SIE Unit 2: Other equities + corporate actions

American Depository Receipt (ADR)

simplifies foreign investing - common shares in foregin company home bank is prchased by US depository bank. shares are dpeosited in foreign branch and then the bank issues a receipt. in USD

Benefits of ADR

*ease of use-trade on OTC exchange

*taxation - dividends may be subject to witholding tax

Risks of ADR

• political +currency risk

• voting+preemptive rights

• not required to pass voting proxies

Rule 144

covers securities that are not registered with SEC and registered shared thta are held by control persons

restricted stock

securities initially acquired by investors through other means than registered public offering (priv placement, not sold until fully paid in 6 months)

control stock

owned by directors, officers, or person who own/control 10% or more of the issuers voting stock (must complete 144 form to sell shares)

additional public offering (APO)

issues more stock to raise capital.

warrant

certificate granting owner the right to purchase securities from issuer at a specified price

right vs warrant

right: short term, given to exisiting shareholders, able to purchase below MV

warrant: long-term, bundle with securities, above current MV

stock split

company divides each existing share of its stock into several new shared

forward split

increase # of shares and decrease price without impacting total market value of shares outstanding.

even split

investor is always given a certain # of shares for each share owned ex. 3 for 1, 2 for 1

uneven split

any ration ex. 3 for 2, 5 for 4

reverse split

number of shared decreases while price per share increases

merger

2 or more companies combine operations and assets - shareholders receive shares form new company and cancel old company

acquisition

1 company take over operations and assets

spinoff

corporation forms subsidiary company out of some ops and assets

buyback

buys its own oustanding shared in open market form shareholders

tender offer

buy security directly from the owners (not secondary market)

Tax impacts

• stock splits + dividends are. never taxable

• M&A, spinoffs are generally not taxable because shareholders receive stock

• buyback +tender always taxable

notices

given no later than 10 days before record involved

• title

• date of declaration

• date of record

• date of payment

• amount to be paid for stock dividend

• rate of distribution for stock

proxy voting

type of absentee ballot that allwos shareholders to vote for a corporation

proxy sollicitation

SEC requires review but allows 3rd party to vote the shares

standardized cost basis adjustment

Modify the original purchase price of shares to account for corporate actions like stock splits, dividends, and returns of capital, ensuring accurate capital gains tax calculation.