New Rules on Ex-date and Record Date
Whenever a listed company or a listed entity declares corporate actions or benefits, like, bonus shares, dividend, rights shares, amalgamation, demerger, and share buybacks, the company has to intimate the record date to the shareholders or members of the company, as per norms prescribed by India's capital market regulator SEBI (Securities and Exchange Board of India).
Record date is the date fixed by the company for determining the shareholders eligible for the said corporate benefit. Suppose, your name appears in the list of shareholders of the company on the record date fixed by the company, then you'll be eligible to receive the corporate benefit.
Old Regime:
Ex-date is a concept related to record date. Ex-date is one trading day prior to record date. For example, company K declared a dividend Rs 10 per share with record date of 07Dec2022. So, the ex-dividend date (or, simply ex-date) was 06Dec2022. (these rules were under the old regime -- please wait till I clarify the new regime below)
Here, cum-date is 05Dec2022, one trading day prior to ex-date. Cum-date is the last date to buy the shares of company K if you are interested in receiving the dividend. However, if you buy the shares on 6th of December or later, you would not be eligible for the dividend.
To be eligible to receive the dividend, you should have been a shareholder as on 05Dec2022 (cum-date) or you should have bought shares of company K on 05Dec2022 in order to receive the Rs 10 dividend declared (here, all the three days 5th, 6th and 7th December being cum-date, ex-date and record date respectively were trading days).
In the above example, let us assume the price of share K was Rs 120 per share on 05Dec2022 (cum-date). The next trading day on 06Dec2022 (being the ex-date), the stock price would fall by Rs 10 (accounting for the adjustment of the dividend declared) to Rs 110, provided other things in the market have not influenced the share on ex-date.
These changes and intricacies are well known to experienced traders and investors. The idea of this elaborate explanation here is to throw light on the intricacies so that novice investors would become aware of the nuances.
Old Rules:
Prior to 01Jan2023, most of the stocks were traded on T+2 settlement cycle basis, meaning if you bought a stock today, the particular stock would be credited to your demat account two trading days later, while your bank account would be debited on the trading day for the amount traded. T+2 simply means trading day plus two days.
For example, if you bought shares of stock x on 14Dec2022, the shares would be credited to your demat account on 16Dec2022 (both 15 and 16th December were trading days) and your bank account would be debited on 14Dec2022 with the traded amount.
Even the cash too would take two days to be settled. For example, if you sold shares of stock y on 20Dec2022, the amount would be credited to your bank account on 22Dec2022 (both 21st and 22nd were trading / bank working days) while the shares would be debited from your demat account on the trading day, that is, 20Dec2022.
The rules for ex-date are changed now. I explain the changes below.
New Rules:
Effective January 2023, all the stocks in the futures and options (F&O) segment are being traded on Indian stock exchanges on T+1 settlement cycle basis, as per SEBI norms.
In fact, the new rules for T+1 settlement became actually came into effect from February 2022 for select stocks -- with all stocks in F&O segment moving to T+1 settlement from January 2023.
From now onwards, stocks on Indian bourses will take one trading day to settle. T+1 simply means trading day plus one. For example, if you bought shares on 03Jan2023, the shares would be credited to your demat account on 04Jan2023 and your bank account would be debited on 03Jan2023 (both 3rd and 4th of January were trading days).
Likewise, if you sell shares today, that is, 06Jan2023, your bank account would be credited on 09Jan2023 (7th and 8th are trading holidays being Saturday and Sunday respectively) while your demat account would be debited today with the shares you sold today. (I haven't tried these new rules -- I mean I've no first-hand experience of these new rules in 2023. I'm not sure whether funds would be credited to your account on 07Jan2o23 or 09Jan2023 -- it may be mentioned 07Jan2023 is a working day for banks though it is a trading holiday for stock exchanges).
In view of the transition to T+1 settlement, the concept of ex-date for corporate actions has undergone a change.
From now onwards, ex-date and record date will be the same for all stocks that are traded in F&O segment of the stock market. You can find the reflection of these changes in this weblink. A screenshot from the webpage >
To use a live example from the above BSE screenshot, both the ex-date and record date for stock split of Rajnish Wellness Ltd are 10Jan2023 (this company is used just for illustration purposes -- this should not be construed as investment advice). Which means if you hold the stock as on 10Jan2023 or if you buy the stock on 10Jan2023, you are eligible for the 1:1 stock split announced by the company.
If you hold the 10 shares of the above company on 10Jan2023, you will be eligible to receive additional 10 shares due to 1:1 stock split (one additional share for one existing share held by you). To adjust the for the stock split, the share price will get adjusted too one trading after the record date for stock split.
Let us assume the share price of Rajnish Wellness closes at Rs 30 per share on 09Jan2023 (cum-date for stock split). So the stock price would fall by 50 percent to Rs 15 on 10Jan2023 (ex-date and record date), assuming the stock price is not impacted by other development if any on 10Jan2023, to reflect for the 1:1 share split (as you would receive additional 10 shares, the total market value of your shares would remain the same on the record date).
Due to the switch-over to T+1 settlement cycle, the ex-date and record date for the above mentioned company's corporate action (share split) are the one and the same (as opposed to the old regime of T+2 settlement where ex-date used to be one trading day prior to the record date of the corporate action).
This article is aimed at greenhorn investors who are new to the changes in the stock market.
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References:
SEBI amendments of Oct2022 moving all stocks from T+2 Settlement to T+1 Settlement effective 01Jan2023
Article 14Dec2022 on T+1 Settlement cycle introduction
Article 23Nov2022 on transition of all F&O stocks to T+1 settlement
Article 23Nov2022 on T+1 settlement for F&O stocks
SEBI (LODR) Regulations, 2015
SEBI amendments in 2015 for record date
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Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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