Examkin

Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

An investor wishes to purchase shares of Apex Utility Corp. in a regular-way transaction to receive an upcoming cash dividend. The board of directors declared the record date as Thursday, October 15. Under standard FINRA regular-way settlement rules, what is the latest date the investor can purchase the stock and still be entitled to receive the dividend?

  1. A
    Tuesday, October 13
  2. Wednesday, October 14Answer
  3. C
    Thursday, October 15
  4. D
    Friday, October 16

Answer

Wednesday, October 14, because under T+1 regular-way settlement, purchasing the security one business day before the record date allows the trade to settle on the record date.
Under FINRA and SEC rules, regular-way settlement for corporate equity securities occurs on T+1 (one business day after the trade date). To receive a declared dividend, an investor must be listed as a shareholder of record on the record date. Purchasing the stock on Wednesday, October 14 enables the trade to settle on Thursday, October 15 (the record date), entitling the buyer to the cash dividend.

Step-by-Step Solution

1
Identify the standard regular-way settlement timeframe for equity securities.
Regular-way settlement occurs on T+1 (trade date plus one business day).
FINRA and SEC rules establish T+1 as the regular-way settlement timeframe for corporate stock trades.
2
Determine the date by which an investor must be established as a shareholder of record.
The investor must be listed on the issuer's record books on Thursday, October 15 (Record Date).
Dividend rights belong strictly to investors who are owners of record on the specified record date.
3
Calculate the latest trade date that results in settlement on the record date.
Purchasing on Wednesday, October 14 results in settlement on Thursday, October 15.
Buying one business day prior to the record date allows the trade to settle on T+1, making the buyer the holder of record on the record date.

Key Concept

T+1 Regular-Way Settlement and Dividend Entitlement
Estimated Time:1m 15s
Rate this question

Topics

Settlement Dates, Trade Confirmations, and Corporate Actions