What is a stock split?
A stock split, also known as a forward split, increases the number of shares by dividing each existing share into multiple shares. The share price is adjusted proportionally downward, so the shareholder’s total market value and percentage ownership remain unchanged immediately following the split. Companies may use stock splits to reduce the per-share price, potentially making shares more accessible to investors and improving trading liquidity.
To address this, the company may split its shares.After a stock split, the shareholder’s total position value and the company’s market capitalization remain unchanged immediately following the split. The number of shares held increases. While the price per share decreases proportionately. The positions’ total cost basis remains unchanged, while the cost basis per share decreases proportionately to reflect the increased number of shares.
What is a reverse split?
A reverse stock split consolidates a company’s outstanding shares at a specified ratio, combining multiple existing shares into a smaller number of shares. Companies may conduct a reverse split for reasons such as increasing the share price to meet an exchange’s minimum price requirements and avoid potential delisting, or to improve the stock market perception.
After a reverse stock split, the number of shares held decreases while the share price increases proportionately. Immediately following the split, the shareholder’s total position value and the company’s market capitalization remain unchanged as a direct result of the split. The position cost basis remains unchanged, while the cost basis per share increases proportionately to reflect the reduced number of shares.
Processing timeline
US stocks: Based on the effective date provided by the exchange, the split or reverse split is completed before the pre-market session opens on the effective trading day. Pre-market trading will already reflect the adjusted shares.
Fractional shares
If a stock split or reverse stock split results in a fractional share position, the fractional share will be handled according to the terms of the corporate action. Depending on the event, fractional shares may be paid in cash, rounded up or down to a whole share, or otherwise treated as specified by the issuer.