The Lottery Corporation Limited $0.025 Special Dividend – Adjustment implications for ETOs

ASX Notice No. 0969.24.08 dated 23 August 2024 outlined the adjustment method for The Lottery Corporation Limited (ASX Code: TLC) ETOs due to the announcement of a $0.025 special dividend and an ordinary dividend of $0.08, both dividends will have an ex-dividend date of Wednesday, 28 August 2024.

Effective Date

The effective date of this adjustment is Wednesday, 28 August 2024.

ASX determined that the last cum-dividend VWAP based on trading on ASX markets on Tuesday, 27 August 2024 was $4.8932

Standard Method of Adjustment

Theoretical New Contract Size = Old Contract Size + (total special dividend paid per Old Contract Size)/(S – OD – SD)

Theoretical New Contract Size = 100 + ($0.025*100)/($4.8932-$0.08-$0.025)

= 100.5221 rounded to 100 where the difference of 0.5221 will be cash adjusted based on the below formula.

Strike Factor = Old Contract Size/Theoretical New Contract Size

Strike Factor = 100/100.5221

                         = 0.994806

Please note that this is a non-rights style adjustment.

Cash Equalisation Adjustment Payments for Contract Size Roundings

The cash adjustment is calculated by taking the difference between the contract value of the option before and after the adjustment.  Variants to the formula apply for rights style adjustments and when the adjustment occurs on the day of the option’s expiry.

Cash adjustment = (BOP * BUV) – (AOP * AUV)

Where

BUV = Before (adjustment) Unit Value = BP * BU rounded to nearest cent

AUV = After (adjustment) Unit Value = AP * AU rounded to nearest cent

BU = units per lot (multiplier) before the adjustment (old traded entity)

AU = units per lot (multiplier) after the adjustment (old traded entity)

BP = for rights style, =SP/Adjustment Factor, for non-rights style=SP.

AP = for rights style, =SP, for non-rights style=SP * Adjustment Factor.

SP = settlement price of the option if not the options expiry day, otherwise the intrinsic price (underlying price-strike price for calls, strike-underlying price for puts) if on expiry date.  Refer Notes 1 and 2 below

BOP = pre-adjusted open position Refer Notes 1 and 3 below

AOP = post-adjusted open position Refer Notes 1 and 3 below

Note:

1. Cash adjustments on expiry will apply to exercised positions only.
2. The intrinsic price used for exercised positions on expiry is based on the adjusted strike price for rights style adjustments and the pre-adjusted strike price for non-rights style adjustments.  Set negative intrinsic prices to zero i.e. if an out of the money is exercised, the intrinsic price and hence cash adjustment is zero.
3. Pre and post adjusted positions will be the same unless there is a position adjustment factor applied to the open position associated with the adjustment.  For rights style use the start of day position (i.e. exclude any UA trading activity), for non-rights style use the (end-of-day) position prior to the adjustment.
4. Cash adjustments will also apply to LEPO positions.
5. For short positions, the result of the cash adjustment formula should have its sign reversed (multiply by -1). For non-LEPO positions the truncation approach ensures that the seller (writer) is always debited and the buyer (taker) is credited.  Because the LEPO strike is usually returned to 1c after the adjustment, the holder of a short LEPO position may be credited and long position may be debited.

Refer to table below for adjusted strike and contract size

Need more information?

Issued by

Greg Fitzpatrick, Senior Manager Clearing Operations

Contact information

Clearing Operations
clearing@asx.com.au