Ex-date
The first day a security trades without a corporate action benefit, and the cut-off that decides whether a short-delivery auction near that action proceeds normally or is closed out directly instead.
In plain language
The mechanics of an ex-date — when it falls, and how it links to the record date — are explained on that page, since the two dates coincide under today's T+1 settlement and the bonus, rights and dividend adjustment maths runs off both together.
What belongs here is a narrower, separate problem: what happens when a seller fails to deliver shares, and a corporate action's ex-date falls right in the middle of the clean-up process for that failure.
How it works
The workbook (Chapter 6, section 6.5.1) explains that when a company announces a corporate action, short deliveries of shares traded on a cum basis are directly closed out rather than sent to the usual auction — but only under a specific timing test tied to the ex-date:
- The clearing corporation announces an ex-date, and all cum-transactions go for auction if the auction pay-out happens on or before Record Date / Book Closure minus 1 business day.
- Where the auction pay-out cannot be completed by that cut-off, the shortage is instead directly closed out, at the highest price prevailing across the exchanges from the day of trading till the day of auction, or 10% above the settlement price on the auction day — whichever is higher.
This sits alongside the ordinary auction close-out rule, where a shortage with no auction sellers is closed out at the highest prevailing price or 20% above the official closing price on the auction day, whichever is higher — the corporate-action-linked close-out uses 10%, not 20%, precisely because the ex-date timing constraint is what forces the direct close-out in the first place.
A worked example
A company announces a bonus issue with a record date of 20 November, so Book Closure minus 1 business day is 19 November.
A seller fails to deliver shares that traded cum-bonus. If the resulting auction's pay-out can be completed on or before 19 November, the shortage goes through the ordinary auction process, and the buyer eventually receives shares that still carry the bonus entitlement.
But suppose the auction cycle cannot finish pay-out until 21 November — after the cut-off. In that case, the clearing corporation does not run the auction at all. It directly closes out the shortage instead, at whichever is higher of the highest price across exchanges from the trade date to the auction day, or 10% above the settlement price on the auction day. The buyer receives a cash close-out instead of shares, and the bonus entitlement question never arises, because no shares from this shortage will change hands.
Why NISM asks about it
Chapter 6 (Settlement Process, section 6.5.1, Auction of Securities on Exchanges/Clearing Corporation) uses the ex-date as the trigger for choosing between an ordinary auction and a direct close-out when a corporate action is imminent. A workbook sample question separately asks candidates to compute the ex-date from a given record date under T+1 settlement, which the record date page works through in detail.
Common exam traps
- This close-out uses a 10% premium over the settlement price, not the 20% used in an ordinary short-delivery close-out — the lower figure is specific to the corporate-action, ex-date-driven scenario.
- The deciding cut-off is Record Date/Book Closure minus 1 business day for the AUCTION PAY-OUT, not for the auction itself — an auction can run and still miss this cut-off if pay-out lags behind.
- For the day-to-day question of what "ex-date" means and how it is computed from a record date, see record date — this page covers only its interaction with the short-delivery auction process.
- Do not assume every cum-transaction with a short delivery goes to auction automatically near a corporate action — missing the pay-out cut-off forces a direct close-out instead.
Check yourself
1.For a bonus issue in the ratio A:B, the adjustment factor for equity F&O contracts is:
- a)A/B
- b)(A+B)/B
- c)B/(A+B)
- d)(A−B)/B
Show the answer
Answer: (b) (A+B)/B
Bonus - Ratio A:B → Adjustment factor: (A+B)/B.
Stock Splits and Consolidations Ratio A:B → Adjustment factor: A/B — which is option A, and the classic confusion.
How the factor is applied for bonus, splits and consolidations:
The new strike price shall be arrived at by dividing the old strike price by the adjustment factor. The new market lot/multiplier shall be arrived at by multiplying the old market lot by the adjustment factor. The new position shall be arrived at by multiplying the old position by the adjustment factor.
So for a 1:1 bonus, the factor is (1+1)/1 = 2 — strike halves, lot doubles. That matches the workbook's cash-market illustration where a ₹500 close price becomes an adjusted base price of ₹250.
The governing principle behind all of it: the value of the position of the market participants, on the cum and ex-dates for the corporate action, shall continue to remain the same as far as possible.
And rights invert the directions: the new strike price shall be arrived at by multiplying the old strike price by the adjustment factor, with market lot and position divided by it.
2.For derivative contracts to be re-introduced on a post-restructured company after a demerger, the pre-restructured company must have had a market capitalization of at least:
- a)₹500 crores
- b)₹1,000 crores
- c)₹2,000 crores
- d)₹5,000 crores
Show the answer
Answer: (b) ₹1,000 crores
The pre restructured company had a market capitalization of at least ₹1000 crores prior to its restructuring.
That is condition (b) of four, all of which shall be met:
(a) The futures and options contracts on the stock of the original (pre restructure) company were traded on any Exchange prior to its restructuring.
(b) The ₹1,000 crore market capitalization test.
(c) The post restructured company would be treated like a new stock and if it is, in the opinion of the Exchange, likely to be at least one-third the size of the pre restructuring company in terms of revenues, or assets, or (where appropriate) analyst valuations.
(d) In the opinion of the Exchange, the scheme of restructuring does not suggest that the post restructured company would have any characteristic (for example extremely low free float) that would render the company ineligible for derivatives trading.
If satisfied: all existing contracts of the security shall be expired on the last cum date, and the Exchange shall introduce near month, middle month and far month derivative contracts on the stock of the restructured company from the ex-date of the demerger.
And meanwhile: after the announcement of the Record Date, no fresh contracts on futures and options in equity derivatives would be introduced on the underlying that will cease to exist subsequent to the merger/demerger.
3.What is the basic premise of adjusting equity F&O contracts for corporate actions?
- a)To pass the full value of the corporate action to option buyers
- b)To force-close all open positions on the ex-date so that fresh contracts can trade
- c)To keep the market lot unchanged and adjust only the strike price
- d)To keep the value of market participants' positions on the cum and ex-dates the same, as far as possible, so that ITM/ATM/OTM status is retained
Show the answer
Answer: (d) To keep the value of market participants' positions on the cum and ex-dates the same, as far as possible, so that ITM/ATM/OTM status is retained
The workbook: “The basis for any adjustment for corporate actions in the equity F&O segment shall be such that the value of the position of the market participants, on the cum and ex-dates for the corporate action, shall continue to remain the same as far as possible. This will facilitate in retaining the relative status of positions viz. in-the-money, at-the-money and out-of-money. This will also address issues related to exercise and assignments.”
Why the others are wrong:
- Favouring option buyers — the aim is neutrality between both sides, not a transfer to one side.
- Force-close everything — adjustments “may result in the change in date of expiry” in some cases, but the default is to adjust open positions. Even for fractions, the method aims that “no forced closure of open position is mandated.”
- Only the strike — adjustments may touch strike price, position and market lot/multiplier, depending on the action.
Where this is taught
Free preparation for NISM Series VIIRelated terms
- Record dateThe date on which a company looks at its register and decides who gets the bonus, dividend, rights or split — you must be holding the shares in your demat account at the end of that day.
- Adjustment factorThe ratio by which the strike price, market lot and position of an equity F&O contract are revised after a bonus, split, consolidation or rights issue, so the position's value stays the same.
- Buy-in auctionThe auction a clearing corporation runs through the exchange system on settlement day to buy shares a selling member failed to deliver, so the buying member still receives them.
- Close outSettling an undelivered sale in cash instead of shares: the defaulting seller is charged at a penal close-out price, used when an auction finds no sellers or is not held at all.
- Extraordinary dividendFor equity F&O adjustment, a dividend at or above 2% of the underlying's market price; the dividend is deducted from all option strikes and from futures positions from the ex-dividend date.