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Difficulty: HardSettlement Dates, Trade Confirmations, and Corporate Actions

A publicly traded corporation announces a 4-for-1 forward stock split for its common shares. In what chronological sequence do the corporate action milestone dates occur from first (earliest) to last (latest)?

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

Answer

The correct chronological sequence for a large stock split or stock dividend (25% or greater) is: Declaration Date, Record Date, Payable Date, and Ex-Dividend Date.
For forward stock splits and stock dividends of 25% or greater, FINRA rules specify that the ex-dividend date is delayed until the first business day following the payable date. Therefore, the chronological order begins with the Declaration Date, followed by the Record Date, the Payable Date, and finally the Ex-Dividend Date.

Step-by-Step Solution

1
Identify the type of corporate action being performed.
The corporate action is a 4-for-1 forward stock split, which represents a distribution of 25% or greater.
SRO/FINRA rules apply different ex-date sequencing rules for large stock distributions than for standard cash dividends.
2
Determine the initial corporate action steps.
The board of directors must first declare the event (Declaration Date), followed by compiling the list of eligible shareholders on the Record Date.
The corporate action cannot proceed without formal board authorization and establishing eligibility.
3
Determine the placement of the Payable Date and Ex-Dividend Date for a stock split.
The extra shares are issued on the Payable Date, and the Ex-Dividend Date occurs on the first business day immediately following the Payable Date.
Under FINRA Rule 11140, for stock splits or stock dividends of 25% or greater, the ex-date is delayed until the business day after the payable date, with trades prior to ex-date carrying due bills.

Key Concept

Chronological milestone sequence for stock splits and large stock dividends (≥25%) under FINRA rules.
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions