Executive Summary
The National Association of
Securities Dealers, Inc. (NASD®) Uniform Practice Code (UPC) governs, among other things, the designation of “ex-dividend dates” (ex-dates) for securities. The ex-date is the date on or after which a
security is traded without a specific dividend or distribution. Under
NASD rules, there are two different
methods used to determine the ex-
date of a security, depending upon the size of the dividend or
distribution. This Notice reviews
differences in the way ex-dates are determined and cautions members
and their associated persons to be cognizant of these differences when providing ex-date information
to customers.
Determining The Ex-Date
UPC Rule 11140 governs the
designation of ex-dates for
securities. The ex-date is the date
on or after which a security is
traded without a specific dividend or
distribution. The payable date is the
date that the dividend is sent to the
record owner of the security. Under
the UPC, two methods are used to
determine the ex-date of a security,
depending on the size of the
dividend or distribution.
Dividends Or Distributions
Less Than 25 Percent Of
Security Value
The first method, under
subparagraph(b)(1) of Rule 11140,
provides that for dividends or
distributions that are less than 25
percent of the value of the subject
security, the date designated as the
ex-date shall be the second
business day preceding the record
date. For example, if the issuer of
the security has announced a date
falling on a Thursday as the record
date of a distribution, the ex-date
will be on Tuesday, two days
earlier. The price of the stock is
adjusted downward on the ex-date
so that the amount of the
distribution is reflected in the
current stock price. Thus, in this
example, Tuesday is the day on or
after which a buyer would purchase
the security without the dividend
and the seller of the security would
keep the dividend. If the sale
occurred on Monday, a day earlier,
the seller would not keep the
dividend.
Dividends Or Distributions
25 Percent Or Greater Than
Security Value
The second method, under
subparagraph (b)(2) of Rule 11140,
provides that for dividends or
distributions that are 25 percent or
greater of the value of the subject
security, the ex-date shall be the
first business day following the
payable date. For example, if an
issuer has announced August 10 as
the record date and August 31 as
the payable date, then the ex-date
will be September 1, the first
business day after the payable
date. In this example, September 1
is the day on or after which a buyer
would purchase the security without
the dividend and, therefore, the day
on which the price of the stock is
adjusted downward. In this
example, a seller of the security on
August 15, even though the holder
of record to receive the dividend,
would have to relinquish the
dividend to the buyer. Indeed,
because the value of the security
on August 15 has not yet been
adjusted downward to reflect the
dividend distribution, the seller in
this example would be unjustly
enriched by keeping the dividend.
The seller would have received the
value of the dividend twice: first, as
fully reflected in the unadjusted
price of the stock on August 15;
and secondly, as subsequently paid
by the company to record date
holders.
This Notice reminds member firms
and their associated persons that
ex-dates are determined differently,
depending on the size of the
distribution. Current and historical
dividend information is maintained
by The Nasdaq Stock Market and
can be found on the Nasdaq Trader
Web Site at
www.nasdaqtrader.com/dailylist/
dl_di_ind.stm.
AI
