What's going on here - why the drop?
My research has found that if you buy BEFORE the split is distributed, the new purchaser will be intitled to the split from the owner of record. With that said, it seems odd we are going down in price as the "new" buyers will obtain the extra shares and the sellers WILL NOT be intitled to the split.
Also, a .40 - .50 share price pre-split does not help much. I am down some serious money, however have little concerns due to overall fundamentals of this company. I would like to see the price move up before the split, however if we go lower, I plan on buying more.
Here is what I found:
Some companies distribute split shares just before the market opens on the distribution date, and others distribute at close of business that day, so there's not one single rule about the date on which the price is adjusted. It can be the day of distribution if done before the market opens or could be the next day.
For people who really are interested, here is what happens when a person buys between the day after the T-3 date to be holder of record, and the distribution date. (Aside: after a stock is traded on some date "T", the trade takes 3 days to settle. So to become a share holder of record on a certain date, you have to trade (i.e., buy) the shares 3 days before that date. That's what the shorthand notation "T-3" above means.) Remember that the holder of record on the record date will get the stock dividend. And of course the price doesn't get adjusted until the distribution date. So let's cover the case where a trade occurs in between these dates.
The buyer pays the pre-split price, and the trade has a "Due Bill" atttached. The due bill means the buyer is due the split shares when they are issued. Sometimes the buyer's confirmation slip will have "due bill" information on it.
In theory, on the distribution date, the split shares go to the holder of record, but that person has sold the shares to the buyer, and a due bill is attached to the sale.
So in theory, on the distribution date, the company delivers the split shares to the holder of record. But because of the due bill, the seller's broker delivers on the due bill, and delivers the seller's newly received split shares to the buyer's broker, who ultimately delivers them to the buyer.
The fingers never left the hand, the hand is quicker than the eye, and magic happens. In practice no one really sees any of this take place.
In some cases, the company may request that its stock be traded at the post-split price during this interval, or the market itself might decide to list the post-split stock for trading. In such cases, the due bills themselves are traded, and are called "when issued" or for spinoff stock, "when distributed" stock. The stock symbol in the financial columns will show this with a "-wi" or "-wd" suffix. But in most cases it isn't worthwhile to do this.
Hope this helps.....
