Most of the time, the test will focus on the ex-dividend date with regular-way settlement . However, you might see a question regarding cash settlement trades, which settle the same day. Remember, all that is required to receive the dividend is to be a settled owner on the record date. If an investor does a cash settlement trade on the record date, they’ll settle the same day and receive the dividend. Therefore, the ex-dividend date for a cash settlement transaction is the business day after the record date.
I’m trying to get some clarification on what’s in bold, it reads (to me) like it’s saying a cash settlement is same day (record date) AND the business day AFTER the record date… yet the record date is after the ex-dividend date?
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Hi @Matthew! Good question. First, let’s establish this big point - an investor must be settled by the record date in order to receive a cash dividend. From there, it’s easiest if we break down the topic between regular-way and cash settlement:
Regular-way settlement
- T+2
- To receive the dividend, must purchase 2 business days prior to record date
- Therefore, regular-way ex-date is 1 business day prior to record date
Cash settlement
- Same day
- To receive dividend, must purchase by record date
- Therefore, cash ex-date is day after record date
There are technically two different ex-dates, which is where I think you got tripped up. Hopefully this helps. Please respond if you have additional questions.
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Ah, yes it is.
Appreciate the clarification…
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