|Equity Derivatives Anatomy™|
Record date: The record date is the date by which a shareholder must be on the company's share register to receive the dividend. Companies also use this date to determine who is sent proxy statements, financial reports, and other information.
Ex-dividend date: The ex date — the date on which the shares stop trading “dirty” and start trading “clean” — i.e., minus the value of a declared-but-as-yet-unpaid dividend — is set based on stock exchange rules. It is usually set one settlement cycle or business day before the record date. Sensible reason for this: If you trade a stock after this date, it won’t settle until after the record date, so you won’t be entitled to the dividend. Hence, you shouldn’t have to pay for the value of the declared dividend. The ex date — in the shape of the Ex Amount — is a theoretical means for paying Dividend Amounts under a Equity Derivatives confirmation, though hardly a practical one, as no swap dealer we have encountered would ever be insane enough to pay out a dividend before one is actually paid on the underlying for the Transaction.
Incidentally, beware cum-ex trades, which are (a) a highly imprisonable form of tax fraud; and (b) liable upon a cursory google to take you to parts of the world wide internets that your compliance department might not appreciate you visiting. Especially, I hear, if you google “Danish Cum-Ex” or “German Cum-Ex”. In any case fertile ground for double entendres if you have any literal-minded Americans in your office you fancy having fun at the expense of.
The timing of dividends
- 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):
- 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.