Corporate actions

30 terms · each links to a full explanation with a worked example and the exam traps

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.
Annual General MeetingThe meeting every company must call once a year, where shareholders vote on major decisions and approve the dividend — and the R&T agent runs the notices, proxies and e-voting behind it.
Auto Corporate ActionA corporate action such as a split, consolidation, merger or bonus issue, executed automatically across all holders by a fixed ratio, without the Issuer crediting each beneficial owner individually.
Bonus sharesAdditional shares issued free to existing shareholders in proportion to their holding — no tax at allotment, a nil cost of acquisition, and a fresh holding period from the allotment date.
Book closureThe period an issuer sets, with a start and end date, during which the depository determines beneficial owners entitled to a corporate benefit as those holding as of the end of the day before the start date.
BuybackA company purchasing its own shares out of reserves and extinguishing them, reducing share capital and raising earnings per share for the shareholders who remain.
Cash corporate actionA corporate action that distributes money - such as dividend or interest - where the depository only tells the issuer who was entitled on the record date, and the issuer or its RTA pays them directly.
Compulsory delistingThe permanent removal of a company's shares from a stock exchange, imposed for non-compliance with listing rules — as opposed to a voluntary delisting the company itself chooses.
ConsolidationA corporate action that reduces a company's outstanding shares by raising their face value in a fixed ratio — the exact reverse of a stock split, done to lift a low share price.
Corporate actionAn event initiated by a company that changes the securities it has issued — dividend, buyback, bonus, split, consolidation, rights issue or merger — and which the registrar has to execute investor by investor.
Cum dateThe last date before a corporate action takes effect on which a derivative contract still trades on the pre-action underlying — the cut-off after which outstanding contracts are compulsorily settled or adjusted.
Dilution of holdingsThe fall in an existing shareholder's proportionate ownership of a company that happens whenever it issues fresh shares to anyone other than that shareholder, in the same proportion.
Escrow accountThe security an acquirer must deposit before a takeover open offer — 25% of the first Rs 500 crore of consideration plus 10% of the balance — so that the money to pay tendering shareholders is ring-fenced.
Ex-dateThe 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.
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.
Held in trustThe status of corporate benefits an Issuer or R&T Agent pays to a Clearing Member, Clearing Corporation or intermediary holding securities on a cut-off date, pending onward distribution to the true beneficial owners.
MergerA combination of two or more companies into a single entity in which one or both lose their identity — not necessarily between companies of equal or comparable stature.
Non-cash corporate actionA corporate action that distributes securities or changes holdings rather than paying money - bonus, rights, conversion, split, merger - which the depository executes by crediting and debiting demat accounts.
Pari passuThe date from which new shares — from conversions, further issues or call payments — rank equally with a company's existing shares, reported to the depository the day it tells the stock exchanges.
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.
Renunciation of rightsA shareholder's choice to transfer their rights-issue entitlement to someone else, for payment or as a gift, instead of subscribing to the new shares themselves.
Reverse book buildingThe bidding process by which the exit price in a voluntary delisting is discovered from public shareholders above a fixed floor price, instead of being set by the acquirer.
Rights of the pledgorThe rule that a pledgor keeps every corporate benefit on pledged securities until invocation, provided the pledge still covers at least one share on the corporate action's execution date.
Scheme of arrangementA court-monitored settlement, under Section 230 of the Companies Act 2013, between a company and its creditors or shareholders — covering everything from debt restructuring to mergers.
Share swapExchanging one company's shares for another's at an agreed ratio, typically used to pay for a merger or acquisition with stock instead of cash.
Small shareholderIn a buy-back, a shareholder whose holding is worth not more than Rs 2 lakh at the record-date closing price on the highest-volume exchange — for whom 15 percent of a tender buy-back is reserved.
Spin-offA corporate action where a company carves out one of its existing businesses into a separate, newly listed company, giving existing shareholders shares in the new entity too.
Stock splitA corporate action that cuts the face value of a share in a defined ratio and multiplies the number of shares to match — more shares, a lower price, and not one rupee of new value.
Sweat equityShares a company issues to employees, promoters or technocrats under Section 54 of the Companies Act, 2013, to reward their contribution rather than to raise fresh capital.
Tender offerThe depository-system mechanism, used for takeovers, buybacks and delisting, that blocks a shareholder's securities in favour of the Clearing Corporation once a tender-offer delivery instruction is submitted.