exceptionally, such Corporate Event also becomes effective during that same
trading session. In such circumstances, the Exchange will suspend trading
in the Individual Equity Option Contract, potentially for the remainder of
that trading session, for the necessary contract adjustments to be made. In
contrast, Universal Stock Futures Contracts (cash settlement) and
Universal Stock Futures Contracts (physical delivery) will remain open for
trading on a ‘cum entitlement’ basis for the remainder of the trading ses-
sion, and the necessary contract adjustments will be made after the close of
business.
Member firms should draw to the attention of changes created by the provi-
sions in the Policy to their clients given that for instance a Universal Stock
Futures Contract (cash settlement) and Universal Stock Futures Contract
(physical delivery) would be trading ‘cum entitlement’ when the underlying
share would be trading ‘ex entitlement’.
Takeovers
The Board reserves the right to determine how contracts should best be
adjusted in the event that a company is the subject of a takeover offer.
However, as a general rule the Board will make such a determination on the
basis described below. In the case of Individual Equity Option Contracts,
Delivery Contracts shall be performed as follows:
(a) before the offer has been declared ‘wholly unconditional’, by requiring
Delivery Sellers to deliver the number of shares in ‘non-assented’ form
that they have contracted to sell; and
(b) once the offer is declared wholly unconditional, in respect of Delivery
Contracts to be settled through CREST, by requiring the matching and
settlement of the components of the headline offer for the takeover in
appropriate proportions.
The Settlement Day may be postponed until the acquiring company distrib-
utes the consideration for the takeover, in which case The London Clearing
House may continue to call delivery margin until settlement is completed.
In the case of Universal Stock Futures Contracts (cash settlement), the
EDSP shall be calculated as follows:
(a) before the offer has been declared ‘wholly unconditional’, by using the
Relevant Reference Price for the contract, as defined in the List of
Contract Details, (i.e. the price by reference to which the EDSP shall be
calculated) based on the valuation of ‘non-assented’ shares; and
(b) once the offer is declared wholly unconditional, by using a valuation
representative of the components of the headline offer for the takeover
in appropriate proportions. The Board will seek to ensure that the tim-
ing of the calculation of the EDSP is unaffected by the outcome of the
takeover offer.
254 Euronext.liffe corporate action policy
In the case of Universal Stock Futures Contracts (physical delivery),
Delivery Contracts shall be performed as follows:
(a) before the offer has been declared ‘wholly unconditional’, by requiring
Delivery Sellers to deliver the number of shares in ‘non-assented’ form
that they have contracted to sell; and
(b) once the offer is declared wholly unconditional, in respect of Delivery
Contracts to be delivered through CREST or Euroclear, by requiring the
matching and settlement of the components of the headline offer for the
takeover in appropriate proportions.
The Settlement Day may be postponed until the acquiring company distrib-
utes the consideration for the takeover, in which case The London Clearing
House may continue to call delivery margin until settlement is completed.
Equity Shares Contracts
Where a contract is created in the terms of Exchange Contract No. 211 at a
time when the shares are cum entitlement, but the delivery of shares takes
place on or after the ex entitlement date, the Exchange will require that both
the ex entitlement shares and the Relevant Entitlement are delivered. The ex
entitlement shares and the Relevant Entitlement should be delivered in quan-
tities reflecting the original bargain size. Shares and entitlements should be
delivered in exchange for an unadjusted amount of consideration per bargain.
In the case of takeovers, where contracts are made prior to the takeover being
declared wholly unconditional, the Seller will be required to deliver shares not
assented to the offer, or any alternative offer. The Buyer should be able to
direct the acceptance of the offer, if required, prior to the settlement date.
The following attachement to the Policy gives examples of adjustments
Attachment to Corporate Events Policy
EXAMPLES OF ADJUSTMENTS TO CATER FOR CORPORATE EVENTS
Example 1
Company BBB announces its intention to demerge by granting 2 shares in
the new company, CCC (which is a substantial company and is to be listed
on the London Stock Exchange), to existing shareholders for every one share
in BBB held. BBB shares are due to commence trading ex entitlement on 25
August. The options on BBB shares are adjusted such that delivery con-
tracts which arise as a result of exercise on and from 25 August are settled
by delivery of 1000 BBB shares and 2000 CCC shares.
The cash settlement futures on BBB shares are adjusted such that the EDSP
will be calculated as the combined value of 1 BBB share and 2 CCC shares.
The physical delivery futures on BBB shares are adjusted such that delivery
contracts which arise on the last trading day are settled by delivery of 1000
BBB shares and 2000 CCC shares.
Euronext.liffe.corporate action policy 255
Example 2
Company DDD announces a 1 for 3 bonus issue. This would mean that post
event there would be 4/3 as many shares in issue as pre event.
Before the market opens on 8 September:
(a) the lot size of the DDD options is multiplied by 4/3 and the exercise
prices are multiplied by 3/4; and
(b) the lot size of the DDD cash settlement and physical delivery futures is
multiplied by 4/3 and the reference price for determining variation mar-
gin (i.e. the previous night’s settlement price) is multiplied by 3/4.
Example 3
Company EEE announces a redeemable two part rights issue to fund a
potential acquisition on the basis of one unit for every 20 shares held. The
price for each unit is payable in two instalments. Money is repayable to the
extent that it is not used for the acquisition. EEE shares are due to com-
mence trading ex entitlement on 6 December. It is not possible to formulate
a reliable theoretical value for the ex entitlement share price due to uncer-
tainty as to whether the acquisition will proceed, and it is therefore neces-
sary to delay the opening of the market in EEE options on the first day of
trading ex entitlement to carry out a valuation. The ex entitlement share
price is 400p and the price of the unit is 240p.
The theoretical cum entitlement share price is:
The ratio of the theoretical cum entitlement share price to the ex entitlement
share price is:
Before the market in EEE options opens on 6 December, the lot size of the
EEE options is multiplied by 1.03 and the exercise prices are divided by
1.03. (NB: it may be necessary for the market in EEE options to remain sus-
pended for the entire trading session.)
Both cash settlement and physical delivery futures contracts on EEE con-
tinue to trade on a ‘cum entitlement’ basis on 6 December. Before the mar-
ket opens on the following business day, the lot size of EEE futures is multi-
plied by 1.03 and the reference price (i.e. the previous night’s settlement
price) is divided by 1.03.
Source: LIFFE Corporate Action Policy Document.
412
400
1.03
240
20
400 412
256 Euronext.liffe corporate action policy
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