Examkin

Question

Difficulty: HardSettlement Dates, Trade Confirmations, and Corporate Actions

A exchange-listed corporation's board of directors announces a 2-for-1 forward stock split of its common stock. Under FINRA rules governing corporate action distributions of 25%25\% or greater, arrange the four associated key corporate action dates in the correct chronological order from earliest to latest.

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

Answer

The correct chronological order for a stock split or dividend of 25% or greater is Declaration Date, followed by Record Date, Payable Date, and finally the Ex-Dividend (Ex-Distribution) Date.
For stock splits and stock dividends of 25% or greater, FINRA rules mandate a different sequence than standard cash dividends. The Declaration Date occurs first. Next comes the Record Date, followed by the Payable Date. Finally, the Ex-Dividend Date is fixed by SRO rules as the business day immediately following the Payable Date. Trades between the Record Date and Payable Date trade with due-bills attached.

Step-by-Step Solution

1
Identify the type and size of the corporate action distribution.
The corporate action is a 2-for-1 forward stock split (100%100\% stock distribution), which is greater than or equal to 25%25\%.
FINRA Uniform Practice Code rules distinguish between regular cash dividends/small stock distributions (<25%<25\%) and large stock distributions or splits (≥25%\ge 25\%).
2
Determine the initial event in the sequence.
Declaration Date occurs first.
The board of directors must declare and announce the corporate action parameters before any official dates take effect.
3
Determine the relative order of the Record Date, Payable Date, and Ex-Dividend Date for large splits (≥25%\ge 25\%).
For distributions of 25%25\% or more, FINRA rules specify that the Ex-Dividend Date is set as the first business day following the Payable Date. Therefore, Record Date occurs second, Payable Date occurs third, and Ex-Dividend Date occurs fourth.
During the period between the Record Date and the Payable Date, trades execute with 'due-bills' attached so that sellers assign the right to the pending split shares to buyers until the stock trades ex-distribution.

Key Concept

FINRA Ex-Dividend Date Rules for Large Distributions and Stock Splits (25% or Greater)
Rate this question

Topics

Settlement Dates, Trade Confirmations, and Corporate Actions