Corporate action

A corporate action is an event initiated by a public company that brings or could bring an actual change to the securities—equity or debt—issued by the company. Corporate actions are typically agreed upon by a company's board of directors and authorized by the shareholders. For some events, shareholders or bondholders are permitted to vote on the event. Examples of corporate actions include stock splits, dividends, mergers and acquisitions, rights issues, and spin-offs.
Some corporate actions such as a dividend or coupon payment may have a direct financial impact on the shareholders or bondholders; another example is a call of a debt security. Other corporate actions such as stock split may have an indirect financial impact, as the increased liquidity of shares may cause the price of the stock to decrease. Some corporate actions, such as name changes or ticker symbol changes to better reflect a company's business focus, have no direct financial impact on the shareholders; securities may be listed under a different security identifier however. For example, "Apple Computers" changed its name to Apple Inc.



There are three types of corporate actions: voluntary, mandatory, and mandatory with choice.
Some market participants use a different method to distinguish the corporate action types. For example, "mandatory corporate action" and "mandatory with choice corporate action" may be used together. DTC uses the terms distributions, redemptions and reorganizations.


The primary reasons companies use corporate actions are:
As an owner, the impact of a corporate action is usually measured in terms of changes to the securities and/or cash positions, so corporate actions can be divided into two categories:
In order to keep investors and the market informed of corporate actions, they need to be announced. For public companies listed on exchanges, the exchanges themselves handle the announcement, notifying shareholders as well as making information about the corporate action available online. For companies that trade in the over-the-counter marketplace, U.S. federal securities regulators task Financial Industry Regulatory Authority, a self-regulatory organization, with processing the corporate action announcement.
The event information flow for public companies where shareholders or bondholders can vote usually involves numerous parties. The information is first announced by the company to the exchange. Financial data vendors collect such information and disseminate it via their own services to banks, institutional investors, financial data processors, and other market participants. In addition, the central securities depository of the respective market collects the data and informs the CSD participants holding the respective share or bond in custody about the upcoming corporate action. The CSD sets a deadline for its participants by which the elections must be returned. The CSD participants then further disseminate the information to its clients, which in turn must submit their election by the deadline set by the CSD participant.