Corporate Actions Claims
DATES FOR TRADING
When trading securities in general, an investor needs to consider 3 dates:
the date at which the securities change ownership
Contractual settlement date
the dates at which the securities need to be physically settled out of and into the safekeeping accounts of the trading partners and on which the money needs to be debited from the buyer and credited to the seller.
Actual settlement date
the date at which the trades actually get settled (should in theory be the same as contractual settlement date)
This means that there is a difference between purchasing the shares (and gaining ownership of them) and the date at which the shares acually fysically settle in their safekeeping account and the money is debited from their cash accounts. This phenomenon is also called a settlement cycle.
The most common forms of settlement cycles are:
T+2: The contractual settlement date is 2 days after the trade date
T+3: The contractual settlement date is 3 days after the trade date
DATES FOR CORPORATE ACTIONS EVENTS:
When dealing with claims on corporate actions events, an investor needs to consider 2 dates: EXDATE and RECORD DATE.
The EXDATE is the date at which the shares are trading without the rights entitlements.
The RECORD DATE is used by the custodian to establish whom to pay the rights to.
Depending on the market (country) the dates will be set in different ways. There are two main principles:
Exdate driven markets
Record date driven markets
In Exdate driven markets, the exdate will be after the record date.
In Record date driven markets, the record date will be after the exdate.
When combining the settlement cycles with the different market principles there are several possible scenarios. Please see below the main ones.
In every example Trader A buys 100 shares from Trader B.
SCENARIO 1 Settlement cycle is T+3 and Market is RECORD DATE driven:
In this Scenario the Trader A buys the shares before the exdate of the corporate actions event and will therefore be entitled to the entitlements. The shares will settle into his account on the RECORD DATE. The custodian will look at who has the shares at close of business on the RECORD DATE and will pay the entitlements one day later accordingly (in this case to trader A). There is no claiming involved.
SCENARIO 2 Settlement cycle is T+3 and Market is EXDATE driven:
In this Scenario trader A buys the shares before the EXDATE and will therefore be entitled to the entitlements. Trader B, however, will have the shares in his account at close of business of the RECORD DATE and the custodian will pay the entitlements to trader B on exdate. Once the trade on the parent line settles (in this scenario on EX+1), Trader A needs to claim the entitlements from Trader B. Trader B needs to deliver the entitlements to Trader A in the market.
SCENARIO 3 Settlement cycle is T+3 and Market is RECORD DATE driven - parent trade settles late
In this Scenario trader A buys the shares before the EXDATE and will therefore be entitled to the entitlements. Since the shares on the parent line are settling late, the shares will still be on trader B's account on record date and therefor the custodian will credit the entitlements to Trader B on record date+1. Trader A needs to claim the entitlements from Trader B.
Whenever shares are bought before exdate the buyer is entitled to receive the entitlements. Because of the time difference between buying and actual settlement, the entitlements are credited to the counterparty of the trade and hence the entitlements need to be transfered.
Couldn't find what you were looking for?