ASX Dividend and Corporate Action FAQ

Interactive Brokers Australia Pty Ltd (“IBKR Australia”) has appointed a third party sub-custodian: BNP Paribas Security Services (“BNP”), to hold ASX listed cash equities for the benefit of our clients1. IBKR Australia ensures that securities acquired on your behalf are recorded in the books and records of BNP in the name of IBKR Australia’s wholly owned nominee company, Interactive Brokers Australia Nominees Pty Ltd (“IBA Nominees”). IBKR Australia is responsible for the conduct of IBA Nominees.

For your convenience, we have consolidated some common queries from clients regarding this arrangement, as well as some common queries regarding corporate actions in general.

 

Can I hold my securities on my own individual HIN (Holder Identification Number)?

No. IBKR Australia does not support individual HIN registration. Instead, IBA Nominees holds all client positions on an omnibus basis with BNP or the applicable sub-custodian. Accordingly, you will not receive CHESS statement and information directly from the registry, but you are still entitled to dividends and to participate in any corporate actions that the company offers.

 

Does IBKR Australia support ASX IPO’s?

No, this is not supported via IBKR Australia.

However, you can still participate in IPOs and request the IPO shares to be received at the registry in issuer sponsored form. Once received at the registry, you can raise a position transfer ticket via the client portal message center and request to transfer these securities to your IBKR account by providing the stock ticker / account holder’s name / mailing address and the number of shares, and we will assist further.

 

How to monitor your portfolio and important information about corporate actions?

Under our T&Cs , you are responsible for understanding the terms of all securities, derivatives or other financial products that you trade and hold in your account. This includes the details, terms and conditions associated with corporate actions. Whilst IBKR tries to ensure that the information which it provides to you is correct and up to date, we do not warrant or guarantee that this is the case. The accuracy and correctness of information which we pass on to you may be impacted by, amongst other things, delays in processing of information by the underlying market, failure of a market data vendor or the actions of the issuers of shares in your portfolio. As a result, you should ensure you are fully aware of any information that is publicly available that affects the products you hold in your IBKR account.

 

Does IBKR Australia support ASX dividend reinvestment plan?

No. We only support the cash payment method.

 

What is the deadline to submit elective corporate actions including subscriptions and share purchase plans?

As IBKR Australia uses BNP as our sub-custodian for holding ASX listed cash equities, we must submit our instructions earlier than the market deadlines (that are typically announced within the offer documents). If you are holding the shares at the record date, an email or message center notification will be sent to you or your broker / advisor to notify you of the IBKR Australia submission deadline, which is typically at least 4 business days prior to the market deadline. If you have missed the IBKR submission deadline but still wish to submit the request, please submit a ticket request under the Corporate Action category. Note that such requests are not guaranteed to be processed and are worked on best effort basis only. If we do submit your request, you will be charged a fee of AUD 100 for each request, regardless of the outcome of the corporate action. As with all corporate actions, the issuer has the sole discretion to accept, reduce or reject your request. For more information about the fees, please refer to this link here.

For requests to exercise warrants that require some form of submission to the issuing company, for example company warrants, you must notify IBKR of your intention to exercise the warrant via email or message center at least 5 business days prior to the market deadline. Note that any requests received after this submission deadline are not guaranteed to be processed and are worked on best effort basis only.

 

Can I change or cancel my election after the IBKR Australia deadline?

Once the IBKR Australia deadline has passed, your instruction can only be worked on best effort basis. There is no guarantee that IBKR can submit your new request. However, if we do submit your request, you will be charged a fee of AUD 100 for each request, regardless of the outcome of the corporate action. As with all corporate actions, the issuer has the sole discretion to accept, reduce or reject your request. For more information about the fees, please refer to this link here.

 

Does IBKR Australia support Institutional Offers where applicable?

No. The offer submitted through IBKR Australia is only for retail offers. Where there is both a retail and institutional offer, you cannot accept both the Institutional and Retail at the same time. If you have been contacted directly by the registry or the issuing company regarding an institutional offer and you have accepted it, then you should not participate in the Retail Offer via IBKR Australia platform.

 

Does IBKR Australia allocate shares and refund (if applicable) on the payment date?

IBKR Australia will, on a best efforts basis, promptly allocate the new shares once we have received them from the BNP and have reconciled the subscription requests from all participating clients with the allocation we have received. As this process often involves multiple parties, IBKR Australia cannot guarantee the exact timing when the new shares and/ or the cash refund (if applicable) will be received in your account. As a result, by submitting the corporate action request via IBKR Australia, you acknowledge that there may be a delay in receiving the allocated securities and/or refunds (if applicable) that is outside the control of IBKR Australia and as a result you will not hold IBKR for any harm or loss associated therewith.

 

How does IBKR Australia handle fractional entitlements?

Requests to round up entitlements are no longer supported, including fractional entitlements. All elections must be submitted via the client portal tool with a valid lot size as set forth in the terms and conditions of the prospectus or offering documents and must only be for a whole right entitlement. Any election submitted which does not meet the criteria may be rejected or reduced accordingly.

 

Am I eligible to participate in any Australian Corporate Action as a foreign investor?

IBKR Australia does not provide legal, tax or investment advice and determine your eligibility. By submitting your request through the online portal, you acknowledge that you have read and understood the prospectus or offer documents and that you are not ineligible to participate in the corporate action due to one or more of the restrictions set forth in the offering documents or prospectus, as applicable, including any restriction related residency. The registry, in its sole discretion, will determine your eligibility and whether to accept or reject your submission.

 

When will my funds be deducted for corporate actions requiring payment such as rights issue and shares purchase plan?

Funds will be deducted from your IBKR Australia account on the stated IBKR Australia deadline. Please ensure that there are sufficient funds available in the IBKR Australia account at that time. Failure to ensure that you have sufficient funding may result in a rejection of your election, and in some circumstances, forced liquidations to occur in your account.

 

When is the deadline to submit ASX Proxy Votes via IBKR Australia?

Similar to the circumstances of submitting elective corporate actions, Australian Proxy Vote instructions must be submitted at least 8 business days prior to the meeting day. We are unable to pass on voting instructions after this deadline has passed.

 

Will IBKR Australia notify me of upcoming ASX Proxy Votes?

ASX Proxy voting is provided as a courtesy service only and we do not support the provision of notifications for upcoming shareholder meetings, as such.

 

What are the steps to submit a proxy vote for ASX stock?

In order to participate in shareholder meetings for ASX listed companies, you will need to submit a ticket via Message Center and indicate your responses to the resolutions and the number of shares you would like to submit as part of the vote. Please provide your instructions at least 8 business days prior to the meeting for IBKR Australia and our agent to have sufficient time for processing. Note that any requests received after this submission deadline are not guaranteed to be processed and are worked on best effort basis only. Please do not contact BNP directly.

Please ensure you create a ticket under the category Proxy Voting on the Message Center with all of the following information to avoid any delays:

  • Ticket Subject ASX (Stock Ticker) Proxy Vote Submission
  • Meeting date:
  • Confirm the IBKR Australia account number to vote:
  • Number of shares to vote:
  • EACH resolution item vote direction (FOR/AGAINST/ABSTAIN):
  • Agree this ticket submission is final and irrevocable and the shares will not be sold prior to the meeting date.

 

1. For complete details of the sub-custodians that IBA has appointed for ASX securities, please refer to this link

Dividend Accruals

If you are a shareholder of record as of the close of business on a dividend Record Date (see KB47), you are entitled to receive the dividend on its Payment Date.  While the actual dividend amount is not assured until the payment has been made by the issuer on the Payment Date, information deemed reliable is available such that IB will accrue the value of the dividend, net of any withholding taxes, on the Ex-Date.   This information can be confirmed via the Daily Activity Statement posted to Account Management. The details of the accrual will be reflected in the statement section titled "Change in Dividend Accruals" and the net amount in a line item titled "Dividend Accruals" under the "Net Asset Value" section. If you wish to see information regarding dividends that you held through the Ex Date but which have not yet been paid out, choose "Legacy Full" from the Statements drop down when launching your statement. This will include an additional section called "Open Dividend Accruals" which will give you information on any pending dividends.

Note that dividend accruals may be either a debit (if short and borrowing the stock on the Record Date) or a credit (if long the stock on the Record date). In terms of account valuation, the dividend accrual is included in Equity with Loan Value as well as equity for purposes of determining compliance with the Pattern day Trading rules. A dividend credit accrual does not increase Available Funds and can therefore not be withdrawn until paid. A dividend accrual which is a debit does reduce Available Funds to ensure that funds are available to meet the obligation when payment is due.

Delivery Settings for Shareholder Materials

IBKR’s default setting for distributing shareholder communications (e.g., proxy materials and annual reports) from U.S. and Canadian issuers is electronic delivery. Under this method the account holder will receive an email notice when information becomes available for a security they hold from our processing agent, Mediant Communications. This notification will provide the necessary links for accessing the information and voting through the Internet in lieu of receiving these documents via postal service. The technology which you will need to secure the information includes access to the Internet and a web browser supporting secure connections. In addition, you will need to be able to read the documents online and print a copy provided your system supports documents in a PDF format.

 

Other items of note:

 -  We recommend that you add the following addresses to your email address book to minimize the possibility of communications being routed to your junk folder or rejected by your email provider as spam: InteractiveBrokers@proxydocs.com, InteractiveBrokers@investorelections.com, InteractiveBrokers@proxypush.com, InteractiveBrokers@prospectusdocs.com.
 
-  Issuers reserve the right, and are sometimes required by regulation, to send certain shareholder communications via postal mail regardless of the account holder’s preference for electronic delivery. This will most often be the case for interim or special meetings or for contested voting matters.
 
-  Account holders may withdraw their consent to electronic delivery and revert to postal delivery at any time by submitting a request through the Message Center located within Client Portal. Note that changes to delivery settings are not applied to shareholder materials where the record date has already been sent. Account holders may, therefore, continue to receive deliveries for certain securities via the existing method for a period of 2 to 4 weeks after requesting a change.
 

-  The information above applies solely to shareholder communications associated with U.S. and Canadian issuers. The delivery of communications for securities issued outside of these two countries is typically electronic, but managed directly by the issuer or its agent (i.e., not Mediant). 

 

See also: Non-Objecting Beneficial Owner (NOBO)

How to Use the Voluntary Corporate Action Election UI - Withdraw Submitted Elections

Once Interactive Brokers has submitted elections for a voluntary corporate action to the agent ("street"), the elected positions will be transferred by an internal booking to a new symbol to await the final allocation. At this point, the elected position will be considered "committed".

In the event a voluntary corporate action offering period is extended, the company will announce whether shares which had previously been submitted may be withdrawn from such election. In the event this is available, IB will re-open the corporate action election window and will modify the shares from Committed / Unavailable to Committed / Available.

Shares which are reflected on the Voluntary CA Election UI as Committed / Available may be modified by reducing the election quantity for the previously submitted election choice (in the case of a single account) or by selecting Remove All Allocations (in the case of a multi-tiered account structure).

Once updated, a new election may be made either within the same log-in session or by returning at a later point prior to the IB deadline for elections.

Please know that shares for which a withdraw has been requested will be returned to the target symbol and will become available for trading again once IB has confirmed the withdraw with the agent. This may take up to 24 hours. Should you not see a change in the symbol within your statement or through IB's trading platforms, please contact IB Customer Service directly.

Information: How Interactive Brokers processes a partial call of a US security

A partial call is when securities are redeemed for cash by the issuer prior to the maturity date of the instrument. Callable securities include bonds and preferred stocks. The issuer will announce the record date of the call at which time holders of settled positions may become subject to the call.

The US depository (DTCC) will run an allocation algorithm and assign called lots to brokers. While the issuer may announce a redemption ratio, there is no guarantee that the depository will assign the call to every broker holding the called issue at the defined date.

Upon receipt of the call information Interactive Brokers will run an impartial lottery in an attempt to assign the call evenly to all account holders whose positions have been determined to be against the position held at the depository It is important to note that while an account may be long shares, a portion of those shares may be lent or in some other way not considered part of Interactive Broker’s free position at the depository. As such those shares will not be considered when determining the allocation of the call. Also, when determining the final allocation, IB will attempt, but cannot guarantee, that the processing of a partial call does not result in an account holding a position which is less than a round lot. For instance, if Interactive Brokers is called for 2,000 bonds and the assignment of the partial call to a holder of 1,000 bonds would result in the holder being unable to close the resulting position, the holder may be excluded from the allocation process. Such exclusion may result in a holder being assigned on the call for a higher percentage of their bonds than the issuer has announced.

Assignment of calls will be handled shortly after the announcement by the depository. Customers will have the assigned position moved to a contra-symbol to await allocation of the funds to the account.

 

Dividend Tax Withholding on Depository Receipts

In the event an account holds a dividend paying depository receipt, at the time of the dividend payment taxes will be withheld. In several jurisdictions, IB is unable to efficiently comply in an electronic, straight-through manner with the required beneficial owner disclosure requirements. As such, dividends on depository receipts where full beneficial owner disclosure is required in order to receive beneficial tax treatment will be withheld at the maximum tax rate applicable.

Shareholders will not be eligible for reduced tax treatment on the allocation of cash through IB. All shareholders should consult their tax advisor for information on how to obtain a tax refund or tax credit for such activity.


Merger Arbitrage: Trading in Companies Involved in Pending Mergers/Acquisitions

Trading the securities of companies involved in announced but as-yet incomplete mergers is known as “Merger Arbitrage.”

When a company decides to assume control of a public company, the per-share price that the acquiring company must agree to pay for the target company is typically greater than the prevailing per-share stock price on the public exchange. This price difference is known as the “takeover premium.”

After the takeover terms are announced, the share price of the target company rises, but typically continues to hover somewhat below the price specified in the takeover terms.

Example: Company A agrees to purchase Company B. Prior to the takeover announcement, Company B’s shares trade on the NYSE for $20.00 per share. The deal terms specify that Company A will pay $25.00 in cash per share of company B. Shortly after the deal is announced, it would not be unusual to see Company B’s stock trading at $24.90 – higher than it had been trading, but still a 40 basis point discount versus the agreed upon deal price.

There are two primary reasons for this discount:

  1. While the takeover has been announced, it may never be completed, because of, e.g., regulatory, business, or financing difficulties; and,
  2. The interest cost of holding the target company’s shares.

If the acquiring company is a public company, the takeover deal may also be structured as a “Fixed Ratio” deal, where the acquiring company pays for the target company in a fixed ratio of its shares. Once a fixed-ratio acquisition deal is announced, the stock price of the target company’s shares will become a function of the acquiring company’s stock price.

Example: Company C, whose stock price is $10.00, agrees to acquire Company D, whose stock price is $15.00. The deal terms specify that two shares of Company C will be paid per share of Company D. Shortly after the deal is announced, it would not be unusual to see Company D’s stock trade at $19.90 on the stock exchange, even though two shares of Company C are currently worth $20.00 in cash.

As with a cash deal, the trading price of the target company will typically be at a discount to that implied by the deal ratio because of potential deal roadblocks and interest costs. This spread can also be influenced by differences in dividends received versus dividends owed over the expected life of the deal, and also by difficulties in borrowing the acquirer’s shares. (Sometimes takeovers are structured using floating ratios of stock, or with collars around a floating stock-for-stock ratio. There are also mergers that use combinations of stock and cash that require an election by holders of the target company. Such deals will make the relationship between the acquiring company and target company stock prices much more complicated than for standard, plain vanilla “cash” and “fixed ratio” takeover deals), and require very specific, intricate trading strategies.

For both Cash and Fixed Ratio takeover deals, the discount on the open market price of the target company tends to shrink as the closing date of the deal approaches and the deal progresses through various milestones such as the successful receipt of financing and shareholder and regulatory approval. Typically any discount largely disappears by the day that the takeover is completed.

Standard merger arbitrage trading strategies attempt to capture the spread between the current trading price of an acquired company and the eventual deal price. In the case of a Cash takeover, the standard Merger Arbitrage trade is to buy shares of the target company when the open-market price of the target company’s shares is lower than the deal price, hoping that the deal will successfully close and the target company’s shares will rise to the deal price. In the case of a Fixed Ratio takeover, the standard Merger Arbitrage trade is to buy shares of the target company and simultaneously short shares of the acquiring company when the shares of the target company are trading at a discount to the price specified in the takeover terms, as calculated by the companies’ current stock prices and the deal’s specified ratio. In both cases, the trader hopes that the deal will close, making money as the discount to the deal price decays.

Of course, if a trader believes that the market is too sanguine about a deal’s prospects, he could execute the opposite of the trades described above – shorting shares of the target and potentially buying shares of the acquirer.

As with all trading strategies, Merger Arbitrage strategies contain inherent risk.

The long merger arbitrage strategies described above are designed to profit if a takeover successfully closes; but, if the takeover is delayed or cancelled – or even rumored to be delayed or cancelled – these strategies risk losing money, in some cases more money than the original investment. The short merger arbitrage strategies risk losing money if the deal is completed, with significant loss potential if there is a sweetened offer for the target company.

This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy or sell securities. Trading in shares of companies involved in announced mergers is inherently risky. You should make yourself aware of the terms and risks of the proposed transaction before making any trading decision. Customers are solely responsible for their own trading decisions.

Information regarding mandatory corporate actions which result in fractional shares

If your account has been approved for trading fractions and a US corporate action issues fractional shares, the fractional shares will remain in your account. However, if your account does not have permissions to trade in fractions or the corporate action is issuing non-US shares or non-eligible US shares the fractional shares will be liquidated. The processing of the liquidation will typically be done within one day of the processing of the action.

Please be aware that IBKR holds all positions in street name. As such, corporate actions which may include a round up privilege whereby a broker may request that each holder of a fractional position be rounded up will not be supported by IBKR. All such actions which result in a fractional share will be liquidated as cash. The resulting cash will be the equivalent to the value of the resulting fractional shares.

Overview of the OneChicago NoDiv Contract

The OneChicago NoDiv single stock futures contract (OCX.NoDivRisk) differs from the Exchange's traditional single stock futures contract by virtue of its handling of ordinary distributions (e.g., dividends, capital gains, etc.).  Whereas the traditional contract is not adjusted for such ordinary distributions (the discounted expectations are reflected in the price), the NoDiv contract is intended to remove the risk of dividend expectations through a price adjustment made by the clearinghouse. The adjustment is made on the morning of the ex-date to ensure that the effect of the distribution is removed from the daily mark-to-market or cash variation pay/collect.

For example, assume a NoDiv contract which closes at $50.00 on the business day prior the ex-date at which stockholders of a $1.00 dividend are to be determined. On the ex-date OCC will adjust that prior day's final settlement price from $50.00 downward by the amount of the dividend to $49.00. The effect of this adjustment will be to ensure that the dividend has no impact upon the cash variation pay/collect as of ex-date close (i.e., short position holder does not receive the $1.00 variation collect and the long holder incur the $1.00 payment).


ADR Conversion Process

An American Depository Receipt (ADR) is a physical certificate evidencing ownership of American Depository Shares (ADS). An ADS is a US dollar denominated form of equity ownership in a non-US company. The ADS represents the foreign shares of the company held on deposit by a custodian bank in the company's home country and carries the corporate and economic rights of the foreign shares, subject to the terms specified on the ADR certificate.

Holders of the underlying ordinary shares may request to convert these shares into an ADR. Similarly, holders of an ADR may request to convert to the underlying ordinary shares.

IB will offer this conversion for the shares listed here.

 

Submitting Shares for Conversion

In order to request a conversion, either underlying to ADR or ADR to underlying, account holders may utilize IB's Voluntary Election Tool. To access the tool an account holder may

  1. Log in to Account Management
  2. Click the Support section on the left hand side. 
  3. Select Corporate Action Manager from the Support section.
  4. Select the Conversions tab from the table of corporate action types.
  5. From the table, locate the security you wish to act upon and select Allocate from the far right of the table
  6.  

     6. Once selected, a new screen will launch which will provide information on the terms of the conversion offer. Once you    have reviewed the terms, you may submit an election.

 

      

Please note: Fees will be assessed for an ADR conversion request. While the overview description will provide an estimate of the fees, the final amount the account will be charged is dependent on the processing fee assessed by the agent at the time of the action and therefore the estimate is subject to change.

 

Frequently Asked Questions

 

Is there a minimum value required for conversion?

IBKR does not require a minimum value of ADRs or underlying shares to proceed with a conversion.

I do not see my ADR/common shares in the list of positions available for conversion.

In the event the security is not listed within the table, customers may submit an Inquiry Ticket. Within the ticket, please indicate the security you wish to convert and the number of shares. Upon receipt, IBKR will review the request and provide information on whether the action will be made available.

When can I expect my new shares after I submit my conversion request?

Once the elected shares are settled in the account, a request will be forwarded to the processing agent. While many requests will be completed within 1 to 2 business days, as the processing is dependent third party agents in various regions this is an estimate only and a given conversion may take additional time. Upon receipt of the new shares, the position will be allocated to the account.

What will happen once I submit my election?

Once the election has been submitted, a request will be forwarded to the processing agent. The shares submitted for conversion will be moved to a contra-symbol in the account which is non-marginable and non-tradeable. The shares will remain in this location until the conversion has been completed. Account holders should review their accounts to ensure the account will remain in margin compliance during the processing.

How will I know the fee associated with the conversion?

Initially the estimated fee per share will be provided in the description of the conversion. Account holders will be responsible for calculating the fee themselves based on this information. All conversions will be charged an IB commission of USD 500 plus a pass thru of external costs.

I have negotiated a rate with the ADR issuer for conversion. How can I ensure that this is the fee I am charged?

In the event an account holder has negotiated a specific rate, please supply the details of the rate as well as a contact name and phone number within an Inquiry Ticket. IB will review the details and once confirmed, ensure that the applicable fee is deducted from the account.

Can I convert unsettled shares?

No. Only settled shares may be submitted to the processing agent for conversion.

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