CLAIMS FOR RIGHTS ISSUES

DATES FOR TRADING

When trading securities in general, an investor needs to consider 3 dates:

Trade date

the date at which the securities change ownership

Contractual settlement date

the dates at which the securities need to be physically settled out of and into the safekeeping accounts of the trading partners and on which the money needs to be debited from the buyer and credited to the seller.

Actual settlement date

the date at which the trades actually get settled (should in theory be the same as contractual settlement date)

This means that there is a difference between purchasing the shares (and gaining ownership of them) and the date at which the shares acually fysically settle in their safekeeping account and the money is debited from their cash accounts. This phenomenon is also called a settlement cycle.

The most common forms of settlement cycles are:

T+2: The contractual settlement date is 2 days after the trade date

T+3: The contractual settlement date is 3 days after the trade date

DATES FOR RIGHTS ISSUES

When dealing with claims on rights issues, an investor needs to consider 2 dates: EXDATE and RECORD DATE.

The EXDATE is the date at which the shares are trading without the rights entitlements.

The RECORD DATE is used by the custodian to establish whom to pay the rights to.

Depending on the market (country) the dates will be set in different ways. There are two main principles:

Exdate driven markets
Record date driven markets

In Exdate driven markets, the exdate will be after the record date.

In Record date driven markets, the record date will be after the exdate.

When combining the settlement cycles with the different market principles there are several possible scenarios. Please see below the main ones.

In every example Trader A buys 100 shares from Trader B.

SCENARIO 1 Settlement cycle is T+3 and Market is RECORD DATE driven:

In this Scenario the Trader A buys the shares before the exdate of the rights issue event and will therefore be entitled to the rights. The shares will settle into his account on the RECORD DATE. The custodian will look at who has the shares at close of business on the RECORD DATE and will pay the rights one day later accordingly (in this case to trader A). There is no claiming involved.

SCENARIO 2 Settlement cycle is T+3 and Market is EXDATE driven:

In this Scenario trader A buys the shares before the EXDATE and will therefore be entitled to the rights. Trader B, however, will have the shares in his account at close of business of the RECORD DATE and the custodian will pay the rights to trader B on exdate. Once the trade on the parent line settles (in this scenario on EX+1), Trader A needs to claim the rights from Trader B. Trader B needs to deliver the rights to Trader A in the market.

SCENARIO 3 Settlement cycle is T+3 and Market is RECORD DATE driven - parent trade settles late

In this Scenario trader A buys the shares before the EXDATE and will therefore be entitled to the rights. Since the shares on the parent line are settling late, the shares will still be on trader B's account on record date and therefor the custodian will credit the rights to Trader B on record date+1. Trader A needs to claim the rights from Trader B.

Conclusion

Whenever shares are bought before exdate the buyer is entitled to receive the rights. Because of the time difference between buying and actual settlement, the rights are credited to the counterparty of the trade and hence the rights need to be transfered.

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