Expertise in the unique demanding area of Corporate Actions

Corporate actions indeed represent a demanding and unique area within the field of investment banking. Given the unique demands and complexities of corporate actions, specialized knowledge and expertise in this area can provide a competitive advantage in the investment banking industry.

By focusing on this demanding field and acquiring a deep understanding of the various types of corporate actions and their life cycles, you can enhance your skill set, marketability, and career prospects.

Corporate actions will undoubtedly broaden your skill set and enhance your job prospects within the investment banking industry. By specializing in this demanding area, you'll position yourself as a valuable asset to clients, institutions, and organizations seeking expertise in navigating the complexities of corporate actions.

These can include the General Life Cycle of Corporate Action Events such as Bonus, Cash Dividend, Splits, Reverse Splits, Redemptions, Rights Issue, Mergers and Acquisitions (M&As), Spinoffs, Tender offers, Buy Back, Delisting, Pari-Passu, Stock Dividend, Merger with Election, Cash Stock option and more. Each corporate action has its own intricacies, rules, and implications, requiring in-depth knowledge and expertise to navigate.

Introduction:

In this blog, we will provide an overview of Corporate Actions, types of Corporate and Important dates. Enroll in the IB Learning Hub's online course to know the entire Corporate Actions life cycle with Exercises, case studies, and practical examples with flow diagrams. https://iblearninghub.com/

Introduction to Corporate Actions

Any event initiated by a corporation which impacts its shareholders. For some such events, shareholders may or must respond to the corporate action or select from a list of possible actions.

Why do companies issue corporate actions?

Return of profits to shareholders – cash dividends
Influence the share price – stock splits, reverse stock splits, buy backs
Corporate restructuring – merger, spin off, take over

Types of Corporate Actions

There are three main types of Corporate Actions:

Mandatory Corporate Actions

A Mandatory Corporate Action is defined as an event in which the beneficial owner of the underlying security has no option other than to participate in the event. No investment decision is required. The event is mandatory for the shareholder. A shareholder does not have to do anything in a Mandatory Corporate Action.

Example: - cash dividend, bonus issue, delisting, stock split, reverse stock split etc.

Voluntary Corporate Actions

A Voluntary Corporate Action is an event where the beneficial owner of securities is not obliged to participate. These types of events usually involve an offer to the shareholder. However, an instruction is required from the account owner in order to indicate an interest and either accepts or reject the offer. The event is voluntary for the shareholders.

Example:- rights issue, Tender Offer, Subscription Offer etc.

Mandatory Corporate Actions with Choices

A Mandatory Corporate Action with Options is an event in which the beneficial owner of the underlying security has no option other than to participate in a CA event. However, an investment decision is required, usually relating to a choice regarding the preferred financial option to pursue.

An example of this is a dividend option where the Account Owner must decide between a cash or securities option. In case the shareholder does not make his choice known by sending an instruction, often the default option will be applied.

Example: - Cash Stock Option, Merger with Elections, Spin-off with elections etc.

Dates for Corporate Actions events

Generally, corporate action events covers 4 different dates such as Announcement date or Declaration date, Ex-date, record date, payment date.

Declaration Date

The date that a corporation announces a corporate action, such as a dividend or stock split.

Payment date

The dividend payment date is the date on which a company pays a dividend to its shareholders.

When dealing with claims on corporate actions events, an investor needs to consider 2 dates: Record date and Ex date.

Record Date

The date on which an investor must own shares in order to be eligible to receive a declared dividend. The record date is set by the issuing company. The Record Date is used by the custodian to establish whom to pay the dividend or distribution.

Ex Date

The date on or after which a security is traded without a previously declared dividend or distribution. After the ex-date, a stock is said to trade ex-dividend.

Once the company sets the record date, the stock exchanges fix the ex-dividend date. The ex-dividend date is normally set for stocks two business days before the record date.

If you purchase a stock on its ex-dividend date or after, you will not receive the dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you will get the dividend.

Example of CA dates:-

Declaration date	Ex-Dividend Date	Record Date	Payment Date
05/01/2019	16/03/2019	18/03/2019	07/04/2019

In this example, Company XYZ declares a dividend on 5th January 2019 and payable on 7th April 2019 to its shareholders. XYZ also announces that shareholders of record on the company's books on or before 18 March 2019 are entitled to receive the dividend. The stock would then go ex-dividend two business days before the record date.

Here the record date falls on 18 March 2019; the ex-dividend is set two business days before the record date. This means anyone who bought the stock on 16th March 2019 or after would not get the dividend. At the same time, those who purchase before the ex-dividend date receive the dividend.

With a significant dividend, the price of a stock may move up by the amount of the dividend as the ex-dividend date approaches and then fall by that amount after the ex-dividend date. A stock that has gone ex-dividend is marked with an "x" in newspapers on that day.

Conclusion:

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