How do corporate actions affect long-term orders?

Long-term orders remain valid until the specified date, but their execution may be affected by corporate actions. Here’s how it works.

1. What is a long-term order?

Long-term order is an order type that remains in effect until a specified date unless the transaction has been fulfilled or cancelled. If the trade is not executed, the long-term order will be cancelled after the end of the specified trading day. Long term orders include "GOOD TILL DAY (GTD)" and " GOOD TILL CANCELLED (GTC) " orders.

2. Will corporate actions have an impact on the execution of long-term orders?

Whether a corporate action will affect the execution of a long-term order mainly depends on if the corporate action will result in a change with customer's shareholding, such as share consolidation and share split. Please refer to the following examples:

Share Consolidation

Reduce the number of shares outstanding and consolidate existing shares.

(Par value of each stock ↑ Shareholders' shareholding ↓ Market value , total shareholders' equity remain unchanged)

If the customer holds 100 shares of company A and the current stock price is $5, the value of the stock held is 100*5=$500.

If Company A merges 10 shares into 1 share, the shareholder holds 100/10=10 shares after the merger, the stock price will be 5*10=$50; The value of the shares held is 10*50=$500.

If the customer buys 100 shares before the merger, he needs $500; yet, it requires $5000 for the same purchase of 100 shares after the merger.

Due to the changes in the number of shares and market prices after the merger, long-term orders will not be able to take effect.

Share Split

Increase the number of shares outstanding and spin off existing shares.

(Par value of each stock ↓ Shareholders' shareholding ↑ Market value , total shareholders' equity remain unchanged)

If the customer holds 100 shares of company A and the current stock price is $5, the value of the stock held is 100*5=$500.

If Company A split from 1 shares into 10 share, the shareholder holds 100*10=1000 shares after the splitting, the stock price will be $5/10 = $0.5 ; The value of the shares held is 1000*0.5=$500.

If the customer sells 100 shares at $5 before the stock split, that equals $500; yet, if the 100 shares are sold after the stock split, only 1/10 of the original volume will be sold.

Due to the changes in the number of shares and market prices after the merger, long-term orders will not be able to take effect.

From here we can see that this type of corporate action will lead to an impact on long-term orders.

3. If I have issued a long-term order before the Ex-date of relevant corporate action, how will Longbridge handle such a situation?

The long-term order will be cancelled before the US market opens on the Ex-date of the corporate action. Please re-issue the order if necessary.

Disclosures

This article is for reference only and does not constitute any investment advice.