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corporate actions explained


What are corporate actions?

A corporate action is any event that brings material change to a company and affects its stakeholders, including shareholders, both common and preferred, as well as bondholders. These events are generally approved by the company’s board of directors; shareholders may be permitted to vote on some events as well.

The most common corporate actions include:

  • Cash DividendMoney paid to stockholders out of profits or earnings, they are taxable as income for the recipients.
  • Stock SplitAn issue of new shares to existing shareholders in proportion to their current holdings.
  • Rights IssueAn offer of securities to existing shareholders in proportion to their shareholding. This enables shareholders to subscribe for additional shares at a pre-determined price.
  • Buy BackThe purchase of its own shares by a company. Shareholders can sell their shares back to the company for the Buy Back price.
  • Bonus IssueWhen additional shares are issued by a company on a pro rata basis for free.

What is ex-dividend and its impact?

Dividend payment is by far the most common type of corporate action. Profitable companies may issue several dividend payments a year. Typically, an ex-dividend date will be announced when dividends are issued. For example, the last ex-dividend date for Apple Inc. (AAPL) is May 8th, 2020, with a dividend amount of $0.82 USD per share. If you have held a CFD position of Apple Inc. (AAPL) on our platform at the close of trading on May 7th, 2020, an adjustment to your position(s) will be made to account for this dividend payment.

There will be no dividend related impact if the AAPL CFD position(s) are closed before market close on May 7th, 2020. Similarly, new AAPL CFD positions opened after the market open on May 8th, 2020 will also not be impacted.

  • For Example.
    If you have bought and held 100 Apple Inc. shares CFDs at the close of trading on May 7th, 2020, you will be entitled to 0.82 per share x 100 = 82 USD.

    Under US taxation laws, 30% of any dividend income in relation to equities and equity derivatives will be withheld, which is 82 USD x 30% = 24.6 USD

    The two adjustments made on 08/05/2020:
    Credit: Gross dividend payment 82 USD
    Debit: Withholding tax amount 24.6 USD

  • Alternatively.
    If you have sold and held -100 Apple Inc. Share CFDs at the close of trading on May 7th, 2020, you will be deducted 0.82 per share x 100 = 82 USD.

    The adjustment made on 08/05/2020:
    Debit: Gross dividend payment 82 USD
    On the market open of ex-dividend date, the underlying share price is generally expected to fall by similar magnitude to the dividend amount.

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