UPDATE (19/11/2018) - Clarification of the VWAP periods within the adjustment formular.  Please note for the updates in bold in the definition of r and S.   

UPDATE (14/11/2018) - Participants are advised that a listing restriction will be applied for WES Options from Wednesday, 14/11/2018 and will be lifted on Thursday, 22/11/2018. The April 2019, September 2020 and June 2021 ETO series will be terminated. 

ASX Participants and ASX Clear (ASXCL) Participants are advised that Wesfarmers Limited (ASX Code: WES) has announced a proposal for the separation of Coles Group Limited (ASX Code: COL). The proposed transaction is subject to shareholder and court approval.

The proposed separation would be effected via a distribution of Coles shares by way of an in-specie distribution of one Coles fully paid ordinary share for every one existing WES share held on 22 November 2018.

Participants are advised to refer to all announcements by WES for information, updates, and full timetables for the proposed transaction.

The key dates from the perspective of ETOs are as follows (indicatively):

Notes:

·        Participants may wish to consider making their clients, especially retail traders, aware of the issues relating to rights-style ETO adjustment for entitlement issues in relation to trading or exercise of ETOs on the ex-entitlement day.

·        As with any rights-style adjustment that relies on market valuation, Participants are strongly advised that the adjustment to ETOs becomes effective on the commencement of ex-entitlement trading of the underlying securities. However, while any ETO trades entered into after the resumption of trading will be on an adjusted basis (“UA” Under Adjustment flag), the full extent of the adjustments will only be confirmed after VWAP and published by ASX after trading close on that day. Traders can estimate indicative adjustments when the market opens or during the course of the day. 

Adjustment to ASX ETOs

ASX has consulted with ASXCL on the implications for WES ETOs in relation to the entitlement offer. ASX will determine the following adjustment under ASX Operating Rule [2230] Adjustments, Appendix 2230 Procedure 10 Alternative Adjustments as follows:

New contract size is calculated as follows:

TC = OC + n*r/S

Where:

TC    = theoretical new contract size (prior to any rounding) which is used in intermediate calculations

OC   = old contract size (currently 100)

n      = the number of Coles shares attributed to each OC determined by the issue ratio applied to the old contract size, (issue ratio is 1 Coles share: 1 WES share, n=1/1*100=100)

r      = the market value of the each of the new shares as determined by ASX, using VWAP of ‘Coles’ on 21 November 2018 from the period 'Coles' commences trading

S     = VWAP of WES on the first day of ex-Entitlement trading, 21 November 2018 matching the 'Coles' VWAP period

The new strikes are calculated as follows:

New Strike = Old Strike * OC/TC

The strike factor (Old Contract Size/ New Contract Size) for all contract sizes will be based on the result calculated for the standard 100 contract size.

The new contract size is calculated to the nearest four decimal points in the intermediate calculation for the new exercise price.

Where the old contract size of a series before an adjustment is 100, ASX will apply a standardizing “TMC threshold” so that if the calculated new contract size falls between 100 and to up to but not including 102, the new contract size will be truncated to the standard 100, and a cash equalisation adjustment payment made.

 OTC series (where any)

Clearing Participants are advised that any OTC series cleared by ASXCL under the ASX Equity OTC Clear service will be adjusted using the same formula as the ETOs as shown in this Derivatives Notice. 

OTC series will be adjusted along with ETO adjustments on the night however, to maintain anonymity; the adjusted OTC series details will not be published in the Derivatives Notice but will be available to CPs the following morning via their own clearing systems.

ETO exercise restrictions (where any) in relation to an adjustment may occur during the period of 10 business days prior to and including expiry, will also apply to OTC series. However such exercise restrictions will not apply on expiry day of an OTC.

Specific Cover

Participants are advised that as the contract size is changing, arrangements may need to be made for additional lodgement of underlying shares to account for any collateral denoted as specific cover.

What do I need to do by when?

Participants should be aware of the content of this Notice as it sets out the treatment of the proposed separation of Coles from Wesfarmers with respect to open positions in ASX WES ETO contracts.

Exercises Restricted Pending ETO Adjustment

An exercise restriction will be applied to WES ETOs effective 20th November 2018, and the restriction will be lifted effective 21st November 2018.

Effective Date

A further notice will be issued after the close of business following the resumption of trading of the underlying securities on an ex-entitlement basis, Wednesday, 21 November 2018. The notice will detail the adjusted contract size and adjusted strikes. Participants are reminded that trading on the ex-entitlement day will be on an “under adjustment” basis (UA trading) and effective that day, notwithstanding the adjusted specifications are published by ASX only after close of trading.

Need more information?

Issued by

Brendan Laird, Senior Manager, Post Trade Operations

Contact information

Cheng Zhang
1800 623 571
cad@asx.com.au

Disclaimer