Stock Corporate Actions
What is a corporate action?
A corporate action is an event carried out by a listed company that brings about a material change to the organisation and subsequently impacts its stakeholders.
There are many examples of corporate actions – some are voluntary, when investors choose to participate, or mandatory, when participation is obligatory.
When trading a CFD with Axi participation is always mandatory.
Types of corporate actions:
Dividends:
There are 2 types of dividends companies can issue – cash or stock.
In both scenarios, when a stock goes ex-dividend the value of the stock will fall by the dividend amount with shareholders receiving either cash or additional shares. Axi adjustment:
Cash dividend: if you are holding a CFD position over the dividend date, your account will be credited or debited on the day the stock goes ex-dividend, to negate the impact of the dividend:
- If you were long, you would have been disadvantaged by the drop in price and therefore we would credit your account with the dividend amount
- If you were short, you would have benefited from the drop in price and therefore we would debit your account with the dividend amount
Share dividend: involves distributing additional shares to existing shareholders. If a dividend rate is set at 5%, each shareholder would receive 5 extra shares for every 100 held. CFD positions are managed similarly, with positions in the market (long or short) adjusted proportionally.
Stock Split and Reverse:
Stock splits usually take place when the stock’s value is getting too high, by splitting the stock into a larger number of shares the company becomes more accessible to new investors.
A reverse split occurs when a company seeks to consolidate existing shares with the intention of creating fewer, more valuable shares.
Neither action impacts the overall value of the company.
When holding a position with Axi, we will adjust your exposure accordingly; for example:
Client is holding 100 shares of stock X at a price of $30.00 per share.
Company X announces a stock split of 5 for 1.
This means that for every 1 share held, you will be issued 5 shares each worth 1/5^th^ of the initial stock price i.e. 500 shares at a price of $6.00.
Note the overall value of the company remains the same:
100 * 30 = $3,000; 500 * 6 = $3,000
Warrants and rights
Warrants and rights issues occur when a company offers its shareholders a chance to buy newly issued shares at a discounted price, before they are offered to the public.
In this instance, Axi will always take up the option however rather than extending your share position we will sell them when the market opens and apply a cash balance to your account equal to the difference between the discounted price and the sold price, for example:
Company X is trading at $20.00 and announces a rights issue to buy shares at a price of $15.00 at a ratio of 1:10. This means for every 10 shares held you are eligible to buy 1 share.
If the client holds 500 shares and the price at issuance is $22.00, they would receive 50 rights (500 ÷ 10 = 50). Each right, worth the $7.00 difference between $22.00 and $15.00, results in a credit applied totalling $350.00.
*Strictly for information purposes only, circumstances may arise where we process differently. Subject to change without notice.