Corporate Action Basic

What is Corporate action? 

In layman term, any action performed by corporates which turns to affect your security is called corporate action.

In other words, Any decision made by the issuer or board of director which affect shareholder security is corporate action.

Types of Corporate Action

There are mainly three types of Corporate Actions

1. Mandatory Corporate Action

2. Mandatory with choice Corporate Action

3. Voluntary Corporate Action


1. Mandatory Corporate Action: This is a type of Corporate Action where shareholder does not have any choice to elect. Impact of security is Mandatory in nature.

Examples:

Stock split

Reverse split

Merger

Assimilation(Pari Passu)

2. Mandatory with choice Corporate Action: This type of Corporate action where shareholder has choice to election between mandatory election or payout

Example:

Currency Dividend 

Optional Dividend

Dividend Reinvestment Plan(DRIP)

To explain more in this example where Dividend is mandatory but share holder has option to choose dividend in currency or cash/Stock.

3. Voluntary Corporate Action: This type of corporate action where share holder has choice to elect between multiple options. There is no compulsion to elect.

Examples

Tender offer

Repurchase offer

Consent


Comments

Post a Comment

Popular posts from this blog

Corporate Action Life Cycle - Mandatory events

Image
  Mandatory Corporate Action Life Cycle Above chart is process flow Mandatory Corporate Action Life cycle. Before explaining of above process flow, let understand Mandatory Corporate action meaning. Mandatory Corporate Action is event in the market where share holder does not have any choice to participate in the event. Here shareholder affected with price change in shares after completion of Corporate Action Life cycle. Let us understand above process flow in details. In above process flow, there is two arrows. Arrow 1(In yellow) denote for Corporate Action event Notification flow and Arrow 2(in Green) denotes for Corporate Action Payment flow. 1. First step of Corporate Action event Life Cycle is to flow of Notification Announcement from the issuer to Agent. Issuer nominate specialized merchant banker as agent 2. Second step of CA event Life cycle is to flow notification announcement from agent to sub custodian/depository. 3. Third step of CA event Life cycle is to flow Notification
Read more

Corporate Action Life Cycle - Mandatory with Choice/Voluntary Corporate Action

Image
  Corporate Action Life Cycle - Mandatory with Choice/Voluntary Corporate Action   Above chart is process flow Mandatory with choice Corporate Action/Voluntary Corporate Action( Elective CA) Life cycle. Before explaining of above process flow, let us understand Mandatory with choice Corporate Action/Voluntary Corporate action meaning. Voluntary Corporate Action is the corporate event in the market where share holder have choice to participate in the event. Here shareholder affected with price change in shares after completion of Corporate Action Life cycle for some of CA events. Let us understand above process flow in details. In above process flow, there are three arrows. Arrow 1 (In yellow) denote for Corporate Action event Notification flow , Arrow 2 (in Green) denotes for Corporate Action E lection flow and Arrow 3 (In Orange) denoted for Corporate Action Payment flow. 1. First step of Corporate Action event Life Cycle is to flow of Notification Announcement from the issuer to Age
Read more

Corporate Action Participant

Here we will discussed who are the corporate action participants or terms of parties involve to complete Corporate Action event. Issuer :  Corporate action always start with issuer First. Issuer here means company who wanted to announce the corporate event. Company's Board of Director decide to take decision on strategy benefit to company and shareholder Agent :  Second participant for corporate action is agent. Company/issuer are not expert in corporate action so they hire merchant banker to process corporate action on behalf of issuer.  Agents are getting details from the issuers for the key dates used to announce the corporate action events, formulates the terms of the event as per guideline from company and announce the event in the market. Sub-custodian/depository/Registrar :  Third participant for corporate action is sub-custodian/registrar/depository. In some market, where global custodian has no existence, in this case they hire sub custodian. Sub custodian also called as
Read more