Adjustments For Stock Splits

  1. 5. Economic Fundamentals
  2. 6. Issuing Corporate Securities
  3. 7. Trading Securities
  4. 8. Customer Accounts
  1. 7.1 Introduction
  2. 7.2 Types Of Orders
  3. 7.3 Other Types Of Orders
  4. 7.4 The Exchanges
  5. 7.5 Priority Of Exchange Orders
  6. 7.6 The Role Of The Specialist / DMM
  7. 7.7 The Specialist / DMM Acting As A Principal
  8. 7.8 The Specialist / DMM Acting As An Agent
  9. 7.9 Crossing Stock
  10. 7.10 Do Not Reduce / DNR
  11. 7.11 Adjustments For Stock Splits
  12. 7.12 Stopping Stock
  13. 7.13 Brokers
  14. 7.14 Registered Traders
  15. 7.15 Super Display Book / SDBK

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

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