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Difficulty: Very hardSettlement Dates, Trade Confirmations, and Corporate Actions

Match each trade settlement scenario or corporate action event on the left with its corresponding FINRA regulatory rule or trade confirmation disclosure requirement on the right.

  • Ex-dividend date for a standard regular-way cash dividendSet by SRO rules to be exactly one business day prior to the record date under T+1 settlement
  • Ex-dividend date for a stock split or stock dividend of 25% or greaterSet by SRO rules to be the first business day following the payable date
  • Trade confirmation disclosure when a broker-dealer executes an order from its own inventoryMust disclose broker-dealer capacity as principal and include any markup or markdown charged
  • Trade confirmation disclosure when a broker-dealer executes an order matching a buyer and sellerMust disclose broker-dealer capacity as agent (broker) and include the exact commission charged

Answer

Ex-dividend date for a standard regular-way cash dividend matches one business day prior to the record date under T+1 settlement. Ex-dividend date for a stock split or stock dividend of 25% or greater matches the first business day following the payable date. Trade confirmation disclosure when a broker-dealer executes an order from its own inventory matches disclosing capacity as principal and including markup/markdown. Trade confirmation disclosure when a broker-dealer executes an order matching a buyer and seller matches disclosing capacity as agent and including commission.
Each match correctly aligns the FINRA regulatory framework for trade settlement timing, corporate action ex-dates, and confirmation capacity disclosures under T+1 settlement rules.

Step-by-Step Solution

1
Determine the regular-way cash dividend ex-date rule under T+1 settlement.
Under T+1 settlement, buying stock on the business day immediately prior to the record date results in settlement on the record date, making that day the last day to receive the dividend. Thus, the ex-dividend date is set one business day prior to the record date.
An investor must own the security on the record date to receive the dividend.
2
Determine the ex-date rule for large stock splits or stock dividends (25% or greater).
Because due-bills track entitlement from the record date until payment, the ex-dividend date is fixed to the first business day after the payable date.
Large stock distributions use due-bill procedures to ensure correct share transfer.
3
Differentiate principal (dealer) vs agent (broker) capacity disclosures on trade confirmations.
Trading from inventory is a principal transaction requiring markup/markdown disclosure. Matching transactions is an agency transaction requiring commission disclosure.
FINRA rules require clear capacity and remuneration disclosure on all customer trade confirmations.

Key Concept

Settlement Rules, Ex-Dividend Dates, and Broker-Dealer Capacity Disclosures
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions