Handling of rights, Subscription of new stocks and Bidding for Rights
Handling of rights
When dividends or new stock, etc., are given to the Issues Eligible for Standardized Margin Transactions, securities finance companies will receive the rights from securities companies which use Stock Loan (hereinafter, Stock Loan User), and transfer the rights to securities companies which use Fund Loan (hereinafter, Funds Loan User)
Securities finance companies report as a beneficial shareholder based on the securities custody and book-entry transfer system, and
then secure the rights on collateral stock for Fund Loan, which has not been appropriated to
Stock Loan on the last day with rights.
However, the rights on the part of collateral stock for Fund Loan already appropriated to
Stock Loan cannot be secured.
Therefore, in Loans for Margin Transactions, any adjustments are necessary for the relevant rights,
and this adjustment is called "Handling of Rights".
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The rights that are subject to
Handling of Rights
must meet the following conditions:
- (a) the benefits that shareholders would naturally be entitled to receive to arise,
- (b) the portion that becomes rights-detached to be financially evaluable,
- (c) the rights to be transferable, and,
- (d) the benefits to be proportionally distributed compared to the trading unit. Specifically, the rights to receive dividends, the right to receive shares through stock splits, and subscription rights are included, and rights processing is carried out as follows:
Rights on cash dividends
Securities finance companies will receive from Stock Loan User the amount regarded as manufactured dividends, which is calculated by deducting withholding tax from dividends paid by issuing corporations and pay it to Fund Loan User. (Adjustment of Equivalent Amount of Dividends)
Rights on new stock or subscription warrant
(a) In the case where new stocks at stock split in a ratio of integral multiple are allocated
Securities finance companies adjust Loans for Margin Transactions Outstanding (number of
stocks) of such an issue as of the last trading day with rights by multiplying the number by allocation ratio + 1 at the
ex-rights date.
In cases where there is no closing price on the ex-rights date, the
Reference Price for Loans for Margin Transactions (hereinafter,
Reference Price) on the last trading day with rights attached are adjusted by dividing them by
the new share allocation ratio +1, and this becomes the Reference Price on the ex-rights date
(Adjustment of Loans for Margin Transaction Balance).
(Case1) In the case of a stock split with a ratio of 1:2,
| Loans for Margin Transactions Outstanding | Reference Price | |
|---|---|---|
| Before the stock split | 1,000 shares | 1,000 yen |
| After the stock split | 2,000 shares | 500 yen |
(Note1)
Of investors who keep open positions of such a stock split issue in Standardized Margin Transactions, in margin account on each securities company, new stocks will be added to the contracted shares according to Standardized Margin Buying or Selling position, while the trading price will be reduced from the contracted price for both margin buyer and seller, corresponding to allocation ratio.
(Case2) In the case of an investor who has traded Standardized Margin Transactions for 1,000 shares at 1,100 yen.
| Standard Margin Transactions Outstanding | Trading Price | |
|---|---|---|
| Before the stock split | 1,000 shares | 1,100 yen |
| After the stock split | 2,000 shares | 550 yen |
(b) Other cases than the above, such as new stocks are allocated at a stock split in a ratio other than integer multiple, or subscription warrants are allocated
In cases such as a stock split that includes a decimal point in the split ratio, fractional shares may arise in the adjusted number of shares, and it may become impossible to close their margin buying and/or selling position. To solve this problem, securities finance companies will deal with it by converting the rights to cash.
In the event that new stocks and other rights remain after receiving Applications for the Subscription of Rights from Fund Loan User, securities finance companies will sell (Note2) remaining new stock allocated to the securities finance companies in a competitive bidding (Bidding for Rights).
(Note2)
In case of Fund Over-loaned. If in the case of Stock Over-lent, securities finance companies will buy new shares through bidding.
The Rights Processing Value is obtained by the average accepted bidding price (the total value
dealt in the bidding divided by the number of stocks successfully accepted) multiplied by the new stock allocation ratio.
Securities finance companies receive, from Stock Loan User, the value calculated by multiplying
the Rights Processing Value by the number of stocks in the selling position and pays it to
Fund Loan User. When no new stock and other rights remain after
Applications for the Subscription of Rights, the same handling applies by using the price
calculated based on the closing price on the last day with rights as the
Rights Processing Value.
(Note3)
Of investors who keep open positions of such an issue in Standardized Margin Transactions, in margin account on each securities company, while the trading price will be reduced from the contracted price for both margin buyer and seller, corresponding to the Rights Processing Value.
Subscription of Rights
In the event that new stocks in a ratio other than integer multiples are allocated with a stock split, etc., or subscription
warrants are allocated of the Issues Eligible for Loans for Margin Transactions (Issues Eligible for Standardized Margin Transactions), securities finance companies accept Applications for the Subscription of Rights on the new
stock on the last trading day with rights, in order to handle the rights associated with the
Loans for Margin Transactions of the said issues.
Investors who wish to subscribe these new stocks are advised to make
Applications for the Subscription of Rights to their securities company, ensuring that the number
of new stocks to be allocated is of integer multiples of trading units, within their buying positions, on the last day with rights
(the closing time to be determined by each securities company). The
Applications for the Subscription of Rights shall be made on the basis of the number of original
stocks and not for the number of new stocks to be allocated. This application cannot be placed directly at securities finance
companies.
The subscribing request may not be granted if the total subscriptions exceed the number of
Fund Over-loaned at securities finance companies or if the issue is in an over-lent situation in
Loans for Margin Transactions.
Investors whose subscriptions are accepted need to pay to their securities company the
Subscribing Price (Rights Processing Value multiplied by the
number of allocated stock) by the date of the new stock allocation. (Because securities companies may have different procedures,
please contact your securities company in advance for details.) The
Rights Processing Value should be determined on the ex-rights date by
Bidding for Rights at securities finance companies. The delivery of new stocks will do on the
next business day after the Record Date.
(Note4)
When there are more applications to subscribe new stocks than the number of Fund Over-loaned at securities finance companies, the Rights Processing Value is calculated by a method determined separately by securities finance companies. In this case, Bidding for Rights is not conducted.
Bidding for Rights
If new stocks in a ratio other than integral multiple are allocated or subscription warrants are allocated to the
Issues Eligible for Loans for Margin Transactions (Issues Eligible for Standardized Margin Transactions), securities finance companies organize Bidding for Rights for new stocks allocated to such
issues on ex-rights date so as to handle the rights on such issues in
Loans for Margin Transactions (Standardized Margin Transactions).
This bidding is aimed for selling new stocks allocated to securities finance companies who keep the stocks under the securities
finance companies' name as collateral for Loans for Margin Transactions.
(Note5)
Here we describe the case of Fund Over-loaned. If in case of Stock Over-lent, securities finance companies need to purchase such stocks through Bidding for Rights.
Besides securities companies, customers may also participate in this bidding through securities companies. They have a chance to
obtain stocks at designated price outside stock exchange regular transaction. Furthermore, for TSE market and PTS, this bidding is
carried out for the Fund Over-loaned (or Stock Over-lent) amount
calculated by adding up Loans for Margin Transactions Outstanding at both markets.
The bidding schedule is generally from 11:30AM (JST) on ex-rights date. The specific bidding schedule and methods will be
announced in advance on the our website (Japanese language only). (Different schedule may be applied to applications from
investors to securities companies.)
Investors can participate in this bidding through securities companies while clearly informing them of the number of stocks and
bidding price (usually bidding unit is 0.1 yen). It should be also noted that securities finance companies may change schedule or
bidding unit if securities finance companies judge it necessary in such situations as many issues are subject to
Bidding for Rights
or that allocation ratio is large.
The specific processing method for Bidding for Rights in the case of stock splits is as follows.
(Note6)
Please note that in the case of Bidding for Rights for allotment of share options without contribution etc., even if the allotment is cancelled or the subscription warrants allocated are acquired for free after the ex-rights date, the Handling of Rights processing will not be invalidated, and the Rights Processing Value will not be changed.
Regarding the handling of voting rights
Regarding the handling of voting rights under JSF name for collateral stocks and other securities related to Loans for Margin Transactions, JSF do not exercise them as a principle to minimize the impact on the business of the issuing company.
※Click the below link for more details on this treatment.
Handling of the exercise of voting rights related to purchased stocks for Fund Loan (Japanese language only)
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