ticks. The process isreiterated until the imbalance disappears, or the absolute price limitfor the day is reached.There would be much to say about the actual effects of these limitsas opposed to their expected bene®ts. Obviously if the intent is to slowthe market, they are a success. However it is uncertain that they doattract more liquidity, and above all, they induce a high level of uncertainty because it is extremely dif®cult in many cases to gauge the new72
See the NYSE Web site for more details. The Rule 80b, also called the side-car provision,which stated that index arbitrage orders would be automatically delayed by ®veminutes in certain circumstances, has been abolished.73See, for example, ``Circuit Breakers and Market Volatility,'' footnote 69.74This time interval has changed over the years. It has been reduced from six to threeminutes in the mid-1990s.
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price equilibrium when a stock is W or SP. In effect, it becomes impossible to price some stocks for periods of three minutes at a time,75which can be a real problem given that investors in general do notlike price uncertainty, even less than volatility. The W or SP status isparticularly painful at the close. If the imbalance persists then, or if oneappears because market-on-close orders are not balanced within threeticks of the last traded price, the stock does not close and orders are leftunexecuted.76 This simply means that it is virtually impossible to execute large sizes on the close, because an imbalance is almost certain todevelop for many stocks.Overall it is fair to say that the United States and Japan share theparticularity of a high level of exchange intervention in the day-to-dayworkings of their markets because Europe has really no similar mechanism in place.77 It can be argued that these are the two largest markets,and in case of major crisis, the price discoveryÐthat is, crashÐwouldspread from one of them or both. Therefore, it makes sense to ``protect''them more than secondary markets, which then are also implicitly protected. Beyond the obvious ¯aws of this argument, the recurrent question of the ideal involvement of exchanges in their market is stilllooming on the horizon. It would be preposterous to advance any de®nitive argument here, but the problem should be recognized for what itis, much more political and philosophical than anything else.
CAPITAL STRUCTURE: OUTSTANDINGNUMBER OF SHARESIntroduction
The outstanding number of shares has a particular importance in thecontext of arbitrage. We mentioned earlier that such positions did not75
The tick size on the TSE is set in relation to the price of the stock. Most stocks pricedbelow ¥1,000 have a tick size of ¥1. The average price of a Nikkei 225 constituent is¥800, for reasons we will develop later. Therefore, the uncertainty is ¥3 over ¥800Ðthat is, 0.375 percent. This can be quite uncomfortable at times, especially if a lot ofstocks acquire a W or SP status at the same time.76In fact, the situation is more complex than that. There is a set of rules to close a stockSP; outstanding orders are executed following a proration of the unbalanced side. Forexample, if a stock is SP-up, there are more buys than sells. An investor with 10percent of all buy orders would receive an execution on 10 percent of the total sizeoffered in the market. The same rules apply to Nikkei 225 futures.77In addition, both Japanese and U.S. regulators require a high level of disclosure fromarbitrageurs in terms of trading volumes and positions. Again no similar reporting isimposed in Europe.
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necessitate any trading activity from initiation to maturity, except forminor adjustments. It would appear from this statement that an arbitrage position ought to be left aside without any particular monitoringeffort.In fact, as one would expect, the situation is not that simple.Schematically speaking, a stock position is characterized by a priceand a number of shares. The nature of arbitrage is such that movements in price do not have any signi®cant effect if the position isproperly hedged. As far as the number of shares is concerned, it issusceptible to change to re¯ect adjustments in the capital structure ofthe company, even without any trading activity.The nature of corporate events susceptible to affect the capitalstructure, and by extension the outstanding number of shares, is extremely diverse. From simple situations like splits or mergers to morecomplex recapitalizations or buyouts, each particular event has animpact on the corporation's debt and equity, in turn affecting holdersof these securities in different ways.It is by no means our intention here to enter a detailed examinationof these different categories. For one thing we are concerned only withequity and then only with those events that are quite common on themarkets we consider. Therefore, we will offer two speci®c examplesand extract from these a general framework applicable to most.. Splits and reverse splits
. Mergers and acquisitions
Other events, such as spin-off, conversion of convertible securities,capital increase or share buybacks, will be left out in the interest oftime although they could be described by the same formalism.
Outstanding Number of Shares
When a company constitutes its capital, it usually issues sharesthrough an initial public offering (IPO).78 The total number of sharesissued is referred to as the total outstanding number of shares, byopposition to the authorized number of shares stated in the corporatecharter.78
This is the usual procedure but not the only one by far. An alternative is, for example,a private placement, in which only a handful of investors buys shares. In the UnitedStates, these shares are not registered with the Securities and Exchange Commission,making the whole issuance signi®cantly cheaper. There is a hidden cost to this,however, and that is liquidity because unregistered shares cannot be sold outsideanother private placement.
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Not all the shares are necessarily tradable, however. Large stateowned companies may have their shares listed, but part of thoseshares may not be tradable because large chunks are still held bythe government.79Another example is the case of employee stock ownership programs (ESOPs) in which shares are allocated to employeesbut are not tradable for some timeÐtypically ®ve years. Even corporations for which these two situations do not apply may decide tooffer only a part of their capitalization to the public market. Thenumber of shares actually tradable, and therefore available to investors, is called the ¯oat.80 Index sponsors as a general rule use theoutstanding number of shares to compute the capitalization of acompany and accordingly manage its ranking in the indices inwhich it is included.81The outstanding number of shares and the ¯oat are the mostimportant pieces of information arbitrageurs need to follow. Bothevolve through the life of the corporation in distinct ways and constitute clear signals of the corporate strategy vis-aÁ-vis its capital and ownership structure and, by extension, economic perspectives.Following these two ®gures is essentially an exercise in arithmetic.All corporate events separate the time line into two periodsÐbeforeand afterÐand the most critical aspect from a trader's perspective is tofollow the overall capitalization, as measured by the outstanding number of shares, through these two periods. A change in capitalization,whether an increase or a decrease, usually creates a risk and should beunderstood and monitored carefully.82 This is precisely what we will79
This is typically the result of a partial privatization, very common nowadays with theprogressive disengagement of many governments from their domestic economicactivity.80The ratio of ¯oat to outstanding shares is important because it indicates the relativeliquidity of the stock. Many high-technology corporations have ¯oats of around 10 to20 percent of their total outstanding shares number, which is relatively low. As aresult, any news on the company is likely to move the stock signi®cantly just becausethe tradable market is very thin.81There may be different types of shares, for example common or preferred, and eachtype may also have several classes with its particular outstanding portion and ¯oat.Only one class, however, is included in a given index.In agreement with market practice, we de®ne the capitalization of a corporation as itsoutstanding number of shares times the last traded price of its stock. It is wrong fromthe standpoint of corporate ®nanceÐwhich includes market value of debt as wellÐbut this is really what matters to an arbitrageur.82Note that even capitalization-constant events may induce a riskÐfor example, a splitin an index arbitrage position on a price-weighted index such as the Dow Jones orNikkei 225. Cf. the chapter dedicated to index arbitrage.
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do in our examples: follow the number of shares and extract thechanges in capitalization associated with them.Split and Reverse SplitsA split is an issuance of newÐand freeÐshares in exact proration of theexisting outstanding position. In effect, for each share held, shareholders receive a ®xed number of additional shares. Because no payment is made for these shares, shareholders' wealth ought to remainunchanged through the split, and the price of the stock is necessarilyadjusted. In a 2-for-1 split for example, it is divided by 2 on the day thesplit is effective, before the opening of the market.83From a corporation's standpoint, a split has several convenientfeatures:. It does not modify the relative partition of equity. The total capi-
talization of the company remains unchanged, and so does a shareholder's stake in the company.. The price of the stock appears ``miraculously'' affordable again. Forindividual or small investors, this is extremely important.84. At the same time the new level of price attracts moreÐand smallerÐinvestors in the shareholder pool, which may have a positiveeffect on the stock price.85Splits are considered a sign of healthy growth, and as such arenaturally much more common from high-tech companies than fromblue chips, but both categories understand its formidable psychologi83
All outstanding orders are also automatically adjusted with regard to size and priceby the exchange trading system.84Microsoft exempli®es this property: Having split numerous times on its way to thelargest capitalization on the United States market and therefore worldwide, its pricerarely exceeded $100. When it did so, it was only because its fantastic ascension wentfaster than its split patternÐthat is, recently. The beauty of it is that investors oftenfeel they are buying ``cheap,'' even if per-share data remain absolutely unaffected bysuccessive splits.85This is especially true when the exchange trading rules are not friendly to smallinvestorsÐfor example, through high minimum trading units as in Japan. Indeed,one recent study covering Japan concluded that ``a reduction in the minimum tradingunit greatly increases a ®rm's base of individual investors and its stock liquidity, and isassociated with a signi®cant increase in the stock price.'' See Yakov Amihud, HaimMendelson, and Jun Uno, ``Number of Shareholders and Stock Prices: Evidencefrom Japan,'' Journal of Finance, 1999, 54, pp. 1169±1184. For other examinations ofthis issue, see Paul Schultz, ``Stock Splits, Tick Size and Sponsorship,'' Journal ofFinance, 55, pp. 429±440, or Marc Lipson, ``Stock Splits, Liquidity and LimitOrders,'' NYSE Working Paper 99-04, 1999.
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cal and signaling effect. InvestorsÐparticularly in the United Stateswhere splits are very frequentÐhave become so accustomed to thatprocess that the very announcement of a split usually lifts pricessigni®cantly.Splits are essentially mechanical processes, and resemble dividenddistributions in many ways:. The split calendar also includes an announcement date, last trading
date, and ex-date.
. There is no cash ¯ow, so the payment date is replaced by an effec-
tive dateÐthat is, the date on which an investor will see anadjusted stock position. In the United States, the delay betweenthe ex and effective dates is generally two to three weeks.. Investors' positions are automatically adjusted according to theirbalanceÐshort or long.. There is usually no direct risk associated with a split, except insome atypical situations.86 Therefore, prediction of a stock split isby and large irrelevant.. An n-for-mÐalso noted n:mÐsplit will multiply the outstanding numberof shares by a factor of n/m, and divide its price by the same factor.By convention, if the number of free shares is larger than 1, the split isdescribed by a ratio above 1Ð2:1, 3:2, and so on. If it is smaller than 1,it is described in percentage termsÐ10 percent, 15 percent, and so on.87It is convenient to introduce here a formalism, shown in Table2-4, that will be extensively used later: W stands for the stock outstanding number of shares,88 C for its capitalization, P for its price,and r for the relevant split ratio.89 The prime sign indicates the samevariables after the split. Note that implicitly W and P represent thenumber of outstanding shares and their price on the close of the lasttrading day, or equivalently on the morning of the ex-day before open.The capitalization is constant through the event C  C0 , and the char-
86
Note that because new shares are not received for some time, they cannot be sold anddelivered. The liquidation of a long position between the ex and effective dates thuscreates a short sell on part of the positionÐhalf, for example, in the case of a 2-for-1split. This is a punctual problem, but it generates extra costs because the missingshares must be borrowed.87A stock dividend is exactly identical to a stock split; therefore, this notation is usedindifferently for both.88We will occasionally refer to the outstanding number of shares as the weight of thestock in an index. Hence the W.89In an n : m split, r  n=m:
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THEORY AND TOOLS
acteristics of the capitalization afterÐW 0 and P0 Ðare directly availableas functions of the characteristics beforeÐW and P.These relationships hold for the total capitalization of the corporation, but it is important to realize that they do as well for any stockholder's position. In particular, if we denote Q as the number of sharesan investor holds, the split will transform this number in a similar way:Q0  Q  r. From there it is possible to analyze precisely what theimpact of the split is on the position and act accordingly. In particular,a short position does not generate any speci®c dif®culty through thesplit compared to a long.Reverse splits, much less frequent, are the exact opposite of splits:The number of shares is decreased by a given ratio, and the priceadjusted upward.Mergers and AcquisitionsWe will dedicate a full chapter to the examination of mergers andacquisitions from an arbitrageur's perspective. Therefore, these linesconstitute only an introductory presentation in the broad context ofcorporate events. The general process can be described as the absorption of one corporation by another, and the merger of the two stocksinto one.There are many ways through which these transactions are effectedin the marketplace. The most common forms are equity exchange andcash tender offer. In the ®rst case the acquirer offers to exchange itsown equity for the outstanding equity of the target company; in thesecond case it offers to pay cash at a preset price. Nowadays, withequity valuations at all-time highs, most transactions are taking placethrough exchange offers.90As we did above, we want to consider the total capitalization toanalyze the situation, and we need to include both companies. Let A bethe index of acquirer and T that of the target. r is the exchange ratio: atTABLE 2-4
90
Before
After
CW P
C 0  W 0  P 0  W  r   P=r   C
Taxes have also a direct impact on the ®nancing structure. A tender offer for cashcreates a taxable capital gain whereas an equity exchange usually does not create anytax liability.
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maturity, holders of 1 share of T receive r shares of A. Finally, let CT bethe amount of the cash tender offer, if any.91 Under these terms,CT  PO  WT , where PO is the tender offer price.Before the conclusion of the transaction, both organizations areindependent and the total capitalization is the sum of the two. Onthe effective date, the WT shares of T are transformed into r  WT sharesof A, at a price equal to that of A. Table 2-5 summarizes these changes.For C0 to be equal to C, we need: WT  r  PA PT  CT  0. In the verycommon situation where CT  0, this simpli®es into PT  r  PA , whichis a well-known relation for mergers. In other words, if PT 6 r  PA onthe close of the last trading day before the merger goes ex, the capitalization of the transaction is not constant. The change in total capitalization, C, can be expressed as:C  C0
C  r  PA
PT  PO   WT
This important result is critical in many respects because it lays thefoundations for a pro®table arbitrage. Consider, for example, the casesof a cash tender offer C  PO PT   WT , or a straightforward equityexchange C  r  PA PT   WT . In both these instances, C is a difference, meaning that the total capitalization is not necessarily continuous through the merger. Speci®cally, if the tender price is higher thanthe market price at the time the offer expires, the difference C materializes into a risk-free pro®t for whoever buys the shares in the marketand tenders them. Similarly, if PT < r  PA , an arbitrageur can buy 1share of T, sell r shares of A and lock a risk-free pro®t. In a general casein which the transaction is not a straight tender or exchange, an opportunity might exist as well if C is distinct from zero.In practice, C is almost always positive and one of the aboveconditions is true because the market is usually not fully pricing merTABLE 2-5
91
Before
After
C  WA  PA  WT  PT
C 0  WA  r  WT   PA  CT
Note that this formalism captures most situations. If the offer is an exchange only,then CT  0. On the contrary, if it is a cash tender only, then r  0. Cases in which itis partially both are also included and occur from time to time in reality. Morecomplex situations, for example, a merger combined with a spinoff, occur as well.
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THEORY AND TOOLS
gers or acquisitions.92 The reason for this is embedded in what wetermed explicit convergence. In contrast to dividends or splits, mergerscome in general as a surprise, and the ®nal approval from both publicauthorities and shareholders is not certain until the deal is actually putto a vote. Even in situations in which both companies have expressedsatisfaction with the project, it may still be questioned again by one ofthe parties before completion. Therefore, market participants are reluctant to price the deal at its ``fair'' value and prefer to keep a safetycushion, which is taken advantage of by arbitrageurs ready to carry thefull risk of the transaction.The question of what happens to short sellers in that context isinteresting. In a situation in which an investor is short the acquirerbefore the merger is effective, there is nothing special for him or herto do. The shares of A are not affected in any way, so the short positionsurvives the merger with no particular intervention. However, a shortseller of T would be in trouble.If we assume that the merger goes through, the lender of T shouldautomatically receive shares of A if he or she held his or her originalposition. Therefore, the borrower of T must deliver shares of A if theborrowing position is closed after the merger ex-date.93 The same reasoning that led us to the conclusion that a risk arbitrageur wouldrealize a pro®t of C being long T shows that a short seller of Tactually loses C. A short seller of T automatically realizes a loss if theshort is carried through the merger when C > 0. In the case of a cashtender offer the loss is even more obvious. If the stock tendered tradesbelow its tender price, which is usually the case, it seems obvious that ashort seller would lose the difference if he or she carried the shortthrough.
Conclusion on Corporate Events
We have examined and formalized a small fraction of corporate eventson large mature organizations. To summarize, the following is a general description of what needs to be considered in the unlikely case ofan event totally unheard of:. Schedule: This is a critical aspect because it dictates the urgency of
the situation. All corporate events have detailed schedules attachedto them. If any action is required or advisable, a trader should have
9293
Even if C were negative, an arbitrage would still be possible.In practice, the stock lender must be consulted to con®rm that he or she would tenderhis or her shares, if there is a doubt about the completion of the acquisition.
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a fair idea about deadlines to make a decision. The worst thing thatcan happen is to miss an event altogether. Consequences rangefrom possibly pro®tableÐmergersÐto neutralÐsplit or conversions of bondsÐto disastrousÐshort positions in severalinstances.94. Creation of new shares, delisting of existing ones: It is extremely important to determine when and how different entities are coming to lifeor, conversely, when and how existing ones disappear. Typically, itis necessary to make a distinction between the listing date andeffective delivery. Listing of when-issued securities,95 for example,allows market forces to shape the supply-demand curve with theconsequence of imposing market prices when the transactionbecomes effective. Delivery can be important, for example, toshort sellers who need to assess the duration of their liabilities.. Risk of short selling: This is particularly important because mostevents tend to be advantageous to shareholders and thereforerisky to short sellers. As we indicated on many occasions, parameters to include in evaluating these situations are extremelydiverse. Intrinsically, most risks associated with short positionscannot be hedged awayÐlike the risk of recall from the lender.. Conservation of capitalization, price adjustment, and distribution of cash:These are by far the most important points. The purpose of theformalism we adopted through the use of simple capitalizationdiagrams was to force us to develop a systematic analysis routine.In the same way that most problems in modern mechanics can behandled through the appropriate use of energy conservation laws,most problems in understanding corporate events can be solvedwith an analogous conservation law, this time applied to capitalization. Events for which capitalization are not constant often implicitly create arbitrage opportunities and therefore induce risks.. Execution: Beyond the development of a complete understanding, ifit is determined that an opportunity or a risk exists, execution isalways a concern. Naturally important in the case of a risk arbitrage position, it is also critical in other settings. For example, whatis the most appropriate execution strategy to sell an unwanted
94
A logical consequence of all this analysis is that short sellers should de®nitely bemuch more cautious with respect to getting the right information at the right time.95When-issued securities are securities traded before they have been issued. In somespin-off situations, for example, shares of the company spin-off trade before theeffective date of the spin-off.
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position in a spun-off company? To the extent that this position issmall, this may not be a great concern. However, it should never beoverlooked.. Risk-reward analysis: As is the case with any other form of trading,an arbitrage should be entered only if its risk pro®le is adequateconsidering the trader's constraints and targets. Conversely, if arisk is predictable in the near future that cannot be dealt with ina satisfactory way, carrying it should be carefully weighted.Depending on the market and the underlying set of stocks withinan arbitrageur's universe, corporate events may be a secondary concern or, on the other hand,