CFD corporate actions & price adjustments

What is a corporate action?

A corporate action is an event that brings about a material change to a stock, or an event that is initiated by a firm that has an impact on its shareholders. Dividends, stock splits, acquisitions, mergers and stock buy backs are all examples of corporate actions.

Dividends on CFD trades

When a stock goes ex-dividend, the value of that stock effectively falls by the dividend amount. This means if you hold a CFD position in a company and that company announces a dividend, your account will be credited or debited on the day the stock goes ex-dividend. 

If you were long, you would have been disadvantaged by the drop in the market caused by the pay out of the dividend, so we would credit your CFD account with the dividend amount, less any applicable dividend withholding taxes. If you were short, you would benefit from the drop in the price, so the equivalent amount would be deducted. So, overall, you don't lose or gain anything from the adjustment. There are no withholding taxes on short positions.     

Dividend example: 

Let's say you hold a long position of 3,000 Vodafone share CFDs and Vodafone announces a 15p dividend. In this case, £450 would be credited to your CFD account.
        
    15p x 3,000 = £450

Note: If you held a short position going into the ex-dividend date then your CFD trading account would be debited £450.

The dividend will appear as a 'Price Adjustment' in your account history within the platform.   

How are dividends dealt with for indices?

When a stock goes ex-dividend, ignoring other market forces, the value of that stock effectively falls by the dividend amount. In most cases this will cause the index value to drop too, as the value of the index is based on the value of the stocks within it. The amount that the index drops is dependent on the weighting of the stock within the index. 

Following on from the above example, a similar cash adjustment would also be applied to your CFD account if you held a position in the UK 100 index, where Vodafone is a constituent. We would convert the 15p dividend into points to calculate the amount to be deducted or added in relation to the relevant index CFD.  

Note: There are no price adjustments on forward indices, or our Germany 30 and Norway 25 cash indices.

Withholding tax

Dividend adjustments on long positions are credited to your account, less any applicable withholding taxes. Withholding tax is a levy deducted from dividends in most underlying markets. The deduction varies depending on the underlying market, but it's often reduced to 15% where a treaty between the UK and the relevant market exists. 

The withholding tax deduction doesn't apply to short positions. 

Stock splits

Stock splits usually take place when the value of a company's stock is getting too high. The share price will fall by a pre-determined percentage and holders will gain the same percentage of shares.

CFD stock split example:

Let's say you hold 300 units in company Q at a price of 1,607p per share and company Q announces on X date, that it will be issuing a stock split of 5 for 1. 

This means that, for every 1 share you hold, you will be issued 5. So now you will hold 1,500 units at the reduced price of 321.4p.

Note that the overall contract value remains the same: 

    300 units x 1,607p = 4,821p; 1,500 units x 321.4p = 4,821p

On your daily statement, a stock split shows in ‘brought forward’ transactions (pre-split values) and ‘carried forward’ transactions (post-split values).

Rights issues

With a rights issue, a company will offer its shareholders a chance to buy newly issued shares, usually at a discounted price, before they are offered to the public.

​In these circumstances, CMC Markets clients might get to choose between three courses of action relating to share CFDs. They may be able to:

1.    Sell their rights
2.    Take up their rights and trade the cheaper stock
3.    Do nothing and let their rights expire

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