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

A company declares a stock split reducing face value from Rs 10 to Rs 2. Ms. Iyer holds 300 shares on the record date. After the split, what happens in her demat account, and what is the effect on ISIN?

Ms. Iyer will hold 1,500 shares, as the split ratio is five (Rs 10 to Rs 2) and 300 times five is 1,500. Since face value changes, a new ISIN is activated; the depository debits the old ISIN and credits the new one, closing the old.

  1. AShe holds 1,500 shares; a new ISIN is allotted for the new face value and the holding moves to it, with the old ISIN closedCorrect
  2. BShe holds 300 shares of Rs 2 each with the same ISIN
  3. CShe holds 1,500 shares under the old ISIN, which stays active
  4. DShe holds 60 shares under a new ISIN

Explanation

Split ratio is 10/2 = 5, so 300 x 5 = 1,500 shares. Because face value changes, the security's characteristics change and a new ISIN is issued; the depository debits the old ISIN and credits the new ISIN. Keeping the old ISIN or 300 shares would ignore the change.

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