Record Date

The record date applies to more than cash dividends. The record date also determines which stockholders are sent proxies and rights. A stock split and a reverse split each have a record date, and Rule 10b-17 under the Securities Exchange Act of 1934 uses the date of record for determining holders entitled to receive the dividend or other distribution or to participate in the stock or reverse split.

Declaration Date and Payable Date

A company that declares a dividend sets the record date. The declaration date, the record date, and the payable date appear together in the notice of a dividend or other distribution that Rule 10b-17 requires. The notice includes the title of the security to which the declaration relates, the date of declaration, the date of record for determining holders entitled to receive the dividend or other distribution or to participate in the stock or reverse split, and the date of payment or distribution. For a stock or reverse split or a rights or other subscription offering, the notice gives the date of delivery in place of the date of payment or distribution.

The payable date is the date the dividend is sent to the record owner of the security.

Ex-Dividend Date: Rule 11140

The ex-dividend date is the date on or after which a security begins trading without the dividend, cash or stock, included in the contract price. Rule 11140 of the Financial Industry Regulatory Authority, known as FINRA, is headed Transactions in Securities Ex-Dividend, Ex-Rights or Ex-Warrants, and it is the rule to refer to for how an ex-dividend date is set.

Under Rule 11140(a), all transactions in securities, except cash transactions, are ex-dividend, ex-rights or ex-warrants on the day specifically designated by the Committee after definitive information concerning the declaration and payment of a dividend or the issuance of rights or warrants has been received at the office of the Committee. The same paragraph makes transactions ex-dividend, ex-rights or ex-warrants on the day specified as such by the appropriate national securities exchange which has received definitive information in accordance with the provisions of Rule 10b-17 under the Securities Exchange Act of 1934 concerning the declaration and payment of a dividend or the issuance of rights or warrants.

Rule 11140(b)(1) covers cash dividends or distributions, stock dividends, and the issuance or distribution of warrants that are less than 25 percent of the value of the subject security. For those distributions, if the definitive information is received sufficiently in advance of the record date, the date designated as the ex-dividend date is the record date if the record date falls on a business day. If the record date falls on a day designated by the Committee as a non-delivery date, the ex-dividend date is the first business day preceding the record date.

Rule 11140(b)(3) covers stock dividends and/or splits relating to American Depository Receipts and foreign securities. For those, the ex-dividend or ex-warrants date is designated by the Committee.

Rule 11140(c) covers late information. If definitive information is not received sufficiently in advance of the record date to permit designation of an ex-dividend or ex-warrants date in accordance with paragraph (b)(1), the date designated is the first business day which, in the opinion of the Committee, is practical having regard to the circumstances pertaining.

Buying and Selling Around the Ex-Dividend Date

An investor who purchases a stock on its ex-dividend date or after does not receive the next dividend payment, and the seller gets the dividend. An investor who purchases before the ex-dividend date gets the dividend.

With a significant dividend, the price of a stock may fall by that amount on the ex-dividend date.

Distributions of 25 Percent or More: Rule 11140(b)(2)

Rule 11140(b)(2) covers cash dividends or distributions, stock dividends and/or splits, and the distribution of warrants that are 25 percent or greater of the value of the subject security. For those distributions, the ex-dividend date is the first business day following the payable date. In these cases, the ex-dividend date is deferred until one business day after the dividend is paid, and special rules apply to the determination of the ex-dividend date.

Due Bills

A due bill is a promissory note that is physically attached to a stock that is traded between the record date and payment date. The due bill confirms the rightful owner of the additional securities being issued in the distribution. A due bill redemption date is the date on which all outstanding due bills must be redeemed for the securities being distributed.

Ex-Rights Dates

For transferable rights subscription offerings, Rule 11140(d) covers the case in which definitive information is received sufficiently in advance of the effective date of the registration statement. In that case, the date designated as the ex-rights date is the first business day after the effective date of the registration statement.

Rule 11140(e) covers late information about rights. If definitive information is not received sufficiently in advance of the effective date of the registration statement to permit designation of an ex-rights date in accordance with paragraph (d), the date designated is the first business day which in the opinion of the Committee is practical having regard to the circumstances pertaining.

Notice of the Record Date: Rule 10b-17

Rule 10b-17 is headed Untimely announcements of record dates. Under Rule 10b-17(a), it constitutes a manipulative or deceptive device or contrivance, as used in section 10(b) of the Securities Exchange Act of 1934, for any issuer of a class of securities publicly traded by the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange to fail to give notice in accordance with paragraph (b) of the rule of certain actions relating to the class of securities. The actions are a dividend or other distribution in cash or in kind, except an ordinary interest payment on a debt security but including a dividend or distribution of any security of the same or another issuer, a stock split or reverse split, and a rights or other subscription offering.

Notice is deemed to have been given in accordance with the rule only if it meets one of three conditions in paragraph (b). Under paragraph (b)(1), the notice is given to the National Association of Securities Dealers, Inc., as the rule text reads, no later than ten days prior to the record date involved. In the case of a rights subscription or other offering, if ten days advance notice is not practical, the notice goes on or before the record date and in no event later than the effective date of the registration statement to which the offering relates. Under paragraph (b)(2), the Securities and Exchange Commission, known as the SEC, upon written request or upon its own motion, exempts the issuer from compliance with paragraph (b)(1) either unconditionally or on specified terms or conditions. Under paragraph (b)(3), the notice is given in accordance with procedures of the national securities exchange or exchanges upon which a security of the issuer is registered pursuant to section 12 of the Securities Exchange Act of 1934 which contain requirements substantially comparable to those in paragraph (b)(1).

The notice under paragraph (b)(1) includes the title of the security to which the declaration relates, the date of declaration, the date of record for determining holders entitled to receive the dividend or other distribution or to participate in the stock or reverse split, and the date of payment or distribution or, for a stock or reverse split or rights or other subscription offering, the date of delivery. It also includes the method of settlement of fractional interests and the details of any condition which must be satisfied or Government approval which must be secured to enable payment of distribution.

For a distribution in cash, the notice gives the amount of cash to be paid or distributed per share, except if exact per share cash distributions cannot be given because of existing conversion rights which may be exercised during the notice period and which may affect the per share cash distribution. In that case a reasonable approximation of the per share distribution may be provided so long as the actual per share distribution is subsequently provided on the record date. For a distribution in the same security, the notice gives the amount of the security outstanding immediately prior to and immediately following the dividend or distribution and the rate of the dividend or distribution.

Rule 10b-17(c) provides an exclusion. The rule does not apply to redeemable securities issued by open-end investment companies and unit investment trusts registered with the SEC under the Investment Company Act of 1940.

For over-the-counter, known as OTC, equity issuers, Rule 10b-17 generally requires the issuer to provide FINRA's Operations Department notice ten days prior to the record date of a dividend or other distribution in cash or in kind, a stock split or reverse split, or a rights or other subscription offering. Failure by an OTC equity issuer to provide the requisite notice may constitute a violation of Section 10 of the Securities Exchange Act of 1934.

Record Date for Proxy Voting: Rule 14a-13

The record date determines who is sent proxies and proxy statements. Rule 14a-13 is headed Obligation of registrants in communicating with beneficial owners. Under Rule 14a-13(a), if a registrant knows that securities of any class entitled to vote at a meeting, or by written consents or authorizations if no meeting is held, with respect to which the registrant intends to solicit proxies, consents or authorizations are held of record by a broker, dealer, voting trustee, bank, association, or other entity that exercises fiduciary powers in nominee name or otherwise, the registrant, by first class mail or other equally prompt means, inquires of each such record holder and indicates to each such record holder certain information.

The inquiry asks, among other things, whether other persons are the beneficial owners of the securities and, if so, the number of copies of the proxy and other soliciting material necessary to supply the material to the beneficial owners. Among the items the registrant indicates to each record holder is the record date. Rule 14a-13(a)(3) requires the inquiry to be made at least twenty business days prior to the record date of the meeting of security holders, with listed alternatives for a special meeting where the inquiry is impracticable, for consents or authorizations, and for later times that the rules of a national securities exchange may permit for good cause shown.

Record Holders and Street Name

A registered owner or record holder holds shares directly with the company. The options for holding a security include street name book-entry form through an intermediary, such as a broker-dealer, and registered ownership form in the investor's own name, which is also sometimes referred to as record ownership.

With street name registration, the securities an investor purchases are registered on the issuer's books in the name of an intermediary, such as a broker-dealer, a clearing agency, or a nominee affiliated with the broker-dealer or clearing agency, but the broker-dealer maintains records showing the investor as the real or beneficial owner. The broker-dealer credits the investor's account with any associated dividend and interest payments. The broker-dealer also ensures the investor is sent issuer communications, such as annual reports, except in certain circumstances where the issuer might send the annual report directly to the investor, and proxy materials related to stockholder meetings. An investor might experience a slight delay in receiving dividend disbursements and interest payments from the broker-dealer.

With direct registration, the investor is registered on the books of the issuer as the shareholder, and receives annual and other reports, dividends, proxy materials, and other entitlements or communications directly from the issuer or its transfer agent. If cash dividends are issued for a security where the investor physically holds a certificate, the issuer or its transfer agent sends a check for the dividend payment directly to the investor or directly deposits it in the investor's bank account, depending on the investor's instructions. An investor who moves is responsible for contacting the issuer or its transfer agent with a change of address so that the investor does not miss any important mailings, including dividend checks.

Settlement Cycle and Rule 15c6-1

Rule 15c6-1(a) covers the time allowed for payment and delivery. Except as provided in paragraphs (b), (c), and (d) of the rule, a broker or dealer does not effect or enter into a contract for the purchase or sale of a security, other than an exempted security, a government security, a municipal security, commercial paper, bankers' acceptances, or commercial bills, that provides for payment of funds and delivery of securities later than the first business day after the date of the contract unless otherwise expressly agreed to by the parties at the time of the transaction.

Under the T+1 settlement cycle, all applicable securities transactions from U.S. financial institutions settle in one business day of their transaction date. The compliance date for the rule amendments is May 28, 2024, at which point the standard settlement cycle is T+1.

Open Order Adjustments: Rule 5330

Rule 5330 is headed Adjustment of Orders. Under paragraph (a), a member holding an open order from a customer or another broker-dealer, prior to executing or permitting the order to be executed, reduces, increases, or adjusts the price and/or number of shares of the order by an amount equal to the dividend, payment, or distribution on the day that the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, except where a cash dividend or distribution is less than one cent.

For cash dividends under Rule 5330(a)(1), unless marked Do Not Reduce, open order prices are first reduced by the dollar amount of the dividend, and the resulting price is then rounded down to the next lower minimum quotation variation. For stock dividends and stock splits under Rule 5330(a)(2), open order prices are determined by first rounding up the dollar value of the stock dividend or split to the next higher minimum quotation variation, and the resulting amount is then subtracted from the price of the order. Unless marked Do Not Increase, the size of the order is increased by multiplying the size of the original order by the numerator of the ratio of the dividend or split, dividing the result by the denominator of the ratio, and rounding the result to the next lowest share.

For dividends payable in either cash or securities at the option of the stockholder under Rule 5330(a)(3), open order prices are reduced by the dollar value of the cash or securities, whichever is greater. For a combined cash dividend and stock split or dividend under Rule 5330(a)(4), the cash dividend portion is calculated first and the stock portion thereafter. If the value of the distribution cannot be determined under Rule 5330(a)(5), the member does not adjust, execute, or permit an open order to be executed without reconfirming the order with the customer.

When a pending order involves a security that is the subject of a reverse split, Rule 5330(b) requires the order, buy or sell, to be cancelled. When a pending order involves a security that is the subject of a stock split but is not otherwise required to be adjusted under the rule, Rule 5330(c) requires a member to promptly notify the customer of the stock split.

Exam Relevance

The Securities Industry Essentials examination content outline lists, under Topic 3.1.2, Investment Returns, the bullets Different types of dividends, with cash and stock named in parentheses, and Dividend payment dates, with record date, ex-dividend date, and payable date named in parentheses. Topic 3.1 is headed Trading, Settlement and Corporate Actions, within Section 3, Understanding Trading, Customer Accounts and Prohibited Activities. Topic 3.1.4, Corporate Actions, lists Types of corporate actions, Impact of stock splits and reverse stock splits on market price and cost basis, Adjustments to securities subject to corporate actions, Delivery of notices and corporate action deadlines, and Proxies and proxy voting. Candidates should check the current outline before the examination.

Common Misunderstandings

An investor who buys on the ex-dividend date receives the dividend. An investor who purchases a stock on its ex-dividend date or after does not receive the next dividend payment, and the seller gets the dividend.

The record date and the payable date are the same date. The record date is when an investor must be on the company's books as a shareholder to receive the dividend, and the payable date is the date the dividend is sent to the record owner of the security.

The ex-dividend date is always the day before the record date. Under Rule 11140(b)(1), for a distribution below the threshold the rule sets, the ex-dividend date is the record date if the record date falls on a business day, and the first business day preceding the record date applies if the record date falls on a day designated by the Committee as a non-delivery date. Under Rule 11140(b)(2), for a distribution at or above that threshold, the ex-dividend date is the first business day following the payable date.

The record date applies only to dividends. Companies also use the record date to determine who is sent proxy statements, financial reports, and other information, and the date also determines which stockholders are sent proxies and rights.

The record date is the date the company declares the dividend. The date of declaration and the date of record are separate items of information in a Rule 10b-17 notice.

Every issuer must give notice of a record date under Rule 10b-17(b)(1). Notice can instead be given in accordance with procedures of a national securities exchange under Rule 10b-17(b)(3), the SEC can exempt an issuer under Rule 10b-17(b)(2), and Rule 10b-17(c) does not apply the rule to redeemable securities issued by open-end investment companies and unit investment trusts registered under the Investment Company Act of 1940.

An investor who holds a security in street name appears on the issuer's books as the owner. With street name registration, the securities are registered on the issuer's books in the name of an intermediary, and the broker-dealer maintains records showing the investor as the real or beneficial owner.

The price of a stock always falls by the dividend amount on the ex-dividend date. With a significant dividend, the price of a stock may fall by that amount on the ex-dividend date.

Key Points to Retain

A record date is the date on which a company's records are closed to determine which stockholders are to be sent dividends, proxies, rights, and other items.

To receive a dividend, an investor must be on the company's books as a shareholder on the record date.

A dividend involves a declaration date, a record date, an ex-dividend date, and a payable date.

An investor who purchases before the ex-dividend date gets the dividend, and an investor who purchases on the ex-dividend date or after does not.

Under Rule 11140(b)(1), the ex-dividend date is the record date if the record date falls on a business day, subject to the conditions in the rule.

Under Rule 11140(b)(2), the ex-dividend date is the first business day following the payable date for a distribution at or above the threshold the rule sets.

Rule 10b-17 sets notice requirements for dividends and other distributions, stock splits and reverse splits, and rights or other subscription offerings.

Companies use the record date to determine who is sent proxy statements, financial reports, and other information.

With street name registration, the securities are registered on the issuer's books in the name of an intermediary, and the broker-dealer maintains records showing the investor as the beneficial owner.

Under Rule 15c6-1(a), a broker or dealer does not effect or enter into a contract for the purchase or sale of a security covered by the rule that provides for payment of funds and delivery of securities later than the first business day after the date of the contract unless otherwise expressly agreed to by the parties at the time of the transaction.