Examkin

Question

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

On Thursday, May 14, 2026, a public corporation declared a cash dividend payable on Friday, June 12, to shareholders of record on Thursday, June 4. On Thursday, June 4, a retail customer places a market order to buy 1,000 shares of the stock, which the broker-dealer fills out of its own inventory while charging a mark-up. Under current FINRA and SEC regular-way settlement rules, which of the following statements correctly identifies dividend entitlement, trade settlement, and mandatory confirmation disclosures for this transaction?

  1. The transaction settles on Friday, June 5; the buyer is not entitled to the dividend because the ex-dividend date is Thursday, June 4 (the record date), and the confirmation must disclose that the broker-dealer acted as a principal and include the mark-up amount.Answer
  2. B
    The transaction settles on Friday, June 5; the buyer is entitled to the dividend because the ex-dividend date occurred on Wednesday, June 3 (one business day before the record date), and the confirmation must disclose that the broker-dealer acted as an agent receiving a commission.
  3. C
    The transaction settles on Monday, June 8; the buyer is entitled to the dividend because the National Securities Clearing Corporation (NSCC) defers settlement until the payable date, and the confirmation must disclose an agency capacity.
  4. D
    The transaction settles on Thursday, June 4; the buyer is entitled to the dividend as preferred equity rights override record-date restrictions, and the Depository Trust Company (DTC) handles trade execution netting on the trade date.

Answer

The transaction settles on Friday, June 5 (T+1). Because the ex-dividend date for standard cash dividends under T+1 regular-way settlement is the record date (Thursday, June 4), purchasing on June 4 results in settlement on June 5 after record date determination; thus, the seller receives the dividend. Because the broker-dealer executed the trade from its own inventory, it acted in a principal capacity, requiring the confirmation to disclose dealer capacity and mark-up.
Under current SEC/FINRA T+1 regular-way settlement rules, equity trades settle one business day after trade date. For standard cash dividends, the ex-dividend date is the record date itself (Thursday, June 4). A trade placed on the ex-dividend date settles on Friday, June 5, which is after the record date, so the buyer is not entitled to the dividend. When a broker-dealer sells out of its inventory, it acts as a principal (dealer) and must disclose this capacity along with the mark-up on the trade confirmation.

Step-by-Step Solution

1
Determine the regular-way settlement date under current T+1 rules.
Trade date is Thursday, June 4. Settlement occurs T+1 business day later, which is Friday, June 5.
Standard equity trades follow regular-way T+1 settlement cycles under SEC Rule 15c6-1.
2
Determine the ex-dividend date for a regular cash dividend and dividend entitlement.
Under T+1 settlement, the ex-dividend date is the record date (Thursday, June 4). Purchasing on or after the ex-dividend date means the buyer does not receive the dividend.
To be a shareholder of record on Thursday, June 4, the purchase must settle on or before June 4. A purchase on June 4 settles June 5, so the seller remains the owner of record as of June 4.
3
Identify the broker-dealer capacity and required confirmation disclosures.
Filling a trade out of firm inventory means acting as a principal (dealer), requiring disclosure of principal capacity and the mark-up charged.
Broker-dealers trading as principal act as counterparties from inventory, charging a mark-up/mark-down rather than an agency commission.

Key Concept

T+1 Settlement Cycle, Ex-Dividend Date Determination, and Broker-Dealer Principal Capacity Disclosures
Estimated Time:2m 0s
Rate this question

Topics

Settlement Dates, Trade Confirmations, and Corporate Actions