but what would happen in a 16/1 split if someone bought on 9/5/98? That person's 100 $10 shares couldn't possibly remain 100 $0.60 shares, could they?
More specific answer after the bold. I hope this helps.
Joe PTG&LI !!!
Often a split is announced long before the effective date of the split, along with the "record date." Shareholders of record on the record date will receive the split shares on the effective date (distribution date). Sometimes the split stock begins trading as
"when issued" on or about the record date. The newspaper listing will show both the pre- split stock as well as the when-issued split stock with the suffix "wi." (Stock dividends of 10% or less will generally not trade wi.)
Some companies distribute split shares just before the market opens on the distribution date, and others distribute at close of business that day, so there's not one single rule about the date on which the price is adjusted. It can be the day of distribution if done before the market opens or could be the next day.
For people who really are interested, here is what happens when a person buys between the day after the T-3 date to be holder of record, and the distribution date. Remember that the holder of record on the record date will get the stock dividend. And of course the price doesn't get adjusted until the distribution date. So let's cover the case where a trade occurs in between these dates.
1.The buyer pays the pre-split price, and the trade has a "Due Bill" atttached. The due bill means the buyer is due he split shares when they are issued. Sometimes the buyer's confirmation slip will have "due bill" information on it.
2.In theory, on the distribution date, the split shares go to the holder of record, but that person has sold the shares to the buyer, and a due bill is attached to the sale.
3.So in theory, on the distribution date, the company delivers the split shares to the holder of record. But because of the due bill, the seller's broker delivers on the due bill, and delivers the seller's newly received split shares to the buyer's broker, who ultimately delivers them to the buyer.
The fingers never left the hand, the hand is quicker than the eye,
and magic happens. In practice no one really sees any of this take place.
In some cases, the company may request that its stock be traded at the post-split price during this interval, or the market itself might decide to list the post-split stock for trading. In such cases, the due bills themselves are traded, and are called "when issued" or for spinoff stock, "when distributed" stock.
The stock symbol in the financial columns will show this with a "-wi" or "-wd" suffix. But in most cases it isn't worthwhile to do this. |
