DEFINITION of Due Bill Period
A due bill documents and clarifies a stock seller's obligation to deliver a pending dividend or another form of payment to the stock's buyer. Due bills are also used in other types of events, such as the issuance of rights and warrants, and stock splits.
BREAKING DOWN Due Bill Period
Due bills function as promissory notes and ensure that the correct owner receives a stock's dividend when the stock trades near its ex-dividend date (ex-date). They are helpful during this interim period when trades are still settling. This period often extends from one day after the record date to one day after the ex-date, when payment is due.
In the past, security transactions were done manually rather than electronically. Investors would have to wait for the delivery of a physical security (in certificate form) and would not pay until the reception. Since delivery times could vary and prices could fluctuate, market regulators required parties to deliver the securities and cash in a set period of time. Settlements are far more streamlined today, with the due bill period helping clarify the process.
For certificates of deposit (CDs) and commercial paper, the transaction settles on the same day; for U.S. Treasuries, it is the next day (T+1), while foreign exchange or forex transactions settle in two days (T+2).
Clearing brokers are exchange members, who help ensure that trades settle appropriately and transactions are successful. Clearing brokers are also responsible for maintaining paperwork associated with the clearing and executing of a transaction.
New Canadian Initiative for the Due Bill Period
In 2017, the Canadian securities industry embarked on a new initiative, called "due bill" tracking, to improve tracking in client accounts for major corporate events like stock-splits or spin-offs. The goal of the initiative was to standardize this practice across Canada and U.S. and improve valuation reporting.
Canada hopes that better due bill processing will result in more accurate and timely reporting and eliminate errors that occur from a manual process. For inter-listed securities between Canada and the U.S., Canada hopes the new process will avoid confusion.
The industry will typically use due bills when a security announces a distribution representing 25% or more of the value of its listing. Ordinary dividends will not likely have due bills attached, and their ex-dates will continue to be two days prior to the record date.