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Corporate Actions
What happens to my position if the company announces a cash dividend?
If a company declares a cash dividend, as a position holder, you will typically receive a payment in cash for each share you own if you are long and charged if you are short. The payment or charge amount will be based on the dividend amount per share that the company declares.
The impact of a dividend on a company can vary depending on several factors such as the company’s financial position, dividend pay-out policy, and the current economic environment. Here are some of the potential impacts of a dividend on a company:
1. Reduction in retained earnings: When a company pays a dividend, it is essentially distributing a portion of its profits to shareholders. This reduces the amount of retained earnings that the company can reinvest in its business, which can limit the company’s ability to fund future growth and investments.
2. Attracting and retaining investors: Paying a dividend can be attractive to investors who are seeking regular income from their investments. Companies that pay dividends can be seen as more stable and financially secure, which can help attract and retain investors.
3. Share price impact: The equity price of a company may decrease by an amount equal to the dividend payment after the ex-dividend date. This means that investors who hold the equity may see a decrease in the overall value of their position.
4. Tax: Dividend tax dependent on jurisdiction is announced along with the domestic tax obligations and payments are announced either on a Gross or Net basis. For how we make payment please see here
5. Perception of financial health: A company’s dividend policy can affect how investors perceive its financial health. A consistent and sustainable dividend policy can signal that the company is financially stable and generating reliable profits, which can enhance its reputation and attractiveness to investors.
Overall, paying a dividend can have both positive and negative impacts on a company. It’s important for a company to carefully consider its dividend policy and the potential impact on its financial position and investor relations.
In the event of a dividend payment, the P/L of a long position would decrease since the company’s value reduces as funds are being distributed. Nevertheless, we would credit the account with the amount by which the P/L decreased to avoid any significant impact and bring the account up to fair value, less any costs related to dividends, please see charges page here
On the other hand, for a short position, the P/L would increase as funds are being paid out to shareholders. However, to prevent any significant impact, we would debit the account by the amount by which the P/L increased and bring the account down to fair value, less any costs related to dividends, please see charges page here
Dividend payments occur on the ex-dividend date, when the equity begins trading without the dividend included and is for all positions held into the ex-dividend date. For example, assuming an ex-dividend date of 25 Jun, any position held at the close of the previous business day would be eligible to receive the dividend declared. Positions opened on or after the ex-dividend date are not eligible for the dividend.
Stop and limit orders on any market undertaking a dividend will remain at the same level
For dividend example please click here
For charges related to dividends please click here
What happens to my position in an index when a constituent of the index announces a dividend ?
If a constituent company of an index pays a dividend, the equity price of that company may decrease by an amount equal to the dividend payment after the ex-dividend date. This can, in turn, decrease the overall value of the index, since the equity price of the constituent company is one of the factors that determine the index’s value.
This applies to all indices markets with the exception of the Germany 40, which is derived as a total return index
Example
Assuming you are long £10 a point on the UK100, when the business day closes at 10pm and a dividend adjustment of 4.5 points is declared off the index.
The UK100 price would drop by 4.5 points, reducing the profit or loss by £45 (4.5 points x £10)
We would credit your ledger with 90% of £45 = £40.50
On the other hand if the position held was short rather than long, the account would be debited 100% of the dividend amount of £45.00
For dividend example please click here
For charges related to dividends please click here
Stop and limit orders on any market undertaking an index dividend will remain at the same level
Where futures markets are concerned, the price has the dividend adjustment factored in.
What happens to my equity position if the company actions an equity dividend or bonus issue?
An equity dividend distributes additional shares to existing shareholders based on their current shareholding. For instance, if a company declares a 10% equity dividend, an investor who owns 100 shares would receive an extra 10 shares. Although the total value of the investor’s shares position would remain constant, the value of each share would decrease by 10%.
A bonus issue is comparable to an equity dividend, but instead of providing extra shares, the company issues free shares to its current shareholders. For example, if a company declares a 1:1 bonus issue, an investor who owns 100 shares would receive an additional 100 shares for free. Again, the total value of the investor’s equity position would remain unchanged, but the value of each share would decrease.
For a short position, the shares released via a bonus issue would be added as a new short position at zero level, increasing the total number of short shares held according to the bonus issue’s terms. However, the position’s overall monetary value would remain unaffected.
It’s important to note that even though the number of shares increases, the percentage ownership of the company remains the same. Therefore, the equity dividend or bonus issue does not affect the investor’s proportionate ownership in the company.
What happens to my equity position if the company offers a rights issue?
A rights issue is a way for a company to raise additional capital by offering its existing shareholders the right to purchase new shares at a discounted price. This is a way for a company to raise capital from existing shareholders without going through the process of issuing new shares to the public or taking on debt.
In a rights issue, the company sets a subscription ratio, which determines the number of new shares that shareholders are entitled to purchase for each share they already own. For example, a company may offer a subscription ratio of 1:2, which means that for every two shares a shareholder owns, they are entitled to purchase one additional share at a discounted price.
Over or under subscription to the rights can have an impact on the price based on demand from issuance to settlement
Actions on a rights event
Your account will not be credited with the rights shares, nor will you have the option not to subscribe – instead they will be cash settled on your account at the close price of the day prior to the conversion date. If you held a long position, you must bear the loss of the market movement on your ordinary shares until the rights are cash settled and the amount credited to your account to account for any fair value movement on the underlying market.
The duration of trading for rights issue shares can vary anywhere between 5 and 30 days. This is the period which it can take for the resulting value to be credited to your account. Please note if you have a position going ex-rights to maintain suitable funds in your account until the rights are cash settled to your account.
What if my position is short
Your account will not be credited with the rights shares, nor will you have the option not to subscribe – instead they will be cash settled on your account at the close price of the day prior to the conversion date. If you held a short position you may be refused withdrawal of funds from your account until the rights have been cash settled and it debited from your account. This is to account for the drop in value of the ordinary shares and to account for any fair value movement on the underlying market.
The duration of trading for rights issue shares can vary anywhere between 5 and 30 days. This is the period which it can take for the resulting value to be debited from your account. Please note if you have a position going ex-rights to maintain suitable funds in your account until the rights are cash settled to your account.
Example
Let’s say you have a spread betting position on XYZ Plc and you hold 1000 shares at a price of £1 per share. ABC Company announces a rights issue of 1:2, which means that for every 2 shares you own, you are entitled to purchase 1 new share at a discounted price (issue price) of 50p per share.
In this case you would receive 500 rights shares that would allow you to convert them into ordinary shares at the issue price of 50p per share. The value of the rights usually trade at the discount value from the current price of ordinary shares and the issue price. However, Spread Co will not seek to add rights shares to your account and will cash settle the position at the close price of the last trading day of the rights. Rights are ‘nil paid, meaning they are applied to your account at a value of 0.01.
If you held a long position, the rights have an opening price of 0.01 and a closing price determined by the close price on the last trading date, therefore your account will be credited in the cash settlement. If you held a short position, your rights will also have an opening price of 0.01 and thus when cash settled the amount will be debited from your account.
What happens to my shares position if the company performs a stock split or consolidation?
A stock split, is a corporate action that involves dividing the existing shares of a company into a larger number of shares. This is typically done in a specific ratio, such as 2-for-1 or 3-for-1, which means that for every one share a shareholder owns, they will two or three new shares, respectively – after the split.
For example, if a company has 10 million outstanding shares and announces a 2-for-1 stock split, it will now have 20 million outstanding shares. If a shareholder owns 100 shares prior to the split, they will now own 200 shares after the split. However, the total value of the shareholder’s investment remains the same, as the price of each share is adjusted proportionately to reflect the split.
A stock split is often done to make the shares more affordable to investors, particularly those who may have been deterred from investing due to the high price per share. It can also increase liquidity by making the shares more attractive to a larger number of investors.
In addition, a stock split can also create a positive perception among investors, as it may suggest that the company is confident about its future growth prospects.
On the other hand, a stock consolidation, also known as a reverse stock split, is a corporate action that involves combining a certain number of existing shares into a smaller number of shares. This is typically done in a specific ratio, such as 1-for-10 or 1-for-20, which means that for every 10 or 20 shares a shareholder owns, they will receive one new share, respectively.
For example, if a company has 100 million outstanding shares and announces a 1-for-10 consolidation, it will now have 10 million outstanding shares. If a shareholder owns 1,000 shares prior to the consolidation, they will now own 100 shares after the consolidation. However, the price of each share is adjusted proportionately to reflect the consolidation, which means that the total value of the shareholder’s investment remains the same.
A stock consolidation is often done to increase the price per share, which can make the shares more attractive to institutional investors or to meet exchange listing requirements. It can also create a positive perception among investors, as it may suggest that the company is taking steps to improve its financial position.
However, a consolidation may also have a negative impact on the company’s share price, as it may signal financial weakness or a lack of confidence in the company’s future growth prospects.
Stock Split example
Let’s assume that ABC Plc has 1 million outstanding shares, and its current stock price is $100 per share. The total market capitalisation of the company is therefore $100 million (1 million shares multiplied by $100 per share).
If the company announces a 2-for-1 stock split, every shareholder will receive an additional share for every share they currently own. Therefore, if a shareholder owns 100 shares prior to the split, they will receive an additional 100 shares after the split, resulting in a total of 200 shares. However, the stock price will be adjusted proportionately to reflect the split. In this case, the stock price will be halved, resulting in a new stock price of $50 per share.
After the split, Company ABC Plc will now have 2 million outstanding shares (1 million existing shares plus 1 million new shares issued as a result of the split). However, the total market capitalization of the company remains the same, as the value of each share has been reduced by half. Therefore, the total market capitalization of the company remains at $100 million (2 million shares multiplied by $50 per share).
A stock split can make the shares more affordable to investors and increase liquidity, as more investors may be able to buy the shares at a lower price. It can also create a positive perception among investors, as it may suggest that the company is confident about its future growth prospects.
Consolidation example
Let’s assume that XYZ Plc has 1 million outstanding shares, and its current equity price is $10 per share. The total market capitalization of the company is therefore $10 million (1 million shares multiplied by $10 per share).
If the company announces a 1-for-10 consolidation, every ten shares will be consolidated into one new share. Therefore, if a shareholder owns 1,000 shares prior to the consolidation, they will have 100 shares after the consolidation. However, the equity price will be adjusted proportionately to reflect the consolidation. In this case, the equity price will be multiplied by 10, resulting in a new equity price of $100 per share.
After the consolidation, Company XYZ will now have 100,000 outstanding shares (1 million existing shares consolidated into 100,000 new shares). However, the total market capitalization of the company remains the same, as the value of each share has been increased by 10 times. Therefore, the total market capitalization of the company remains at $10 million (100,000 shares multiplied by $100 per share).
A consolidation is often used by companies with a low equity price to increase the perceived value of their shares. It may also help the company to meet listing requirements of a equity exchange, as some exchanges have minimum price and share count requirements for listed companies.
How does a stock split or consolidation affect my spread bet or CFD account?
The standard process is for us to close your original position at the closing price at the close of previous day close price and open a new trade on your behalf reflecting the ratio of the split/consolidation.
All orders on markets undertaking a corporate action that causes significant change in share price in relation to new shares added or share consolidation, will be cancelled prior to and/or after triggering.
For any position that is adjusted for corporate actions where a decimalised position is required, e.g. £1.50/point or 15.5 CFD’s – the decimalised portion of the position will be cash settled at the closing price (adjusted for any change in value) of the day prior to the ex-date of the action.
What happens to my shares position if the company performs a spinoff?
A spin-off is a corporate action in which a parent company creates a new, independent company by separating out a portion of its existing business. This newly created company is then spun off to the parent company’s existing shareholders as a separate publicly traded company.
The spin-off may involve the distribution of shares of the new company to the parent company’s shareholders, either on a pro rata basis or through a special dividend. The newly created company typically has its own management team, board of directors, and financial statements, and operates independently from the parent company.
A spin-off may be done for a variety of reasons, including to allow each company to focus on their core business, to unlock value by separating out underperforming businesses, or to allow the new company to access capital markets more easily.
Action
Spread bet and CFD accounts:
On spin-off ex-date, we’ll create a position on the new company in accordance with the terms of the spin-off. Once tradeable, you can then choose whether to trade the new company or not. This is done at Spread Co’s discretion, there may be spin-off companies that Spread Co will not seek to add to the platform and in that scenario the spin-off shares will be cash settled onto your account.
For any position that is adjusted for corporate actions where a decimalised position is required, e.g. £1.50/point or 15.5 CFD’s – the decimalised portion of the position will be cash settled at the closing price (adjusted for any change in value) of the day prior to the ex-date of the action.
All orders on markets undertaking a stock split or spinoff corporate action that causes significant change in share price in relation to new shares added or share consolidation, will be cancelled.
What happens to my shares position if the company is involved in a takeover?
In a takeover, what happens to your shares depends on the terms of the deal and the structure of the takeover. There are several possible outcomes:
Cash buyout: In a cash buyout, the acquiring company pays a set price per share to the shareholders of the target company. If you own shares in the target company, you will receive the cash pay-out for each of your shares. Once the deal is complete, your shares will no longer exist, and your position in the target company will be closed.
If you hold a trading position in the target company, the position will be closed on the final trading date – the settlement price (adjusted for any commissions) will be used to determine the final outcome of your position.
Stock-for-stock deal: In a equity-for-equity deal, the acquiring company offers shares of its own equity in exchange for the shares of the target company. If you own shares in the target company, you will receive shares of the acquiring company at a predetermined ratio. Your shares in the target company will be closed, and your position will be replaced with shares in the acquiring company.
Upon a takeover, your initial position will be closed, and a new position will be created to reflect the takeover terms, using the previous night’s closing price as the basis.
Mixed deal: A mixed deal is a combination of a cash buyout and a equity-for-equity deal. In this scenario, you may receive a combination of cash and shares in the acquiring company, depending on the terms of the deal.
Cash and stock takeovers:
A new position will be created based on the terms of the takeover, cash offer, and interest adjustments, using the previous night’s closing price. The original position will be closed out accordingly.
Please be advised that the information provided is a general example and is subject to change at any time. It may not be applicable to every scenario.
It’s important to note that in a takeover, the price of the shares in the target company may rise or fall depending on market reactions to the news of the deal. If the offer price is lower than the market price of the shares, some shareholders may decide to hold onto their shares in hopes of a higher bid or a better deal. However, if the offer price is higher than the market price, some shareholders may sell their shares to take advantage of the premium.
All orders on markets undertaking a corporate action that causes significant change in share price in relation to new shares added or share consolidation, will be cancelled prior to and/or after triggering.
Overall, what happens to your shares in a takeover depends on the terms of the deal and the structure of the transaction. You may receive cash, shares in the acquiring company, or a combination of both.
For any position that is adjusted for corporate actions where a decimalised position is required, e.g. £1.50/point or 15.5 CFD’s – the decimalised portion of the position will be cash settled at the closing price (adjusted for any change in value) of the day prior to the ex-date of the action.
What happens if the Equity I am trading delists?
If an equity delists, it means that it is no longer listed on the exchange where it was previously traded. This can happen for various reasons, such as bankruptcy, merger, or failure to comply with exchange listing requirements. If you hold position in an equity that is delisted, your options will depend on the circumstances surrounding the delisting.
Here are a few possible scenarios: Equity is delisted from a major exchange but continues to trade on another exchange and/or over-the-counter (OTC) market: The equity is delisted from all exchanges and no longer trades on any market: If this happens, The company undergoes restructuring or bankruptcy, and the equity are dissolved: In this case, your position will be closed and you will receive a payment based on the terms of the restructuring or bankruptcy agreement.
The payment may be in the form of cash, new holding, or other securities, where possible to trade would be made available, in other circumstances they would be cash settled. It’s important to note that if an equity is delisted, it does not necessarily mean that the company is bankrupt or that its underlying asset has no value.
However, the delisting can have significant implications for the liquidity and marketability of the underlying asset, as well as the ability of accounts to trade or sell their position. liquidity and volume of trading in the equity may be reduced, which can make it more difficult to trade your position where a delisting occurs and can increase transaction costs.
What happens if the Equity I am trading suspends?
If the equity you are trading suspends, it means that trading in the equity has been halted or paused. This can happen for various reasons, such as a pending announcement or news event, a significant price movement, or regulatory concerns.
When a equity suspends, you will not be able to trade the equity until the suspension is lifted. The duration of the suspension can vary, depending on the reason for the suspension and how long it takes to resolve the underlying issue. During the suspension, you will not be able to close your position or open new positions in the equity. This is out of Spread Co’s control
In some cases, if the suspension lasts for an extended period, the exchange may delist the equity, which means that the equity is no longer traded on that exchange. If a equity is delisted, you may be able to sell your position on another exchange where the equity is still traded, but the price may be significantly lower due to the lack of liquidity.
It’s important to monitor any positions you have in a equity that has suspended trading and to stay informed of any updates or developments related to the suspension. You may want to consult with your broker or financial advisor to determine the best course of action for your particular situation.
Do you offer proxy voting, AGM attendance, shareholder meeting participations?
No, all positions are derivatives and held over the counter (OTC) with Spread Co
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