A corporate action refers to an event that brings changes to an organization and shareholders such as dividends, rights issues, stock splits, etc. When holding CFDs you do not own the underlying security, but corporate actions can still affect your position and require action from you.
In the platform, you can see dividends, as well as other corporate actions on your CFD positions under the Corporate actions tab, the same as for your equity positions.
This article on corporate actions on CFD positions will cover the following topics:
- Dividends on CFD positions
- Rights issues on CFDs
- Stock splits
- Volatility and liquidity during corporate actions
Dividends on CFD positions
Do I receive dividends when holding CFD long (buy) positions?
When you hold a long CFD position on an underlying asset that pays dividends, you may be entitled to receive a payment reflecting the dividend amount.
When it comes to CFDs, the cash adjustments related to dividends are recorded on the ex-dividend date (Ex-date) based on the eligible holding on the day before the ex-dividend date (ex-date-1). This reflects the market price movement on the ex-dividend date. However, the actual payment amount will be settled on the pay date.
When you have a long CFD position and are expecting to receive dividends, two important adjustments come into play:
- Cash Adjustment: This reflects the actual dividend payment you're entitled to receive based on your CFD position.
- Return Adjustment: This adjustment accounts for any withholding tax that might apply to the dividend payment in the market where the underlying asset is traded. It's designed to make sure that the dividend payment reflects the tax rules in that market, giving you a more accurate picture of the actual cash you'll receive from the dividend.
You can check the payment you received at CFD cash adjustments reports.
Do I receive dividends when holding CFD short (sell) positions?
When you hold a CFD short stock position, you are not entitled to receive dividends.
Do I have to pay dividends when holding CFD short positions in stocks?
When shorting stocks, you are borrowing the stocks from an owner. This owner is entitled to any dividends, that may be distributed from the company.
If you hold a short CFD position, the calculated entitlement (the amount of the dividend payment you would have been entitled to if you owned the actual stock) will be debited from your account on the ex-date. Essentially, you are responsible for paying the dividend to the owner of the underlying stock.
It's important to note that these processes and adjustments can vary depending on the specific CFD contract and market conditions.
For further information, please visit CFDs trading conditions.
Rights issues on CFDs
Rights issues are invitations from a company to its investors allowing them to purchase additional new shares directly from the company. The new shares are typically offered at a lower price than the current market value.
Will I receive rights issues when holding CFD long positions?
Rights issues occur when a company offers existing shareholders the opportunity to purchase additional shares at a discounted price.
Tradable rights
On the ex-date, the market opens for trading. Automatically, orders are placed to sell these rights in the market. When these orders are executed, the proceeds go into your account.
Non-tradable rights
When you hold long CFDs at Saxo, here's what you need to know:
- Saxo allocates non-tradeable dummy CFD rights on a specific date, based on the ratio and price of the underlying rights issue. You will see a "LOCK - xxxx" position in your account.
- You are not able to elect on the rights event. If the subscription price for the stocks is lower than the market price of the original tradable instrument, Saxo will try to get more entitlements for you. If the price is higher or the same, Saxo won't participate in the offer.
- For certain types of events, Saxo may not be able to participate and won't offer these opportunities to you.
- Share Purchase Plans Events (SPP) may be available to you, but you'll need to provide certain details as requested by Saxo.
- After pay date, we will book the CFD position/cash to your account. Or the rights lapse. The "LOCK - xxxx" position will be removed.
Will I receive rights issues when holding CFD short positions?
Tradable rights
For short positions, any entitled rights will be obtained and then recorded in your account. We will initiate the order in the market to close the rights position accordingly. Your account will be booked/debited with cash.
Non-tradable rights
When you hold a short CFD position, you will be responsible according to the instructions from the counterparty (the other party involved in the contract e.g. another investor, broker, or financial institution). Any liability associated with the short position will be communicated to you once it is confirmed by the counterparty.
Non-tradable rights - example
You will normally see a few items under Corporate Actions Events for one rights event. If you click the "i" button on the right you will be able to see more details. They inform you on the actions we take for this event. The first "Intermediate Securities Distribution" is to announce the rights event and we will book a dummy (short) rights position "LOCK - xxxx" in your account.
As a CFD holder, you don’t have any choice even if the corporate action is “Voluntary”. “Call on Intermediate Securities” is for counterparty to do their election. As a short CFD position holder, you can only wait until the counterparty have made a choice and Saxo has received the instructions from the counterparty. You may be held liable for cash or security options and Saxo will adjust your account accordingly.
Whether or not there is booking of new CFD positions/cash, the dummy rights position "LOCK - xxxx" will be removed in the end hence the last item of the event shows "worthless".
The LOCK position can only be removed by Saxo and you will not be able to close it. Please note that the P/L on this position is only indicative as it's a dummy position. Your account will be adjusted according to the final instruction from the counterparty.
Stock splits
For long positions, additional CFDs are allocated to you on Ex-date and will be credited accordingly.
For short positions, you will be debited accordingly.
Volatility and liquidity during corporate actions
Corporate actions can sometimes lead to increased volatility and reduced liquidity in the market. This can impact the pricing and execution of CFD trades. It's important to be cautious and consider the potential risks associated with trading CFDs during periods of significant corporate actions.