A corporate action is an action carried out by a company that affects its stakeholders. For Stryk clients, any open positions can be affected by 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 accordingly be reflected in your position. 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.

In the case of a long position, the amount of the dividend that is credited to your account corresponds to the net dividend (as it has to be adjusted for the taxes paid on dividend income) a holder of an equivalent position in the underlying would receive. The sum is equal to the number of shares multiplied by the net dividend per share.

Holding a short position would mean the opposite, i.e. the holder needs to pay out the dividend. This transaction accounts for the fact that you actually sold the share. You could also look at this in broader terms i.e. you are the counterparty of the long.

Please bear in mind the fact that the company’s share price often falls immediately after the profit distribution takes place.

For long positions in UK companies, you receive 100% of the announced dividend. For non-UK companies, the dividend may be subject to a withholding tax. 

In the following table, you will find withholding tax rates applied to your account depending on the jurisdiction where the dividend is paid.

 

Country of Issue

Credit Amount

Debit Amount

United Kingdom

100%

100%

Germany

73.625%

100%

USA

85%

100%

Switzerland

65%

100%

Italy

74%

100%

Ireland

85%

100%

Sweden

85%

100%

France

85%

100%

Netherlands

85%

100%

Belgium

70%

100%

Portugal

65%

100%

Spain

85%

100%

Singapore

100%

100%

Canada

85%

100%

China

90%

100%

Japan

85%

100%

India

100%

100%

Hong Kong

100%

100%

Denmark

85%

100%

Example – long position:

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!

Example – short position:

Whilst you are short £35 per point in 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 £175 will be deducted from your account.

Other types of corporate actions

Whilst dividends are the most common type of corporate action, Stryk 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 corporate actions could affect your account, please contact our Client Services team.