Dividend Amount - Equity Derivatives Provision

Template:Eqderivanat Section 10.1. Dividend Amount

10.1(a) Record Amount

10.1(b) Ex Amount

10.1(c) Paid Amount

The timing of dividends

There are four crucial dates: in order, these are the “declaration date”, the “ex-dividend date”, the “record date”, and the “Dividend Payment Date”.

• Declaration date: The declaration date (also called an announcement date is the date on which the issuer announces there will be a dividend. They usually happen quarterly, for those stocks which are regular dividend payers. This comes first. The dividend declaration will include the size of the dividend (the Dividend Amount), the ex-dividend date (being the last date on which, if you buy the stock, you get the dividend), and the Dividend Payment Date — the date on which a dividend is actually paid. Timings are likely to be (these are indicative — I just made them up okay):

• Declaration date = D
• Ex-dividend date = D+9
• Record date = D+10
• Dividend payment date = D+30

• Ex-dividend date actually keys off the record date, and is set based on stock exchange rules — usually a business day before the record date. If you buy a stock on or after its ex-dividend date, you won’t get the dividend because the trade won’t settle until after the ...
• Record date, being the date you actually have to be on the register of shareholders to qualify for the dividend, which will be paid to whoever was the holder of record on the record date, whether or not they have subsequently sold the share, on the
• Dividend payment date which may be as much as a month or more after the original dividend declaration date.

How the dividend cycle interacts with the Dividend Periods in the 2002 ISDA Equity Derivatives Definitions.

Careful: it’s (meant to be) about timing, not amount

So what is the difference betwixt a Record Amount, Paid Amount and Ex Amount? To be clear, it is not about whether you get paid, nor how much, but when. A Dividend Amount is a Dividend Amount: in each case “100% of the gross cash dividend per Share”, end of the day. What this is all to do with is when a Dividend Amount is deemed to occur, which in turn is a function of which Dividend Period the trigger for the dividend falls in.

• The trigger where Record Amount applies is the record date for the dividend in question. You should pay the gross cash dividend on the Cash Settlement Payment Date for that Dividend Period in which the record date falls.
• The trigger where Ex Amount applies is the ex date for the dividend in question. You should pay the gross cash dividend on the Cash Settlement Payment Date for that Dividend Period in which the ex date falls.
• The trigger where Paid Amount applies is the payment date for the dividend in question. You should pay the gross cash dividend on the Cash Settlement Payment Date for that Dividend Period in which the dividend is paid.

Hang on a minute. “Paid”? Is that, like, different to “declared”? On purpose?

Is Paid Amount meant to be different from Record Amount or Ex Amount, in referencing not what is declared, but what the Issuer actually physically, real-world, paid out?

On one hand, on a natural reading it seems so: Record Amount and Ex Amount specify an amount by reference to the amount “declared by the Issuer to holders of record of a Share”, whereas Paid Amount references the amount “paid by the Issuer during the relevant Dividend Period to holders of record”. On the other hand there’s no sensible reason for supposing an Equity Amount Payer would want to keep the risk of solvency of an Issuer if it pays early but not have it if it pays on the payment date. Examination of the world wide web seems to offer little help.

But here’s a common-sense explanation. Remember the timing of the dividend process: first it is declared, then, a short settlement cycle before the record date the share trades “ex-div” (this is the “ex date”), and only then, two or three weeks after the record date, is the actual Dividend Payment Date. And remember this whole farrago is to determine in which Dividend Period the Dividend Amount gets paid.

Now, if you chose Ex Amount, your Cash Settlement Payment Date may well fall before the actual Dividend Payment Date, in which case it doesn’t make sense to talk about the dividend paid by the issuer, because it won’t have been paid yet. If you selected Paid Amount, the Cash Settlement Payment Date necessarily will fall after the Dividend Payment Date, so it is safe to talk about the dividend having been paid. Because it must have been — and in the disaster scenario where it hasn’t — ie, the corporate failure of the underlying issuer — the Equity Amount Payer won’t want to be paying out a Dividend Amount anyway.

But as for the very good question why would any equity derivative purport to pay out a Dividend Amount before the actual real-world payment date for the Dividend it is synthetically replicating? This is a question only ISDA’s crack drafting squad™ would be placed to answer, and they’re not talking.

See also

• Dividend Payment Date.
• Dividend Recovery which isn’t 2002 ISDA Equity Derivatives Definitions canon, as such, but more apocrypha or officially endorsed fan fiction. Something like that.