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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Public Offering / Corporate Actions

A company declares a cash dividend and fixes a record date. Ms. Iyer buys the shares on the exchange so that settlement happens after the record date. On the record date, the depository's beneficiary position shows the shares still with the seller. To whom will the issuer pay the dividend?

The dividend is paid to the seller. Entitlement is determined by the beneficial owner positions recorded by the depository at the close of the record date, and the shares were still in the seller's account then. Ms. Iyer's trade date before the record date does not matter.

  1. AMs. Iyer, because she bought before the record date
  2. BThe seller, as the beneficial owner on the record dateCorrect
  3. CThe stock exchange, which then distributes it
  4. DThe depository, which retains it for the company

Explanation

Corporate benefits go to the beneficial owners whose names appear in the depository's records at the close of the record date. Since the shares were still in the seller's account on that date, the seller is entitled to the dividend. Ms. Iyer is not entitled merely because the trade date preceded the record date. The depository and exchange do not retain or distribute dividends.

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