
A corporate action is an action carried out by a company that affects its stakeholders. For CFDs.com’s clients, any open positions can be affected by a corporate action. There are various types of corporate action; the most common being dividends, stock splits, and mergers and acquisitions.
Dividends
Dividends are the most common type of corporate action that will affect an open position. For a list of upcoming dividends, please click here.
If you hold a position in a company that has decided to distribute a part of its corporate profits to its shareholders, this will be reflected in your position accordingly. Depending on the direction of your position, you will either be eligible to receive the payment or you will need to pay. The dividend adjustment is applied to your account if you still hold your position after the close of the day before the ex-dividend day (also called ex-div). The ex-div day is the first day when the share trades without the dividend.
For long positons in UK companies, you receive 100% of the announced dividend††. For non-UK companies, the dividend may be subject to a withholding tax. For example, a US stock dividend is subject to 30% withholding tax. As a resident of a territory holding a double tax treaty with the US, we claim a 15% tax benefit and pass it on to you. Therefore, you’ll be credited with 85% of the announced dividend rather than 70%.
†† Tax law can be changed or may differ if you pay tax in a jurisdiction other than the UK
Holding a long position in 20,000 shares of XYZ Corporation will entitle you to the dividend payout, providing you hold your position after the close of the day before the ex-div date. If the company is going to pay a dividend of 12p per share, and assuming it is a UK company, you will receive 100% of the dividend declared. So a total of £2,400 will be credited to your account. And it will be tax free!
While you are short in 35,000 shares of ABC Company, it goes ex div – the company decided to pay 5p per share. As you need to pay 100% of the declared amount, a total of £1,750 will be deducted from your account.
Other types of corporate actions
Whilst dividends are the most common type of corporate action, CFDs.com will adjust open positions on other types of corporate action. These include, but are not limited to:
- Stock split: the number of outstanding shares is increased by a multiplier and the share price is reduced by the same multiplier
- Reverse split: the number of outstanding shares is decreased by a multiplier and the share price is increased by the same multiplier
- Mergers: two or more companies coming together to form a new company, and existing shareholders of the merging companies will maintain a holding in the new company
- Acquisitions: one company (the acquirer) takes over another company (the target) which then ceases to exist but the acquirer’s stock continues to be available for trading
- Spin-off: a company sells a portion of its assets or distributes new shares to create a new company
- Rights issue: a company will offer new or additional shares only to current shareholders
For more information on how a corporate actions could affect your account, please contact our Client Services team via info@cfdstrader.co.uk