What is a Stock Split?
Stock splits usually occur when a company’s share price has gone up to an extremely high value, where it may be viewed as being too expensive or unattainable to new investors entering the market. When this occurs, companies may increase the number of outstanding shares by dividing its existing shares into multiple new shares – the aim is to make the company’s shares more affordable and attractive.
Stock Split Example
See below of an example of how a 2-for-1 split stock split occurs:
Are Stock Splits reportable under EMIR Refit?
Stock splits (causing a change in the nominal value of the trade) are reportable under EMIR. This is on the basis that reported underlying identifiers such as the ISIN or LEI or other transaction terms change.
How are Corporate Events reported and steps to take before reporting?
Ensure that you have the following information before completing the report:
- Determine what is the corporate event? This could include stock splits, mergers, takeovers and insolvencies.
- What is the ‘Event Date’? That is, the date when the corporate event occurred.
- Do you have the updated trade details? All relevant trade details should be updated to align with the actual details of the corporate event. For a stock split, this would include amendments to the nominal value and number of shares held.
- What notional value to report? Notional values of ‘0’ should not be used. Rather, ensure the notional value represents the updated or new terms after the relevant corporate event.
In addition to the above steps and information being necessary for entry into the trade repository system, Table 12 of ESMA’s Final Report shows the way stock splits (or change in nominal value) should be reported:
- Business Event → Corporate Action (assuming the corporate action has happened within the underlying instrument/issuer).
- Action type → Modify (use the appropriate code ‘MODI’)
- Event type → Corporate Event (use the appropriate code ‘CORP’)
ESMA has noted issues with reporting on CFDs over split stock
ESMA has found that where voluntary right issues were given to CFD holders (i.e. holders of contracts for difference) or where CFDs have arisen after a corporate action on the underlying stock split, there have been the incorrect reporting of the notional amount on the transaction. Some entities have previously reported ‘0’ notional amounts, indicating that the purchase price is ‘0’, when this is not the reality.
How can TRAction assist?
If you need assistance in understanding whether a corporate event that has occurred or due to occur within your organisation is reportable or want specific regulatory assistance on how to report stock splits or other corporate events, please get in touch with us.
