Ex-rights and ex-dividend

Definitions
Procedures
Impact on the stock price

1. Definitions

Ex-rights

Ex-rights refers to the adjustment made to a stock's price when a company changes its capital structure. This can happen through actions such as issuing new shares via a rights offering, distributing bonus shares, or conducting stock splits. On the ex-rights date, the stock price is adjusted to account for these changes, ensuring that it accurately reflects the company's value.

Ex-dividend

Ex-dividend refers to when a company's stock begins trading without the value of its next declared dividend included in its price. On the ex-dividend date, the stock price is typically reduced by the dividend amount to reflect the upcoming distribution.

Ex-rights and ex-dividend actions are measures taken by publicly listed companies to protect shareholder interests and stabilize stock prices. These actions ensure fair trading practices and help stock prices accurately reflect the company's true value.

Note: "Ex-entitlement" is a broader term that encompasses both ex-rights and ex-dividend situations. It refers to the trading status of a stock after any entitlements, such as rights, dividends, or other benefits, have been distributed or accounted for in the stock price.

2. Procedures

2.1 Official announcement

The company releases an official notification to inform shareholders of upcoming ex-rights or ex-dividend actions, detailing the specifics of the corporate action.

2.2 Determining key dates

Record Date: This is the cut-off date to determine which shareholders are eligible to participate in the corporate action.
Ex-Date: The first day the stock trades without the entitlement, meaning the stock price adjusts to reflect the change.

2.3 Confirming shareholder eligibility

On the record date, the company updates its records to ensure eligible shareholders are accurately listed for the corporate action.

2.4 Executing the corporate action

Ex-Rights: The company implements actions like issuing bonus shares, rights issues, or stock splits according to the announced ratio for eligible shareholders.
Ex-Dividend: The company distributes cash dividends to those who are eligible.

2.5 Adjusting the stock price

On the ex-date, the stock's trading price will be adjusted accordingly:

Ex-Rights: The stock price and the number of shares held by shareholders will be adjusted according to the new stock ratio.
Ex-Dividend: The stock price usually drops by about the same amount as the dividend per share.

3. Impact on the stock price

The impact of ex-rights and ex-dividend events on stock prices is illustrated through the following examples.

Changes in stock price during ex-rights:

Example A

Date	Entitlement	Stock Price	Share Qty Held	Shareholding Value	Description
Before the ex-rights date	/	10.00 HKD	100	1,000.00 HKD	Before the ex-rights date, the shareholder holds 100 shares, with each share priced at 10.00 HKD, resulting in a total shareholding value of 1,000.00 HKD.
On the ex-rights date	2-for-1 stock split	10÷2=5.00 HKD	200	1,000.00 HKD	On the ex-rights date, the company implements a stock split, where each share is split into 2 shares. This increases the shareholder's total number of shares to 200. Consequently, the stock price is adjusted to approximately 5.00 HKD, while the overall shareholding value remains unchanged at 1,000,00 HKD.

Example B

Date	Entitlement	Stock price	Share Qty Held	Shareholding Value	Description
Before the ex-rights date	/	10.00 HKD	100	1,000.00 HKD	Before the ex-rights date, the shareholder holds 100 shares, with each share priced at 10.00 HKD, resulting in a total shareholding value of 1,000.00 HKD.
On the ex-rights date	1-for-2 reverse stock split	10.00*2=20.00 HKD	50	1,000.00 HKD	On the ex-rights date, the company implements a 1-for-2 reverse stock split, where every 2 shares are consolidated into 1 share. This reduces the shareholder's total number of shares to 50. Consequently, the stock price is adjusted to approximately 20.00 HKD per share, while the overall shareholding value remains unchanged at 1,000.00 HKD.

Changes in stock price during ex-dividend:

Example

Date	Entitlement	Stock price	Share Qty Held	Shareholding Value	Description
Before the ex-dividend date	/	10.00 HKD	100	1000.00 HKD	Before the ex-dividend date, the shareholder holds 100 shares, with each share priced at 10.00 HKD, resulting in a total shareholding value of 1,000.00 HKD.
On the ex-dividend date	Cash dividend of 1 HKD per share	9.00 HKD	100	900.00 HKD shareholding value + 100.00 HKD cash dividend	On the ex-dividend date, the stock price drops from 10.00 HKD to 9.00 HKD, reflecting the dividend payout. The share quantity held remains unchanged at 100. The total shareholding value, which includes both the adjusted stock value and the received cash dividends, remains unchanged at 1,000.00 HKD.

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