When a company allocates a bonus issue of shares or a stock dividend, it means that shareholders of the company will receive fully paid shares free of charge. The number of new shares shareholder would receive is based on the terms of the issue, which are expressed in ratio, such as 1 bonus shares per 10 shares held (1:10).
A bonus issue may increase the number of shares you are holding, but the price of the shares would fall proportionally to the ratio, resulting in no overall effect on the monetary value of your holdings.
For example, if Apple announces a 1 for 10 bonus issue or stock dividend, and you are holding 100 shares, if you hold this position through the ex-date, you would receive a new position of 10 new shares at a price level of 0 in Apple, and you would continue holding your initial position of 100 shares. Similarly, the share price would also drop by 10%.
Please note that you do not need to take any action for this mandatory corporate event. We will assist in booking these positions accordingly.
How does bonus issue/stock dividend affects my CFD account?
If you have an open position on a company that offers a bonus issue or stock dividend, we’ll open a new separate position on your account at the price level of 0, using the terms of the offer to calculate its new size on the ex-date. Your original position will be unaffected.
If you have a guaranteed stop on your position, we’ll close the original position at its opening level and open a new position that reflects the terms of the offer. Any stops or limits attached will also be amended accordingly, so that your monetary risk remains the same.
What if I have a short position?
If you have a short position, the bonus issue shares would be opened as a new short position at a price level of 0, increasing the number of shares you hold short in accordance with the bonus issue terms. Your monetary risk remains the same.
Please note: This information is intended as a generic example, and subject to change at any point. It may not apply in every scenario.