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Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

A corporate board of directors announces a quarterly regular-way cash dividend for its common shareholders. Arrange the four dividend milestone dates in the correct chronological order from first event to last event.

  1. 1Declaration Date
  2. 2Ex-Dividend Date
  3. 3Record Date
  4. 4Payable Date

Answer

The correct chronological order of dividend milestone dates is Declaration Date, Ex-Dividend Date, Record Date, and Payable Date (commonly remembered by the acronym DERP).
The correct sequence follows the standard industry acronym DERP: Declaration Date, Ex-Dividend Date, Record Date, and Payable Date. The board declares the dividend first, FINRA sets the ex-dividend date one business day before the record date under T+1 settlement rules, the corporation checks its owner registry on the record date, and finally the dividend is distributed on the payable date.

Step-by-Step Solution

1
Identify the initial corporate action step.
The process begins with the Declaration Date when the board authorizes the dividend.
No dividend exists until the board of directors formally declares it.
2
Determine the date when trading reflects the dividend removal under T+1 rules.
The Ex-Dividend Date occurs next.
Under regular-way T+1 settlement, the ex-dividend date is set by SRO rules to be one business day before the record date.
3
Identify the ownership cutoff date set by the issuer.
The Record Date follows the ex-dividend date.
Investors purchasing on or after the ex-dividend date will not settle their transaction in time to be listed on the company books on the record date.
4
Identify the final disbursement event.
The Payable Date is the final step in the sequence.
This is the date dividend funds are actually remitted to eligible shareholders.

Key Concept

Corporate Action Dividend Timeline (DERP)
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions