A: A stock split is a means of changing the structure of the shareholdings in a company. It has no effect on the market capitalisation of the company and dilution does not occur.
In spread betting stock splits are dealt with fairly too. In the event of a stock split the bets will be closed and opened again at a new price and stake which will take account of the stock split. You will not profit or lose as a result of the stock split. For instance, if Elan announced a 2:1 stock split and you had a £10 buy position at 2000 this position would be closed and a new spread bet would be opened for a £20 buy position at 1000.
Let's take another example -:
Suppose the shares were trading at 100. and you had a down bet of £10 per point.
The company then issues new shares for free on a 1 for 1 basis.
You could say that your spread betting provider will open a new bet at 0 in another £10 per point. Clearly you would be showing a huge loss on this position. On the other hand, you would be showing a huge profit on your prior position.
Imagine that the company had been worth £1,000,000 to start with - represented by 1,000,000 each worth £1. The issue of an additional 1,000,000 shares for no consideration has no impact on the value of the company. But as there are now twice as many shares in issue, they now trade at half the price: 50p. So, while opening a new down bet at 0 would generate a loss of £500, your prior down bet at 100 would show a profit of £500. So no net profit, but it's not very neat.
What the spread betting company actually does is to amend your bet. So where you were short £10 per point at 100, you would now be short £20 per point at 50. This may sound different, but in economic terms it is exactly the same. If the share goes to 0, your profit will be the same as before.
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A: Nope. I think it's fair to say without question spreadbets always include dividends (otherwise short positions would do extremely well).
Some don't always give you 90% of the dividend (after 10% tax rate) though.
To understand more it's worth noting the following:
Basically there are two types of spreadbet.
1. Daily Cash spread bet - automatically rolls over daily and will include adjustments as they happen (i.e. on ex-dividend day the price will be adjusted).
2. Quarterly Spreadbet - Spreadbet is priced to a certain date meaning that if there are any dividends (date of ex-dividend) occuring before the expiry then the price will account for that.
Effectively spreadbets are quoted ex-dividend (for any dividends due within the period for which the spread bet runs*), irrespective of whether the underlying stock is ex-dividend or not.
(* Therefore in the case of intra-day spreadbets the SB is cum-dividend until the x-dividend date of the share - as the share does not become x-dividend intra-day - the price of any rolled over daily bets is adjusted to account for the dividend overnight on the Eve of X-Dividend day).
So for example if a share price is £1.10 cum - dividend with a dividend of 10p. The spreadbet price would be £1.00 (plus any financing cost).
Once the share goes ex-dividend the share price (all else being equal) will fall by 10p to £1.00, the spreadbet price will not change.
So as a spreadbetter you do get the benefit of the dividend but you get it at the time of purchase (buying for £1.00 rather that £1.10) rather than by an actual transfer of cash to you once you hold the share.
(Things can though get a little more complex in the case of special dividends etc...)
This means that the dividend is reflected in adjustments to the opening price (on daily and quarterly bets). The only problem I've come up against is where a dividend changes or isn't known about when the current quarterly contract is set i.e. what happens if VOD suddenly declared they would return 10p to shareholders before the current June expiry - it actually might happen as well!
Two other situations sometimes arise:
1. In smaller companies, I sometimes find that the price quoted by the spread betting company doesn't reflect the details of a previously declared dividend; I normally either ask about this when I place the bet or when the share goes ex-div and I find the price quoted by the spread betting company has changed unexpectedly by the size of the dividend.
2. It is known that the share is almost certain to go ex-div, perhaps twice for bets expiring up to 9 months in the future, during the duration of the bet, but the exact details of the dividends can only be guest mated as they are yet to be formally declared.
Both the above situations can require adjustments to entry prices to correctly reflect the actual size of the dividends. My experience with spread betting a company is that they have always dealt with both these situations fairly rather than seeking to profit from them.
A: Effectively you have answered the question in your email. If a company announces that its shares will be consolidated with a ratio of 100:1. The price will increase 100x, the spread betting firm will close your position on the morning of the ex date and reopen it at the new rate. Your stake will then decrease by 100x and therefore keeping the same risk on the trade.
If for example you had £100/p at a price of £1.00 and there was a 10 for 1 consolidation the provider would book off your original trade - flatten your original position at no cost and then rebook the trade with £10/p at a price of £10. The net position remains the same.
The contract period would also remain the same. You would not necessarily be notified before the amendment took place but usually the spread betting company will contact you via telephone or e-mail detailing the changes that have taken place to your position.
In general terms; if a stock consolidates, if a company announces a rights issue, if a dividend payment is increased or decreased, if a company is wound up and cash is paid out in lieu of shares held on a spread bet, the holder of the open position via a spread bet will receive the exact same entitlement as a fully paid up shareholder. This is because the position will be hedged with a CFD which in turn is hedged with the underlying equity and all benefits are passed on. The only benefit not passed on is shareholder voting rights as the holder of the position as a spread bet is not a registered holder of the stock.
Hope that answers some of your questions but feel free to send me queries, comments or concerns at traderATfinancial-spread-betting.com or by filling in the form below :-)
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