Further to ASX Notice No.1122.23.11 dated 1 November 2023. ASX has applied a rights style adjustment to Treasury Wine Estates Limited (ASX Code: TWE). The terms of the entitlement issue are for eligible shareholders to purchase 1 TWE securities for every 9.45 shares held at a purchase price of $10.80. New securities issued under the Entitlement Offer will rank equally with existing TWE securities.

The adjustment method is outlined below:

New contract: 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 entitlements ("rights”) attributed to each OC determined by the issue ratio applied to the old contract size OC (n = 1 / 9.45 * 100)

r = the market value (whether positive or negative) of the each entitlement (“rights”) as determined by ASX, calculated as S - d - C

Where:

S = VWAP ex-entitlement of existing securities on the first day of ex-entitlement trading when the underlying securities resumed trading using the volume-weighted average price on ASX market

d = ordinary dividend or distribution that the new securities are not entitled to (d=0)

C = consideration paid to exercise the implied rights (C=$10.80)

The new strikes are calculated as follows:

NS = OS * OC/TC

Where

OS = Old Strike

NS = New Strike

For the strike calculations, the theoretical new contract size (TC) used by ASX is rounded to 4 decimal places, and the strike factor (OC/TC) is rounded to 6 decimal places.

The ex-entitlement VWAP on TWE for ETO purposes on 3 November 2023 was $11.0426 The market value of each entitlement as determined by ASX is r = S - d - C

r = 11.0426 – 0 – 10.80 = 0.2426

This is used in the calculation of theoretical new contract size (TC) and new strike (NS) using

TC = OC + n*r/S and NS = OS * OC/TC

Thus, for an existing contract size of 100, the new contract size was adjusted to 100 and the strike factor is 100/100.2325 = 0.99768 (rounded to 6 decimal places), using TMC threshold truncation.

Participants should be aware that there are certain market conditions that can lead to a negative value for ‘r’.  A negative ‘r’ used in the calculation above will create an adjustment where the contract size is adjusted downwards and the exercise price is adjusted upwards.  Please see the example of Arrium Limited “ARI”.

OTC series (where any)

OTC series cleared by ASXCL under the ASX Equity FlexClearTM will be adjusted, including cash adjustments where any, using the same formula to the ETOs as shown in the Derivatives Notice.

Due to anonymity, the adjusted OTC series details will not be published in the Derivatives Notice. The adjusted OTC series will be made available to CP the following morning via their own clearing systems.

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ETO Cash Equalisation Adjustment Payments for Contract Size Roundings

Participants are reminded that ETO cash equalisation adjustments for contract size roundings are effective.

The cash adjustment payments will be posted by ASXCL as close as practicable to the effective adjustment date. For ETOs are LEPOs and non-LEPOs (ordinary options, American or European), takers will be credited and writers debited a cash equalisation payment for any contract size rounding calculations. (For share consolidations, it is possible for a LEPO taker to be debited if the LEPO strike is standardized back to 1 cent after the initial rounding).

Where the old contract size of a series before an adjustment is 100, ASX will apply a standardising “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.  If the calculated theoretical new contract size falls above 102, then the theoretical new contract size will be truncated down to the nearest whole number, with a cash equalisation adjustment payment made.

For the purpose of the cash equalisation adjustment payment, the percentage of the calculated contract size that was truncated and rounded to six decimal places in the percentage figure was determined by ASX to be:

Previous Contract size (100) = (TC-NC)/TC = (100.2325 -100)/ 100.2325 = 0.231961%

This was applied to the old daily settlement price.

Exercises Restrictions and Listing Restrictions Lifted after ETO Adjustment

Exercise restrictions and listing restrictions for ETOs (market and OTC) will be lifted from the start of trading on Monday, 6 November 2023.

Adjustment Effective on 3 November 2023 under “UA” Trading Basis

This adjustment was effective on 3 November 2023 when the ETO class resumed trading on an under adjustment basis (“UA” flag).  All trades were on an adjusted basis, notwithstanding that the extent of the adjustment was officially published by ASX after the end of the trading day.

Please refer to table of adjusted series below:

DCS Cash Adjustment Calculation Methodology

Where a cash adjustment is applicable, DCS will apply the methodology described in this section.

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.

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Issued by

Greg Fitzpatrick, Senior Manager Clearing Operations

Contact information

ASX Clearing Operations
clearing@asx.com.au