Template:Capsule equity derivative dividend payments: Difference between revisions

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 ===[[Manufacturing]] dividends under an [[equity swap]]===
-You will quickly come to realise that the equity derivatives definitions regarding payment of dividends might as well have come from a dungeon deep in the brain of MC Esher. {{icds}}, with its yen for infinite particularity and optionality, has formulated alternate mechanisms to [[manufacturing|manufacture]] dividends by reference to three key stages in the dividend distribution process in an underlying [[security]]: the '''[[record date]]''' (being the date on which a [[holder of record]] becomes entitled to a dividend payment), the '''[[ex date]]''' (being the date on which the underlying shares trade clean of the dividend payment in the market, which will be one [[settlement cycle]] ''before'' the [[record date]]), and the '''[[dividend payment date]]''' itself (being the date on which the underlying dividend distributions actually hit holders’ bank accounts). In the [[JC]]’s view, as explained below, this is a classic case of overengineering. The only one you should ever need is the {{eqderivprov|Paid Amount}}, which references the date of actual payment. Much of the fear, loathing and confusion in these definitions arises from sloppy drafting in relation to the other two options, which don’t make sense anyway.
+You will quickly come to realise that the equity derivatives definitions regarding payment of dividends might as well have come from a dungeon deep in the brain of MC Esher. {{icds}}, with its yen for infinite particularity and optionality, has formulated alternate mechanisms to [[manufacturing|manufacture]] dividends by reference to three key stages in the dividend distribution process in an underlying [[security]]:
+*The '''[[record date]]''' (being the date on which a [[holder of record]] becomes entitled to a dividend payment);
+*The '''[[ex date]]''' (being the date on which the underlying shares trade clean of the dividend payment in the market, which will be one [[settlement cycle]] ''before'' the [[record date]]), and
+*The '''[[dividend payment date]]'''<ref>Not to be confused with the {{eqderivprov|Dividend Payment Date}} in the {{eqdefs}}, being the date for the manufactured payment, not the payment of the underlying dividend itself.</ref> itself (being the date on which the underlying dividend distributions actually hit holders’ bank accounts).
-Also, note this: the [[ex date]] and the [[record date]] logically come ''before'' the [[dividend payment date]]. They will usually precede it by weeks or even months. So if your {{eqderivprov|Dividend Period}}s are short (e.g., monthly), it is quite likely that the [[ex date]] and [[record date]] will fall in an earlier {{eqderivprov|Dividend Period}} then the [[dividend payment date]].
+None of them, in the [[JC]]’s purblind view, works.
+The only one you should ever need is the {{eqderivprov|Paid Amount}}, as it references the date of actual payment of the underlying [[dividend]], and no {{eqderivprov|Equity Amount Payer}} with a sensible idea in its head will want to pay you sooner than that — but even that misses the significance to its payability of the earlier [[record date]]. You only are entitled to a dividend on the [[dividend payment date]] ''at all'' if you were the [[holder of record]] on the [[record date]].
+Much of the fear, loathing and confusion in these definitions arises from sloppy drafting in relation to this and the other two options, which don’t make sense anyway.
+Also, note this: the [[ex date]] and the [[record date]] logically come ''before'' the [[dividend payment date]]. They will usually precede it by weeks, or even months. So if your {{eqderivprov|Dividend Period}}s are short (e.g., monthly), it is quite likely that the [[ex date]] and [[record date]] will fall in an earlier {{eqderivprov|Dividend Period}} than the [[dividend payment date]].<ref>And may fall before the {{eqderivprov|Transaction}} has even ''started''.</ref>
 If you elect {{eqderivprov|Ex Amount}} or {{eqderivprov|Record Amount}}, this would mean your [[equity swap]] would pay its {{eqderivprov|Dividend Amount}} ''before'' the underlying share paid its actual dividend.