Cum date

When a company merges, demerges or takes another corporate action, its stock as it existed before that event may stop existing afterwards. A futures or options contract on that stock cannot simply carry on as if nothing happened.

The cum date is the last day that "before" version of the contract is still valid. After it, the contract either gets adjusted for the corporate action or, where the underlying itself will cease to exist, is compulsorily settled.

For a merger or demerger (Chapter 6, section 6.4), the exchange or clearing corporation fixes the last cum-date once the record date for the merger/demerger is announced:

• All contracts in the underlying that will cease to exist after the merger/demerger expire on the last cum-date, and this is communicated to members.
• After the record date is announced, no fresh-month contracts are introduced on that underlying.
• Unexpired contracts outstanding on the last cum-date are compulsorily settled at the settlement price, which is the last available closing price of the underlying in the Capital Market segment on the last cum-date itself.

For other corporate actions (Chapter 6, section 6.4), positions are instead adjusted so that a market participant's position value on the cum-date and the ex-date stays the same as far as possible — preserving whether a position is in-the-money, at-the-money or out-of-the-money across the adjustment.

ABC Ltd announces a demerger. The exchange sets the record date, and fixes 20 June as the last cum-date for ABC Ltd futures and options — because ABC Ltd, as it currently trades, will cease to exist after the demerger.

A trader holding an ABC Ltd futures contract expiring in July cannot wait for that expiry: the contract is compulsorily settled on 20 June, at ABC Ltd's closing price in the cash market that same day. No new ABC Ltd contract months are introduced after the record date is announced, and the trader's only choice before 20 June is to hold the position to that compulsory settlement or close it out earlier.

Chapter 6, section 6.4 (Adjustments for Corporate Actions), sets out the merger/demerger treatment and the last cum-date rule, and separately states the general adjustment principle that a position's value should stay the same across the cum-date and ex-date. Expect a question on what happens to unexpired contracts outstanding on the last cum-date.

• "Last cum-date" applies specifically to mergers and demergers where the underlying itself will cease to exist — it is the compulsory-settlement cut-off, not just any corporate-action record date.
• The settlement price on the last cum-date is the closing price in the Capital Market segment, not a futures-market price.
• No fresh-month contracts are introduced once the record date for the merger/demerger is announced — existing unexpired contracts run only to the last cum-date.