Notice

Fortescue Metals Group Ltd (FMG) $0.11 Special Dividend – Adjustment Implication for ETOs

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Notice reference number: 0139.19.02
Date published: 27/02/19
Effective as of: 28/02/19
Last updated: 27/02/19

Fortescue Metals Group Ltd $0.11 Special Dividend – Adjustment implications for ETOs

ASX Notice No. 0126.19.02 dated 22 Feb 2019 described the adjustment method that applied to ETOs over Fortescue Metals Group Ltd (ASX Code: FMG) relating to the $0.11 special dividend and ordinary dividend of $0.19 with ex-dividend date of 28 February 2019.

Effective Date

The effective date of the adjustment is Thursday, 28 February 2019, when the underlying security commences trading on an ex-dividend basis.

ASX determined that the last cum-dividend VWAP based on trading on ASX markets on Wednesday, 27 February 2019 was $6.4438

Standard Method of Adjustment

For an old contract size of 100 shares, the new contract size will be adjusted, using TMC threshold truncation.

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

Theoretical New Contract Size = 100 + ($0.11*100)/($6.4438-$0.19-$0.11)

=101.7904 truncated to 100 where the difference of 1.7904 will be cash adjusted based on the below formula.

Strike Factor = Old Contract Size/Theoretical New Contract Size

Strike Factor = 100/101.7904

                     = 0.982411

 

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 

OLD SIZE

NEW SIZE

OLD STRIKE (CENTS)

NEW STRIKE (CENTS)

Exercise

100

100

1

1

E

100

100

180

177

A

100

100

200

196

A

100

100

220

216

A

100

100

240

236

A

100

100

260

255

A

100

100

280

275

A

100

100

290

285

A

100

100

300

295

A

100

100

301

296

E

100

100

310

305

A

100

100

320

314

A

100

100

321

315

E

100

100

330

324

A

100

100

331

325

E

100

100

340

334

A

100

100

341

335

E

100

100

350

344

A

100

100

351

345

E

100

100

360

354

A

100

100

361

355

E

100

100

370

363

A

100

100

371

364

E

100

100

380

373

A

100

100

381

374

E

100

100

390

383

A

100

100

391

384

E

100

100

400

393

A

100

100

401

394

E

100

100

410

403

A

100

100

411

404

E

100

100

420

413

A

100

100

421

414

E

100

100

430

422

A

100

100

431

423

E

100

100

440

432

A

100

100

441

433

E

100

100

450

442

A

100

100

451

443

E

100

100

460

452

A

100

100

461

453

E

100

100

470

462

A

100

100

471

463

E

100

100

480

472

A

100

100

481

473

E

100

100

490

481

A

100

100

491

482

E

100

100

500

491

A

100

100

501

492

E

100

100

525

516

A

100

100

526

517

E

100

100

550

540

A

100

100

551

541

E

100

100

575

565

A

100

100

576

566

E

100

100

600

589

A

100

100

601

590

E

100

100

625

614

A

100

100

626

615

E

100

100

650

639

A

100

100

651

640

E

100

100

675

663

A

100

100

676

664

E

100

100

700

688

A

100

100

701

689

E

100

100

725

712

A

100

100

726

713

E

100

100

750

737

A

100

100

775

761

A

100

100

800

786

A

100

100

825

810

A

100

100

850

835

A

100

100

875

860

A

100

100

900

884

A

100

100

925

909

A

 

Need more information?

Issued by

Brendan Laird, Senior Manager, Post Trade Operations

Contact information

Chris Mitchell
1800 623 571
cad@asx.com.au

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