Treatment of Rights in Standardized Margin Trading

Scope

In order to be eligible for treatment of rights in standardized margin trading, the relevant rights must satisfy the following conditions:

  • The rights give rise to benefits that shareholders should naturally be entitled to receive;
  • The monetary value of the rights can be evaluated on the ex-rights date;
  • The rights are deliverable and/or receivable; and
  • The rights give rise to equal benefits for all shareholders which can be received in proportion to the number of trading units held.

In practice, dividend rights, rights to receive shares due to stock split, subscription warrants, etc. are considered to be eligible.
On the other hand, voting rights in a general shareholders meeting, shareholder rights to examine books and records, complimentary gift vouchers for shareholders, etc. are not considered to be eligible for treatment of rights.

Dividend

Since the amount of dividend is clearly indicated, the transaction amount will be adjusted based on the amount of dividend.
Specifically, the amount of adjustment is calculated by deducting the amount equivalent to the tax withheld amount from the amount of dividend per share. A customer who bought shares on margin will receive said amount from the securities company and a customer who sold shares on margin will have to pay said amount to the securities company.
The amount paid and received as described above is not real "dividend", but merely an "amount equivalent to dividend amount". As such, the amount to be deducted is not real "tax", but an "amount equivalent to tax amount".

Stock split, paid-in capital increase by allotment, or corporate demerger

In the case where the rights to receive shares due to a stock split or subscription warrants, etc. are granted with respect to an issue for which standardized margin trading is conducted, adjustment will be made in accordance with either of the following methods to remove inequality between buyers and sellers.

 

Stock splits under which the number of new shares to be allotted is an integral multiple of the trading unit

The number of shares sold or purchased in standardized margin trading will be increased and the contract price will be decreased in accordance with the stock split ratio.

For example, if the stock split ratio is 1:2,

  (Before split) (After split)
Number of shares purchased (sold) on margin 1,000 shares 2,000 shares
Contract price 900 yen 450 yen

However, in cases where the split ratio contains decimals (e.g., 1:1.5 or 1:2.5), the adjustment method outlined above would result in shares less than one unit after the adjustment and settlement of margin transactions by way of closing transactions for offsetting would not be practical. Due to this reason, adjustment for these stock splits will be made on a monetary basis (Refer to "II. Cases where subscription warrants are allotted or new shares are to be allotted in non-integral multiples of the trading unit").

Cases where subscription warrants are allotted or new shares are to be allotted in non-integral multiples of the trading unit

The initial purchase/sale price (contract price) will be derived by deducting the rights treatment price determined by the Exchange.

For example, in the case of a stock split with a split ratio of 1:1.5,

  (Before split) (After split)
Number of shares purchased (sold) on margin 1,000 shares 1,000 shares
Contract price 900 yen 610 yen(*)
  • Contract price after stock split = Initial purchase/sale price (900) – Rights treatment price (290)
    (The rights treatment price indicated here is used as an example to illustrate the calculation.)
 

In practice, the rights treatment price is an amount equivalent to the number of new shares or rights granted to the securities finance company converted into money. Money is then paid and received between the customer and the securities company based on the rights treatment price.

In a case where the amount of outstanding margin loans exceeds the amount of outstanding loaned shares at the securities finance company, the securities finance company has shares pledged as collateral at hand. The securities finance company acquires the rights pertaining to these securities by temporarily transferring them to its own account and then selling said rights to determine the equivalent monetary amount.

On the other hand, in a case where the amount of outstanding loaned shares exceeds the amount of loaned funds at the securities finance company, the securities finance company will have borrowed the difference from external shareholders. Since the securities finance company is required to purchase and return the rights separated from these shares, the monetary amount of these rights is determined based on the cost for purchasing these shares.

The following explanation applies to the former case (where the amount of outstanding margin loans exceeds the amount of outstanding loaned shares), which is more common. Specifically, with respect to the new shares, etc., the securities finance company receives applications for subscription of new shares from the securities companies who have applied to borrow funds. If there are new shares, etc. that have not been subscribed for through this procedure, the remaining new shares, etc. are allotted to the securities finance company (number of shares to be auctioned) and the securities finance company will sell them through an auction (auction for rights).

The rights treatment price is calculated by multiplying the average successful bid price by the allotment ratio of new shares. The average successful bid price is calculated by dividing the aggregate amount of successful bids by the number of shares pertaining to the successful bids.

If the all new shares, etc. were subscribed through the application for subscription of new shares, the rights treatment price shall be the price calculated based on the closing price, etc. as of the last trading day before the ex-rights date.

The securities company will pay an amount calculated by multiplying the number of shares purchased on margin by the rights treatment price to customers who bought shares on margin and collect an amount calculated by multiplying the number of shares sold by the rights treatment price from customers who sold shares on margin. However, such payment and collection will be made by deducting said amount from the amount of loaned funds or the value of the margin sale. With this procedure, obligations to customers are partially satisfied.