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Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

A corporation's board of directors declares a regular cash dividend on its common stock. Arrange the milestone corporate action dates in chronological order from first to last to reflect standard regular-way settlement rules.

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

Answer

The correct chronological sequence for a regular cash dividend under T+1 settlement rules is Declaration Date, followed by Ex-Dividend Date, Record Date, and Payable Date (commonly remembered by the mnemonic DERP).
The chronological sequence for regular cash dividends follows the DERP acronym: Declaration Date (announcement by board), Ex-Dividend Date (first day stock trades without dividend entitlement, one business day prior to record date under T+1 rules), Record Date (the date shareholder ownership is finalized for payout), and Payable Date (when dividend checks or electronic funds are disbursed).

Step-by-Step Solution

1
Identify the initial announcement date
Declaration Date is the first step where the dividend amount, record date, and payment date are authorized.
The corporate dividend process cannot begin until the board officially approves and announces it.
2
Determine the purchasing cut-off date based on regular-way settlement
Ex-Dividend Date occurs second, established by FINRA/SRO rules as one business day prior to the record date (T+1).
Investors purchasing on or after the ex-dividend date will not settle their trade in time to be registered shareholders on the record date.
3
Identify the official ownership cut-off date on company records
Record Date comes third.
The issuer checks its shareholder registry on this date to verify who is officially recorded as an owner.
4
Identify the final disbursement date
Payable Date comes fourth.
This is the date payment is actually transferred to qualifying shareholders.

Key Concept

DERP Dividend Sequence and Regular-Way Settlement
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions