Trading Securities - Adjustments For Stock Splits

GTC orders that are left with the specialist / DMM must be adjusted for stock splits. Orders that are placed above and below the market will be adjusted so that the aggregate dollar value of the order remains the same.

Example:

A customer has placed a GTC order. Let’s look at what happens to the order if the company declares a stock split:

Type of Split Old Order New Order

2:1

Buy 100 at 50

Buy 200 at 25

2:1

Sell 100 at 100

Sell 200 at 50

3:2

Buy 100 at 100

Buy 150 at 66.67

3:2

Sell 100 at 60

Sell 150 at 40

Notice that in all of the examples, the value of the customer’s order remained the same. To calculate the adjustment to an open order for a forward stock split, multiply the number of shares by the fraction and the share price by the reciprocal of the fraction.

Securities Training Course

Stopping Stock

You May Also Like

Related Articles
  1. Investing

    How does FINRA differ from the SEC?

  2. Professionals

    Series 99

  3. Professionals

    Series 24

  4. Professionals

    Becoming A Registered Investment Advisor

  5. Professionals

    I have a CFA designation. Do I qualify ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!