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Lilian Elliott
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1 Readers should be aware that only the original Thai text has legal force and that this English translation is strictly for reference. Thailand Futures Exchange Public Company Limited cannot undertake any responsibility for its accuracy nor be held liable for any loss or damages arising from or related to its use. Guidelines for Adjustment of Single stock Futures in Case of Corporate Action For the purpose of mitigation of the impact on a holder of positions in Single stock Futures when a Listed company, which issues common stocks used as Underlying of the Single stock Futures, undertakes transactions that affects the underlying stocks, or collectively referred to as Corporate action, TFEX will comply with the rules prescribed in Regulation of TFEX Procedures, Chapter 600: Listing of Derivatives Contracts by taking below actions. 1. TFEX s Actions in Case of Corporate action: TFEX will take one or simultaneously several of the following actions: 1) Adjustment of the Contract Size; 2) Adjustment of Contracted Prices which are the deal price of Single stock Futures matched by the Trading system of TFEX and recorded in the system of TCH, and the Settlement price; 3) Adjustment of the Open Interest/Open Position of the contract; 4) Requirement for cash payment; 5) Delisting the Single stock Futures underlined by such common stocks; 6) Other actions as TFEX deems appropriate. 2. Rules for Taking Actions in Case of Single stock Futures Adjustment Upon Corporate action The adjustment of Single stock Futures when the Corporate action is taken may be divided as follows: 2.1 Rules for Standard Contract Adjustment Corporate Action 1) Capital increase by means of right offering or transferable subscription rights (TSR) to existing shareholders. Rules The adjustment will be undertaken if the newlyissued stock subscription rights or the TSRs received by existing shareholders proportionally to their rights have value in money. That is, they may be exercised to buy the underlying stocks at the price lower than the closing price of such stocks as of the business day prior to the date of posting of the X mark (which means that the offering price does not include benefits from holding such securities). 2) Change in par value The adjustment will be undertaken in the case of change in the par value of the common stocks by way of increasing the par value (stock split up) or reducing the par value (stock split down) Thailand Futures Exchange Plc. Page 1/14

2 Corporate Action 3) Payment of stock dividends to existing shareholders 4) Payment of extraordinary dividends or capital return to existing shareholders Rules The adjustment will be undertaken when the Listed company issuing the common stock used as Underlying of Single stock Futures pays dividends in the form of common stocks, proportionally to the rights (Bonus Issue). The adjustment will be undertaken when the Listed company issuing the common stocks used as Underlying of Single stock Futures announces that it will make payment of extraordinary dividends or return of capital to the existing shareholders. 5) Merger & Acquisition / Takeover The adjustment will be undertaken when the Listed company issuing the ordinary shares used as Underlying of Single stock Futures is affected by the Merger & Acquisition / Takeover or has significant change in the structures which have the impact on underlying shares, e.g. the underlying shares are delisted after the transaction or the underlying shares can no longer be qualified as underlying shares of the Single stock Futures. In the case of foregoing standard Corporate actions, TFEX will take actions in accordance with the conditions or procedures prescribed by TFEX. 2.2 Contract Adjustment in Case of Other Corporate actions apart from or different from those specified in clause 2.1, TFEX may take actions as it deems appropriate on a case by case basis. The manager of TFEX shall have sole discretion to consider whether the Single stock Futures adjustment is necessary in the case of such Corporate action, and to prescribe appropriate conditions or procedures for the adjustment. In addition, when the Listed company issuing the underlying stocks of Single stock Futures announces the Corporate action, TFEX will consider whether such Corporate action will results in the contract adjustment and if the adjustment is necessary, whether it will be the standard contract adjustment or the adjustment in other cases. TFEX will notify the Members and relevant persons of the details, procedures, effective dates and other related information in advance and the adjusted contract shall be marked by symbol (e.g. X, Y or Z). Thailand Futures Exchange Plc. Page 2/14

3 Standard Contract Adjustment Procedures TFEX will adjust the contract by using the following calculation formula: Corporate action 1) Capital increase by means of right offering or transferable subscription right (TSR) to existing shareholders Where : O = Number of ordinary shares of existing shareholders N = Number of newly-issued ordinary shares C = Offering price of newly issued shares S = Closing price of underlying shares as of the business day prior to the date of posting of the X mark 2) Change in par value Where : O = Number of old shares N = Number of new shares Adjustment Factor (AF) O + (N * C/S) N + O O N Calculation Formula / Action Contracted Price Old Contract Price * AF Old Contract Price * AF Contract Size Old Contract Size AF Old Contract Size AF 3) Payment of stock dividends to existing shareholders Where : O = Number of old shares N = Number of stock dividends O N + O Old Contract Price * AF Old Contract Size AF 4) Payment of extraordinary dividends or capital return to existing shareholders Where: R = The rate of extraordinary dividend per share or capital return per share S = Closing price of underlying shares as of the business day prior to the date of posting of the X mark S R S Old Contract Price * AF Old Contract Size AF 5) Merger & Acquisition / Takeover The adjustment undertaken depends on the type of Merger & Acquisition / Takeover Merger & Acquisition / Takeover The adjustment will be undertaken when the ordinary shares used as Underlying of Single stock Futures are affected by the Merger & Acquisition or Takeover or there is significant change in the structures [of the Listed company] which have the impact on underlying shares, e.g. the underlying shares are delisted after the transaction or the underlying shares can no longer be qualified as underlying shares of the Single stock Futures. For example; Merger of A* shares and B shares resulting in C shares; or Merger of A* shares and B shares resulting in B shares. Where A* shares are the underlying shares of Single stock Futures Thailand Futures Exchange Plc. Page 3/14

4 In the case of A* shares are still existed after the merger, there will be no adjustment of contract, since in this case, it is deemed that the change is already reflected in the price of A* shares. The undertaking of adjustment of contracts in Merger & Acquisition or Takeover cases shall be categorized into 3 cases as follows: Case 1: Merger & Acquisition or Takeover by exchanging ordinary shares of new company for old company s ordinary shares, which are underlying shares of Single stock Futures (Share for Share) TFEX s Action Adjust the contract and continue the Trading of such Futures until the contract expires, but TFEX will not generate new series of the contract in order to replace such expired contract. The Settlement price of the adjusted contract will rely on the price of new company s shares after Merger & Acquisition. Suspend and delist such Single stock Futures when there is no Open Position on the adjustment date or at the end of any day after the adjustment date. Calculation Formula Adjustment Factor (AF) = O / N Contracted Price = Old Contract Price * AF Contract Size = Old Contract Size / AF Where O = Number of old company s ordinary shares which are the underlying Single stock Futures N = Number of new company s ordinary shares that the shareholders of the old company receive. Case 2: Merger & Acquisition or Takeover by cash payment to the shareholders of the old company for shares which are the underlying shares of Single stock Futures. (Cash for Share). TFEX s Action Cash settlement using Theoretical Futures price from Cost of Carry model on the last trading day of such underlying shares. Suspend the generation of new series of contract in order to replace the delisted/ expired contract. Calculation Formula F = S x e [(r-q)t/365] Where F = Theoretical Futures price under Cost of Carry Model S = The price of the underlying shares of Single stock Futures; calculated from the volume weighted average value of the underlying share trading transaction during last 15 minutes and at the closing on the last trading day, rounded to the nearest two decimal points. In the case there is no such price; the latest closing price of underlying shares shall be used. r = the per-annum interest rate of 1 year Government Zero Coupon (%) q = average dividend yield of underlying shares in previous 1 year (%) In the case of dividend payment being paid differently from normal payment, TFEX may consider exercising its discretion to calculate the dividend yield. t = Remaining term of the contract (days) Thailand Futures Exchange Plc. Page 4/14

5 Case 3: Merger & Acquisition or Takeover by payment of both new company s ordinary shares and cash to the shareholders of the old company for shares which are the underlying shares of Single stock Futures (Mix cash and share) TFEX s Actions and Conditions The actions shall depend on the value of new company s ordinary shares being swapped, comparing to the total value of transaction as follows: If the value of new company s ordinary shares being swapped, comparing to the total value of transaction, is 33% or more, [TFEX] shall adjust the contract using the same method as Share for Share case by calculating cash payment together with the proportion of new shares received by the investors. If the value of new company s ordinary shares being swapped is less than such proportion prescribed above, [TFEX] shall adjust the contract with the same method as Cash for Share case by making cash payment using the theoretical price. TFEX may adjust the Open Position in place of the Contract Size where it deems appropriate. [If the Open Position adjustment is used in place of the Contract Size adjustment], the above mentioned formula will be used to calculate the Adjustment Factor. The Open Position and Contracted Price will be adjusted according to the following formula: New Open Position = Old Open Position/Adjustment Factor Contracted Price = Old Contracted Price * Adjustment Factor Enforcement This shall replace the Guidelines for Adjustment of Single stock Futures in Case of Corporate action, dated 11 March 2011 and shall be effective from 25 May 2015 onwards. Thailand Futures Exchange Plc. Page 5/14

6 Examples of Standard Single stock Futures Adjustment in Case of Corporate action 1 Capital Increase by Way of Right Issue Example 1 The ABC company announces to issue newly-issued stock subscription rights to the existing shareholders at the ratio of ten existing stocks to one new stock with the par value of Baht 50 per stock. The Single stock Futures series traded on the date prior to the X-date are as follows: ABCH ABCM ABCU ABCZ The closing price of ABC s stocks as of the date prior to the X date is Baht 100. O+(N*C/S) [10 + (1*50/100)] Adjustment Factor = N+O = (N+10) = When the adjustment of the series takes place due to the Corporate action, it is found that the previous deal price, the Settlement price on the X-date, as well as the series without an Open Position, will be adjusted by the AF for consistency. 1 In present, in accordance with the standard Single stock Futures adjustment when the Corporate action was undertaken, the adjustment factor (AF) is used to adjust the Contract Size and the Contracted Price as follows: The 7-decimal AF is used to adjust the Contract Size and the adjusted Contract Size will be in the integer number. The 7-decimal AF is used to adjust the Contracted Price and the adjusted Contracted Price will have 2 decimal places. If there is a change in the calculation of the Adjustment Factor differing from the abovementioned guideline, TFEX shall notify the Members and relevant persons of the information in advance. Thailand Futures Exchange Plc. Page 6/14

7 The Single stock Future series traded on the X date will be adjusted as follows: Series Adj. Contract Size = Old Contract Size/AF Open Interest ABCH15X 1000 / = * = ABCM15X 1000 / = * = ABCU15X 1000 / = * = ABCZ15X 1000 / = * = Where the Listed company announces to increase its capital by issuing the TSRs, TFEX will adjust the Single stock Futures in accordance with the same procedures as those used in the case of capital increase by way of right issue. Change in Par Value Example 2 The DEF company announces to change the par value from Baht 100 to Baht 10 per stock (by splitting one existing stock into 10 new stocks). The Single stock Futures series traded on the day prior to the effective date on the Trading system of TFEX are as follows: DEFH DEFM DEFU DEFZ The closing price of DEF s stocks as of the date prior to the effective date on the Trading system is Baht 600. O 1. Adjustment Factor = N = 10 = 0.1 Thailand Futures Exchange Plc. Page 7/14

8 The Single stock Future series traded on the effective date on the Trading system will be adjusted as follows: Series Adj. Contract Size = Old Contract Size/AF Open Interest DEFH15X 1000 / 0.1 = * 0.1 = DEFM15X 1000 / 0.1 = * 0.1 = DEFU15X 1000 / 0.1 = * 0.1 = DEFZ15X 1000 / 0.1 = * 0.1 = Example 3 The GHI company announces to change the par value from Baht 50 to Baht 100 per stock (by splitting up two existing stocks into one new stock). The Single stock Futures series traded on the day prior to the effective date on the Trading system of TFEX are as follows: GHIH GHIM GHIU GHIZ The closing price of GHI s stocks as of the date prior to the effective date on the Trading system is Baht 600. O 2. Adjustment Factor = N = 1 = 2 The Single stock Future series traded on the effective date on the Trading system will be adjusted as follows: Series Adj. Contract Size = Old Contract Size/AF Open Interest GHIH15X 1000 / 2 = * 2 = GHIM15X 1000 / 2 = * 2 = GHIU15X 1000 / 2 = * 2 = GHIZ15X 1000 / 2 = * 2 = Thailand Futures Exchange Plc. Page 8/14

9 Bonus Issue Example 4 The ABC company announces to pay dividend in the form of common stocks to its existing shareholders (bonus issue) at the ratio of 10 existing stocks to one new stocks. The Single stock Futures series traded on the date prior to the X-date are as follows: ABCH ABCM ABCU ABCZ The closing price of ABC s stocks as of the date prior to the X date is Baht 100. O 10. Adjustment Factor = N+O = 1+10 = The Single stock Future series traded on the X date will be adjusted as follows: Series Adj. Contract Size = Old Contract Size/AF Open Interest ABCH15X 1000 / = * = ABCM15X 1000 / = * = ABCU15X 1000 / = * = ABCZ15X 1000 / = * = Thailand Futures Exchange Plc. Page 9/14

10 Extraordinary Dividend Example 5 The BMW company announces to pay extraordinary dividends to its existing shareholders at the ratio of Baht 10 per stock. The Single stock Futures series traded on the date prior to the X-date are as follows: BMWH BMWM BMWU BMWZ The closing price of BMW s stocks as of the date prior to the X date is Baht 100. S-R Adjustment Factor = S = 100 = 0.9 The Single stock Future series traded on the X date will be adjusted as follows: Series Adj. Contract Size = Old Contract Size/AF Open Interest BMWH15X 1000 / 0.9 = * 0.9 = BMWM15X 1000 / 0.9 = * 0.9 = BMWU15X 1000 / 0.9 = * 0.9 = BMWZ15X 1000 / 0.9 = * 0.9= If the Listed company announces to reduce the capital in order to return capital to the existing shareholders, TFEX will adjust the Single stock Futures in accordance with the same procedures as those used in the case of extraordinary dividend above. Where TFEX announces that the standard contract adjustment will be conducted by adjusting the Open Position and Contract Price, the same calculation formula for adjustment factor will be used. Example 6 shows the adjustment Open Position and Contract Price. Thailand Futures Exchange Plc. Page 10/14

11 Example 6 The DEF company announces the par value of its stocks which is changed from Baht 100 to Baht 10 per stock (by splitting one existing stock into 10 new stocks). The Single stock Futures series traded on the day prior to the effective date on the Trading System of TFEX are as follows: DEFH DEFM DEFU DEFZ The closing price of DEF s stocks as of the date prior to the effective date on the Trading system is Baht O 1. Adjustment Factor = N = 10 = 0.1 The Single stock Future series traded on the effective date on the Trading System will be adjusted as follows: Series Adj. Open Position = Old Open Position/AF Contract Size DEFH15X / 0.1 = * 0.1 = DEFM15X 4000 / 0.1 = * 0.1 = DEFU15X 500 / 0.1 = * 0.1 = DEFZ15X 100 / 0.1 = * 0.1 = Please note that the contract values of the holding positions of Single stock Futures in accordance with the Contract Size adjustment in Example 2 and the Open Position adjustment in Example 6 are not different. Thailand Futures Exchange Plc. Page 11/14

12 Mergers & Acquisitions / Takeover Example 7 AAA company, whose shares are the underlying shares of Single stock Futures, announces its merger with BBB company resulting in new ABC company and set the share swap ratio at 2 AAA shares for 1 ABC share. The Single stock Futures Series traded on the day prior to the effective date on the Trading system of TFEX are as follows: AAAH15 1, ,000 AAAM15 1, ,000 AAAU15 1, AAAZ15 1, As the case is Share for Share method, therefore; the contract shall be adjusted as follows: O 2 Adjustment Factor = = = 2 N 1 The Single stock Future Series traded on the effective date on the Trading System will be adjusted as follows: Series Adj. Open Position = Old Open position/af Open Interest AAAH15X 1,000 / 2 = * 2 = ,000 AAAM15X 1,000 / 2 = * 2 = 410 4,000 AAAU15X 1,000 / 2 = * 2 = AAAZ15 Suspend / Delist 0 AAAZ15, having zero outstanding position on the adjustment date, shall be suspended and delisted. Only AAAH15X, AAAM15X, and AAAU15X, which still have outstanding position, shall be adjusted. After that, AAAH15X, AAAM15X, and AAAU15X can be traded until the contracts expires, but there will be no generation of new series of the contract to replace such expired contract. The Settlement price [of the adjusted contracts] will be the price of new company s shares after the Merger & Acquisition as underlying price. However, if the contract, after the adjustment, has zero outstanding position before its expiration, TFEX shall suspend and delist the Trading of such contract. Thailand Futures Exchange Plc. Page 12/14

13 Example 8 WWW company, whose shares are the underlying shares of Single stock Futures, announces its merger with TTT company. TTT company shall pay THB51 in cash to shareholders of WWW for every 1 WWW share. The Single stock Futures Series traded on the day prior to the effective date on the Trading system of TFEX are as follows: Remaining term of Contract (Day) WWWH15 1, ,000 5 WWWM15 1, , WWWU15 1, WWWZ15 1, As the case is Cash for Share method; therefore, the Trading contract shall be settled by cash using Theoretical Futures price under Cost of Carry model as follows: Assuming that; the volume weighted average Trading price of WWW shares during last 15 minutes and at the closing of the Trading of the underlying shares on the last trading day (S) = THB 50 per share the interest rate (r) = 1 % average dividend yield (q) = 3% The Single stock future, which has WWW shares as underlying shares, shall be settled in cash as follows: Series Theoretical Price WWWH15 50 x e [(1%-3%)5/365] = WWWM15 50 x e [(1%-3%)63/365] = WWWU15 50 x e [(1%-3%)125/365] = WWWZ15 50 x e [(1%-3%)187/365] = In addition, TFEX shall suspend and delist the Single stock Futures whose Underlying is WWW shares, and shall suspend the generation of new series of contract to replace the expired contract. Thailand Futures Exchange Plc. Page 13/14

14 Example 9 KKK company, whose shares are the underlying shares of Single stock Futures, announces its merger with JFK company. JFK company shall pay 5 JFK shares and THB5 in cash to KKK shareholders [for every 1 KKK share]. The Single stock Futures Series traded on the day prior to the effective date on the Trading system of TFEX are as follows: KKKH15 1, ,000 KKKM15 1, ,000 KKKU15 1, KKKZ15 1, Provided that the closing price of JFK shares on the day prior to the effective date is THB10. As JFK company makes the payment by both shares and cash to shareholders of KKK company, whereby the calculation of the proportion of the value of JFK shares and the value of all transactions is 50/55, which is more than 33%, therefore, the contract shall be adjusted by Share for Share method and the cash payment to the shareholders shall be adjusted to be comparable with share value as follows: The equivalent number of shares resulting from the cash payment = THB5 (cash) JFK THB10 = 0.5 share Adjustment Factor shall be calculated as follows: O 1 Adjustment Factor = = = N The Single stock Future Series traded on the effective date on the Trading system will be adjusted as follows: Series Adj. Open Position = Old Open position / AF Open Interest KKKH15X 1,000 / = 5, * = ,000 KKKM15X 1,000 / = 5, * = ,000 KKKU15 Suspend / Delist 0 KKKZ15X 1,000 / = 5, * = KKKU15, having zero outstanding position at the adjustment date, shall be suspended and delisted. Only KKKH15, KKKM15 and KKKZ15, which still have outstanding position, shall be adjusted. After that, KKKH15, KKKM15 and KKKZ15 can be traded until the contracts expire, but there will be no generation of new series of the contract to replace such expired contract. The Settlement price [of the adjusted contracts] will use the price of new company s shares after the Merger & Acquisition as underlying price. However, if the contract, after the adjustment, has zero outstanding position before its expiration, TFEX shall suspend and delist the Trading of such contract Thailand Futures Exchange Plc. Page 14/14

(Translation) Guidelines for Adjustment of Single Stock Futures in Case of Corporate Action

(Translation) Guidelines for Adjustment of Single Stock Futures in Case of Corporate Action Guidelines for Adjustment of Single Stock Futures in Case of Corporate Action For the purpose of mitigation of the impact on a holder of positions in single stock futures when a listed company, which issues