Corporate Action: Public Company Equity Debt Dividend Shareholders Stock Split

Corporate Action
A corporate action is an event initiated by a

public company that affects the securities (equity or debt
) issued by the company. Some corporate actions such
as a dividend (for equity securities) or coupon payment
(for debt securities (bonds)) may have a direct financial
impact on the shareholders or bondholders; another
example is a call (early redemption) of a debt security.
Other corporate actions such as stock split may have an
indirect impact, as the increased liquidity of shares may
cause the price of the stock to rise. Some corporate
actions such as name change have no direct financial
impact on the shareholders.
INDEX
1. BOND Exchange
2. Bonus Issue
3. Conversion
4. Dividend Reinvestment
5. Full / Partial Call
6. Liquidation
7. Merger
8. Return of capital
9. Reverse stock split
10. Rights Issue
11. Spin Off
12. Stock Dividend
13. Stock Split
INTRODUCTION
• An exchange offer is an offer made by corporation to

retire its securities from the market by exchanging the
outstanding security for another type of security.
• An exchange offer is made when a corporation decides
to change its capital structure. It may need to eliminate
costly, obsolete, or restrictive features offered with the
outstanding security issue.
ACCOUNTING TREATMENT
• Book on Ex Date of the Corporate Action, if it is
mandatory or ‘Non-voluntary’ event or book on Expiration
date if it is ‘Voluntary’ event.
• Calculate the new shares to be purchased by multiplying
Client response to share ratio if it is voluntary event.
prior to Ex date holdings to share ratio if it is Non-
voluntary event.
• We book Sell trade on parent cusip & buy trade on the
entitle child cusip in both type of events.
CUSTODY TREATMENT
• Custody will also book Sell on parent cusip & Buy Trade
onto the resultant Cusip according to corporate action
share ratio.
• Custody would book a separate sell & buy trades for
shares which are On-Loan & for those which are Off –
Loan.
SAMPLE OF BOND EXCHANGE OFFER
Details of Corporate Action:
Exp Date: 03/04/2008
Record Date:
Payable Date:
Ratio: 1 unrestricted security for existing one restricted
security
Client Response: 480000
IMPORTANT NOTES
• In US Bond exchange offers, holding of the parent
security moved to the contra cusip ( Temp CUSIP) after
response received from client. But we do not post any
trades for such movements unless holding from contra
cusip not moved to child Cusip.
INTRODUCTION
• A Corporation issues extra shares of a Security to its
Shareholders at “NO COST”.
• Bonus Shares are those shares issued by a company to
its existing Shareholders at “ZERO COST or FREE”. It
means that the Shareholders are benefitted by some
additional shares without paying for it.
• Book on Ex Date of the Corporate Action.
your Ex-date holding by ratio given.
• We book a BUY Trade on system or there is an Auto
SPDIV, in both the cases the Shares are bought at
ZERO COST.
CUSTODY TREATMENT
• Custody will also book a Buy Trade onto the resultant
Cusip as provided on BCAR which can be Same Parent
Cusip or New Cusip.
• Custody would book a separate buy trade for shares
which are On-Loan & for those which are Off – Loan.
SAMPLE OF BONUS ISSUE
Ex Date: 12/03/2008
Record Date:11/03/2008
Payable Date: 16/03/2008
Ratio: 3 New shares for Existing 10 shares
Fund: ABCD
Holding (Prior to Ex Date): 14259
INTRODUCTION
• A conversion is an offer made by corporation to
convertible bondholders & convertible preferred
stockholders to convert their securities to common stock
of the company.
• Corporations issue convertible securities to offer investor
flexibility. The conversion will usually takes place when
the common stock has greater value than the convertible
bond or preferred stock.
• Book on Ex Date of the Corporate Action, if it is
mandatory or ‘Non-voluntary’ event or book on Expiration
date if it is ‘Voluntary’ event.
client response to share ratio updated, if it is voluntary
event.
prior to Ex date holdings to share ratio updated, if it is
Non-voluntary event.
• We book Sell trade on parent cusip & buy trade on the
entitle child cusip in both type of events.
CUSTODY TREATMENT
onto the resultant Cusip provided according to corporate
action share ratio.
Loan.
SAMPLE OF CONVERSION
Exp Date: 31/12/2007
Record Date:
Payable Date:
Ratio: 0.7244352 GBP shares for Each EURO share
Fund: ABCD
Client Response: 49059 shares
INTRODUCTION
• A Dividend Reinvestment Plan offers shareholders
choice of reinvesting a cash dividend distribution to
purchase additional shares of the company.
• Offering stockholders the option of reinvesting dividends
is an attractive investment strategy for most investors.
• For corporation it gives Cash flow & tax benefits.
Client response to net cash dividend receivable divided
by reinvestment price plus commission & stamp duty; if
applicable.
• We book a BUY Trade on amount which is equal to
entitled shares into reinvestment price plus commission
& stamp duty if applicable.
CUSTODY TREATMENT
Cusip provided.
SAMPLE OF DIVIDEND
REINVESTMENT PLAN
Ex Date: 06/02/2008
Ratio: Reinvestment price GBP 2.00675
Net Cash dividend Rate GBP 0.013
Response: 123181
STOCK CASH OPTION
• Stock Cash option is also similar to Dividend
reinvestment Plan & both these actions have same
treatment except Stock Cash option will be booked on
expiration date while dividend reinvestment plan will be
booked on Ex-Date.
• Sometimes instead of Reinvestment Price there is stock
ratio updated in Stock Cash option corporate action. In
such cases, we calculate the entitlement by multiplying
stock ratio by the response given.
SAMPLE OF STOCK CASH OPTION
Ex Date: 18/01/2008
Ratio: 0.064841126 new shares per each
responded share
Fund: ABCD
Response: 8287
IMPORTANT NOTES
• In this stock cash option, cash option gets prorated.
Shareholders will not receive cash dividend @ USD 2.51
but will receive cash dividend @ USD 0.808113 &
0.043965048 share per each responded share because
of proration.
• We will calculate the entitlement by multiplying client
response to share ratio updated & buy these shares @
amount which is equal to client response multiplied by
USD 1.701887 i.e. ( USD 2.51- USD 0.808113) dividend
to be capitalized.
INTRODUCTION
• A Corporation issues Bond with provision that it may
have the right to redeem or “Call” full or partial
redemption of the bond issue before its maturity date.
• A corporation issues callable bonds because it provides
control over an outstanding security. If the interest rates
decline to the point that it becomes too costly to have an
issue outstanding, the issuer can invoke the call
provision. This enables the issuer to refinance the debt
by selling the bond at a lower interest rate.
• In “Full Call” entire holding of the shareholders get
redeemed while in “Partial Call” only some percentage of
the bond issue get redeemed.
ACCOUNTING TREATMENT FOR
FULL CALL
• Calculate the call amount by multiplying redemption rate
updated to original face position or current position.
• We book Sell trade on accounting, selling entire position
against call amount.
CUSTODY TREATMENT FOR FULL
CALL
• Custody will also sell the entire bond position against call
amount.
• Custody will book the sell trade against original buy
(Original Face) trade. But if it is Sinking Bond you will
find accounting trade has been booked against the
current position which is valid.
SAMPLE OF FULL CALL
Ex Date: 15/04/2008
Blocking Date:14/04/2008
Redemption Rate: EUR 0.251385312
Original Face: 100000
Current Position: 25138.61
IMPORTANT NOTES
In US Tenders, we wait for custody cash movement.
Custody will transfer holding from parent to contra Cusip
& there will be cash movement against contra Cusip. But
on accounting we will book sell trade only on parent
Cusip against cash received on the custody.
INTRODUCTION
• Liquidation means winding-up or dismantling of the
business. Assets of a company are sold, debts paid to
creditors( in order of priority) & remaining proceeds
distributed to the shareholders.
• An unprofitable company will go through various stages
in an attempt to reverse its problems. But if they can not
be resolved it will ultimately go into liquidation.
• We process Liquidation on custody movement only.
• We will mirror trade booked on custody on to the
accounting, taking same trade date & pay date as used
in trade booked on custody.
CUSTODY TREATMENT
onto the resultant Cusip provided according to corporate
action share ratio.
Loan.
INTRODUCTION
• It is action taken by corporations to merge two or more
corporations to form an independent legal entity.
• A merger usually takes place as result of one corporation
having product or services that other corporation needs
or used.
• A merged corporation may also be able to increase
financial leverage & service opportunities.
• If it is cash merger, we will sell parent Cusip at the cash
rate given.
• If it is securities merger, we will sell parent Cusip at full
cost & by the entitlement Cusip updated at the same
cost.
CUSTODY TREATMENT
• Custody will sell parent Cusip at the cash rate as
provided, if it is cash merger.
• If it is securities merger, custody will sell parent Cusip &
buy the entitlement Cusip as updated.
• Custody would book a separate trades for shares which
are On-Loan & for those which are Off – Loan.
SAMPLE OF MERGER
Ex Date: 03/03/2008
Ratio: GBP 1.9306 per each share.
SCREENSHOT OF CUSTODY SIDE
• On Custody side you won’t be able to find any trade on
Ex - date, as the same would appear on custody side
around payable date (which is 17/03/2008) for Off –
Loan Shares. Incase of those which are On – Loan it
would be received within a period of 90 Days from
Payable Date.
IMPORTANT NOTES
• Sometimes in voluntary cash mergers proration factor is
applied. In such cases, for un-prorated response client
may get security. In such case we sell the parent Cusip
with full cost using cash broker & buy the entitlement
Cusip @ reduced cost i.e. full cost minus cash
receivables.
Definition
• A return from an investment that is not considered
income. The Return of Capital is when some or all of
the money an investor has in an investment is paid
back to him or her, thus decreasing the value of the
investment. This is not a gain of any type because it is
not in excess of the original investment.
• A Special dividend is a payment made by a company to
its shareholders that is separate from the typical
recurring dividend cycle, if any, for the company. The
difference may be the result of the date of issue, the
amount, the type of payment, or a combination of these
factors.
Reason for Return of Capital
• Surplus Cash Reserves
• Optimization of Capital Structure
• Restructuring Financial ratios
• Sale of Non-Core Business Assets
Methods of Return of Capital

• Special Dividend
• Share Buyback
• Capital Restructuring
Reason for Special Dividend

• Strong Company Earnings
• Confidence among Investor
• Labeling the dividend as “Special Dividend”
Benefits to Company
• Optimum utilization of Capital (ROC)
• Sign of Sustainability
• Cost effectiveness
• Attracting new investors
Benefits to Shareholders
• Special Payment other than Normal Dividend
• Tax Benefits (ROC)
• Pay Back to Investor (ROC)
Effects on Accounting & Custody
• In case of Return of Capital, on accounting we pass a
negative POAJ to reduce book cost of the security
invested
• On custody, cash will be received on system.
• In case of Special Divs, if needed to treat it as Capital we
pass a negative POAJ or if needed to treated it as
Income, income line will be set up and would be received
as per receipt on the custody side
Example
• Security holding: 1000 shares
• Dividend of amount GBP2.00
• Negative POAJ of GBP2000.00 to be passed in order to
reduce the book cost of the security (if treated as capital)
• Income line will be set up for GBP2000.00 on the ex date
and would be received on pay date (if treated as income)
INTRODUCTION
• It is an action taken by a corporation to decrease the
number of outstanding shares at predetermined ratio.
• A shareholder’s proportion of ownership remains the
same even though the number of shares decrease &
price per share increases.
• Corporation may elect to exercise a reverse split to
increase trading activity.
• We book sell & buy trade. We sell the parent Cusip at
the cost & buy the entitlement Cusip at the ratio at the
same cost.
CUSTODY TREATMENT
• Custody will book sell & buy trade. Custody will sell
parent Cusip & book buy trade onto the entitlement
Cusip as provided on BCAR.
• Custody would book a separate sell & buy trade for
Loan.
Sample of Reverse Stock Split Issue
Ex Date: 22/023/2008
Ratio: 67 new shares for 74 existing shares
IMPORTANT NOTES
• Sometimes there is return of capital action with reverse
stock split. In such cases, we sell the parent Cusip at the
full cost & buy the entitlement at reduced cost i.e. parent
cost minus cash entitlement.
INTRODUCTION
• A stock right is a privilege granted to the existing
shareholders of a corporation to subscribe new issue of
common stock before it is offered to the public, & to
maintain their percentage of ownership in the
corporation.
• A company may issue rights to raise additional capital for
a specific venture. A company issues rights at the
discounted (Subscription) price.
• We book a BUY Trade. Shares are bought at ZERO
COST if price of the rights is less than 15 % of price of
the parent. If price of the rights is more than 15 % of
parent’s price then we will do the cost allocation between
parent & rights according to percentage updated.
CUSTODY TREATMENT
Cusip as provided.
SAMPLE OF RIGHTS ISSUE
Ex Date: 15/01/2008
Ratio: 2 Rights for existing 9 Ordinary shares
RIGHTS ISSUE - EXERCISE
After rights issue, action follows is Exercise rights which
is voluntary action where client have following four
options.
Option1 -: Exercise rights & purchase new shares at
exercise price.
Option2 -: Request Sub custodian/ broker to sell the rights
in the market.
Option3 -: Request Bank to sell the rights in the market on
their behalf.
Option4 -: Allowing rights to be lapsed.
• Book on expiration date.
• If client opted for exercise we will sell right Cusip & buy
the new Cusip.
• If client opted for sale of rights then we would wait for
sell of rights on custody & mirror the custody trade.
• If client opted for lapse, we would give same treatment
as rights sold.
CUSTODY TREATMENT
• If client opts for exercise custody will also sell parent
Cusip & buy the new Cusip.
• If client opts for sale of rights, custody will sell rights
before expiration date.
• If client opts for lapse, custody will book sell trade for
lapsing rights after expiration date.
SAMPLE OF RIGHTS EXERCISE
Exp Date: 06/02/2008
Debit Date: 06/02/2008
Payable Date:
Ratio: 1 new share for 1 Right
Response: 9733
NEW TO ORDINARY(PARI-PASSU)
• This is non voluntary action where new shares will rank
“Pari-Passu”.
• This action will only take place when client receives new
shares in exercise corporate action which are not
tradable at exchange. So by this action shareholders will
receive shares which are tradable on exchange.
• Book on EX date of the corporate action.
• We will sell new shares at cost & buy the ordinary line at
the same cost.
CUSTODY TREATMENT
• Book on EX date of the corporate action.
• Custody will also sell new shares & buy the ordinary line
at.
SAMPLE OF NEW TO ORDINARY CORP ACT.
Exp Date: 07/02/2008
Ratio: 1 Ordinary Share for 1 New Share
INTRODUCTION
• It is an action taken by a corporation to separates a
portion of its operations or subsidiary company to create
an independent company
• A spin off usually takes place when a corporation
decides not to contribute additional capital to a
subsidiary. It then separates that subsidiary to be a
freestanding legal entity.
• We book buy trade on entitlement Cusip & book Sell &
buy trade on parent Cusip to give effect of cost
allocation. We sell the parent Cusip at the 100 %cost &
buy the same at reduced percentage of the cost given
while buy the entitlement Cusip at the ratio at the
percentage of cost updated.
CUSTODY TREATMENT
• Custody will only book buy trade on entitlement Cusip.
• Custody would book separate buy trades for shares
Sample of Spin-Off Issue
Ex Date: 04/03/2008
Record Date: 03/03/2008
Ratio: 4 shares of new company for existing one share
Local Cost : 1263465.59 USD
Base Cost : 1263465.59 USD
IMPORTANT NOTES
Cost allocation effect would be given on accounting only
as Custody never consider the cost. So there will be no
corresponding sell & buy trade booked on to the parent
Cusip on custody side as it is booked on accounting to
give effect of cost allocation.
INTRODUCTION
• A Stock Dividend is a Distribution of Profits (in the form
of Stock) i.e. declared by Corporations Board of
Directors to its Shareholders
• This is where you will receive extra shares in Security
instead of Cash Dividend
your Ex-date holding by ratio given on the BCAR. The
Ratio is found on the second screen of the BCAR.
• We book a BUY Trade on MCH (using REDB) or there is
an Auto SPDIV, in both the cases the Shares are bought
at ZERO COST.
CUSTODY TREATMENT
Cusip as provided on BCAR which can be Same Parent
Cusip or New Cusip.
SAMPLE OF STOCK DIVIDEND
Ex Date: 16/01/2008
Ratio: 0.05 for 1 per Share
Holding (Prior to Ex Date): 1260 Shares
IMPORTANT NOTES
• In US stock dividend, F10 screen or second screen of
BCAR never gets updated & you will find the ratio on F6
screen or first screen of BCAR.
• In Taiwan stock dividend, With holding tax get debited
from Client’s account which we do not process.
INTRODUCTION
• A stock split is an action taken by a corporation to
increase the number of outstanding shares and
decrease the market price.
• When the shares are distributed to stockholders, current
price per share will decrease proportionate to the
increase in shares. Also, the shareholders proportion of
ownership remains unchanged.
• We book a BUY Trade or there is an Auto SPDIV, in
both the cases the Shares are bought at ZERO COST.
• If the entitle Cusip is different than parent Cusip, we will
book Sell & Buy trade. We will sell parent Cusip at the
full cost & buy the new Cusip according to share ratio @
the same cost.
CUSTODY TREATMENT
Cusip according to ratio provided, Resultant Cusip is
same Parent Cusip. If the entitlement is different than
parent Cusip, Custody will sell parent Cusip & buy the
new Cusip according to share ratio.
• Custody would book a separate buy & sell trades for
Loan.
SAMPLE OF STOCK SPLIT ISSUE
Ex Date: 03/03/2008
Ratio: 10:1
Fund: XB1Y
• We do not process cash receives for fraction shares

resulted out of stock split.

Corporate Action: Public Company Equity Debt Dividend Shareholders Stock Split

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Corporate Action: Public Company Equity Debt Dividend Shareholders Stock Split

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Corporate Action

A corporate action is an event initiated by a

• An exchange offer is an offer made by corporation to

Methods of Return of Capital

Reason for Special Dividend

• We do not process cash receives for fraction shares

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