Stats
Actions
Tags
Help us improve
Share bugs, ideas, or general feedback.
From client-operations
Processes corporate actions like dividends, stock splits, mergers from announcement to settlement. Handles entitlements, voluntary elections, notifications, reconciliation, and portfolio adjustments.
npx claudepluginhub joellewis/finance_skills --plugin client-operationsHow this skill is triggered — by the user, by Claude, or both
Slash command
/client-operations:corporate-actionsThe summary Claude sees in its skill listing — used to decide when to auto-load this skill
Guide the processing and management of corporate actions in securities operations. Covers mandatory actions (dividends, splits, mergers), voluntary actions (tender offers, rights offerings, optional dividends), corporate action lifecycle from announcement through payment/settlement, record date and ex-date mechanics, client notification, election processing, and impact on portfolio accounting a...
Designs and operates reconciliation processes for data accuracy across portfolio management, custodian, and clearing systems. Useful for daily position/cash/transaction matching, break investigations, multi-custodian normalization, and regulatory prep.
Generates individual LP distribution notices with per-investor share calculations, tax characterization, waterfall tier explanation, and batch processing for 50-200+ investors.
Advises on selecting, configuring, and operating portfolio management systems for advisory firms, covering model portfolios, UMA/sleeve management, drift monitoring, rebalancing, and custodian data feeds.
Share bugs, ideas, or general feedback.
Guide the processing and management of corporate actions in securities operations. Covers mandatory actions (dividends, splits, mergers), voluntary actions (tender offers, rights offerings, optional dividends), corporate action lifecycle from announcement through payment/settlement, record date and ex-date mechanics, client notification, election processing, and impact on portfolio accounting and reconciliation. Enables building or operating corporate actions processing that is accurate, timely, and properly reflected across all systems.
12 — Client Operations (Account Lifecycle & Servicing)
both
Corporate actions are events initiated by a company that affect its securities. They fall into four broad categories based on the level of shareholder participation required.
Mandatory Actions. These occur automatically for all holders of record and require no election. The holder receives the entitlement without taking any action.
Mandatory with Choice. The action will occur regardless, but the holder may choose among alternatives. If no election is made, a default option applies.
Voluntary Actions. The holder may choose whether to participate. Non-participation means the holder retains their existing position unchanged.
Information-Only Events. No direct financial impact on positions, but require tracking and communication.
Every corporate action follows a sequence from announcement through final settlement. Processing accuracy depends on disciplined execution at each stage.
Announcement. The issuer or its agent announces the corporate action. Data is disseminated through DTCC (via its Corporate Actions product suite, including GCA — Global Corporate Actions), market data vendors (Bloomberg, Refinitiv, ICE Data Services), and exchange filings (SEC EDGAR for US issuers). Multiple vendor sources may report different details or timings, requiring scrubbing and cross-referencing.
Data Scrubbing and Validation. The operations team or automated system receives the raw announcement and validates key fields: event type, security identifiers (CUSIP, ISIN, SEDOL), record date, ex-date, payment/effective date, terms (ratio, price, consideration), election options and deadlines, and default election. Discrepancies between vendor sources must be resolved before the event is set up in internal systems. A "golden source" hierarchy is established (e.g., DTCC as primary for US events, then Bloomberg, then Refinitiv).
System Setup. The validated event is entered into the corporate actions processing system. This includes mapping the event to affected accounts, calculating preliminary entitlements, and flagging accounts that require client notification (for voluntary or mandatory-with-choice events).
Client Notification. For voluntary and mandatory-with-choice events, clients (or their advisors) must be notified with sufficient lead time to make informed elections. Notification includes event description, options available, default election, election deadline, and any relevant analysis (e.g., economic comparison of tender price vs. market price).
Election Collection and Submission. For voluntary events, elections are collected from clients, validated against their positions, aggregated, and submitted to DTC (via PTOP or ATOP systems) or the custodian before the election deadline. Late elections may be rejected or subject to penalty.
Entitlement Calculation. On the record date, the system determines which accounts hold the affected security and calculates entitlements based on position size and event terms (ratio, rate, price). For fractional shares, the system applies the issuer's fractional share policy (cash-in-lieu, round up, round down).
Settlement and Payment. On the payment or effective date, the entitlements are settled: cash is credited, new shares are delivered, old shares are removed, or positions are adjusted. The depository (DTC for US securities) processes bulk entitlements and allocates to participants (custodians/broker-dealers), who in turn allocate to beneficial owner accounts.
Post-Settlement Reconciliation. Actual receipts from the depository or agent are reconciled against expected entitlements. Discrepancies (short pays, over-deliveries, missing allocations) are investigated and resolved through claims processes.
The relationship between record date, ex-date, and settlement cycle is fundamental to correct entitlement processing.
Record Date. The date on which the issuer (via its transfer agent) determines the holders of record who are entitled to the corporate action. Only holders whose names appear on the shareholder register as of the close of business on the record date receive the entitlement.
Ex-Date. The date on or after which the security trades without the entitlement. Under the current US settlement cycle of T+1, the ex-date is typically set to the record date itself (T+0 equals the record date when settlement is T+1), because a trade executed on the record date will settle T+1, meaning the buyer will not be the holder of record on the record date. In practice, exchange rules set the ex-date to one business day before the record date for most events, ensuring trades settling after the record date do not carry the entitlement.
Cum-Dividend vs. Ex-Dividend. A security trading "cum-dividend" (before the ex-date) entitles the buyer to the upcoming dividend. A security trading "ex-dividend" (on or after the ex-date) does not. On the ex-date, the market price typically drops by approximately the amount of the dividend or the value of the entitlement.
Due Bills. When a trade is executed between the ex-date and the record date under circumstances where normal settlement would result in the wrong party receiving the entitlement, a due bill may be issued. The due bill obligates the seller to pass the entitlement to the buyer. Due bills are more common in complex reorganization events and when settlement cycles change.
International Variations. Ex-date conventions differ by market. Some markets set the ex-date two business days before the record date (under T+2 settlement). Cross-border corporate actions require awareness of each market's convention.
Dividends are the most frequent corporate action and require systematic processing across declaration, record, ex, and payment dates.
Cash Dividend Lifecycle.
Dividend Rate Application. The entitlement is calculated as: shares held on record date multiplied by the per-share dividend rate. For ADRs (American Depositary Receipts), the dividend is declared in the foreign currency and converted to USD, less ADR depositary fees and foreign withholding taxes.
Stock Dividends. Instead of cash, additional shares are distributed. A 5% stock dividend means 5 new shares per 100 held. Fractional shares result when the position is not evenly divisible. The issuer's policy determines whether fractional shares are paid in cash-in-lieu, rounded, or accumulated.
Special and Extra Dividends. One-time or irregular dividends declared outside the normal dividend schedule. These may indicate unusual income, asset sales, or capital return. They require careful classification for tax reporting purposes (ordinary income vs. return of capital).
Return of Capital (ROC). A distribution classified as return of capital is not taxable income in the period received but instead reduces the holder's cost basis. When cost basis reaches zero, further ROC is treated as capital gain. Correct classification requires the issuer's year-end reclassification notice, which may not be available until January or February of the following year. Preliminary estimates may need to be revised.
Qualified vs. Non-Qualified Dividends. US tax law distinguishes between qualified dividends (taxed at capital gains rates) and non-qualified (ordinary income rates). Qualification depends on the issuer being a US corporation or a qualified foreign corporation, and the holding period requirement (held for more than 60 days during the 121-day period surrounding the ex-date). This distinction affects tax reporting on Form 1099-DIV.
Foreign Withholding Tax. Dividends from foreign issuers may be subject to withholding tax by the source country. Treaty rates may reduce the standard withholding rate. The withholding is reported on Form 1099-DIV and may be eligible for a foreign tax credit on the client's tax return. ADR holders face an additional layer of complexity as the depositary bank handles the withholding and may not always apply the optimal treaty rate.
Dividend Reinvestment (DRIP). Clients enrolled in dividend reinvestment plans have their cash dividends automatically used to purchase additional shares. DRIP processing requires: calculating the reinvestment amount (net of any fees), determining the reinvestment price (often the closing price on the payment date, sometimes at a discount), purchasing whole and fractional shares, and creating new tax lots with the reinvestment date and price as the acquisition date and cost basis.
ADR Fees. ADR depositary banks charge periodic fees (typically $0.01-$0.05 per share annually) that are often deducted from dividend payments. These fees must be tracked separately from the gross dividend for accurate tax reporting.
Reorganizations alter the fundamental structure of the security — share count, issuer identity, or security type.
Stock Splits. A forward split increases the number of shares outstanding while proportionally reducing the per-share price. A 2-for-1 split doubles the share count and halves the price. Processing requires:
Reverse Stock Splits. A reverse split reduces the share count and increases the per-share price (e.g., 1-for-10 reverse split converts 1,000 shares into 100 shares at 10x the price). Reverse splits frequently generate fractional shares, which are typically cashed out. This cash-out creates a taxable event for the fractional portion.
Mergers and Acquisitions. When Company A acquires Company B, holders of Company B receive consideration that may be:
Spin-Offs. The parent company distributes shares of a subsidiary as a new, independent company. Processing requires:
Tender Offers. A tender offer is an invitation to shareholders to sell (tender) their shares at a specified price, usually at a premium to market. Processing includes:
Rights Offerings. Existing holders receive rights to purchase additional shares at a discounted subscription price. Each right typically entitles the holder to purchase a specified number of new shares. Processing includes:
Voluntary actions require a structured process to ensure every affected client is notified, elections are collected accurately, and submissions are made on time.
Client Notification Workflow. Upon validating a voluntary event, the system generates notifications to all affected clients or their advisors. Notifications include: event summary, available options with economic analysis (e.g., tender price vs. current market price, subscription price vs. market price), default election if no response is received, election deadline (internal deadline, set earlier than the DTC deadline to allow processing time), and instructions for submitting the election.
Default Election Rules. Firms must establish and disclose default election policies. Common defaults:
Defaults should be documented in the client agreement or disclosed in the notification. The client must have adequate time to override the default.
Election Deadline Management. The critical path for voluntary actions is the election deadline chain:
Missing any deadline in this chain can result in the default election being applied or, worse, the election being rejected entirely.
Election Submission. Aggregated elections are submitted to DTC (via its PTOP/ATOP systems for US securities) or directly to the custodian. The submission must specify: security identifier, event identifier, account or participant details, number of shares electing each option, and any conditions or contingencies.
Over-Election and Proration. When a voluntary action has a cap on participation (e.g., a tender offer limited to 30% of outstanding shares), total elections across all holders may exceed the cap. The agent prorates elections proportionally. Firms must then prorate the accepted quantity back to individual client accounts, typically pro rata by the number of shares each client elected to tender. Fractional share proration results are rounded, with rounding methodology documented and applied consistently.
Late Election Handling. Elections received after the firm's internal deadline but before the custodian or DTC deadline may be processed on a best-efforts basis. Elections received after the DTC deadline are generally rejected. Firms should log all late elections, the reason for lateness, and whether the election was ultimately accepted or rejected, for risk management and client communication purposes.
Corporate actions directly affect position quantities, cost basis, cash balances, and derived calculations across all portfolio accounting and reporting systems.
Cost Basis Adjustments.
Position Quantity Updates. Splits, reverse splits, stock dividends, mergers, and spin-offs all change the number of shares held. The processing system must update positions atomically — removing old positions and creating new positions in a single transaction to avoid transient states that would cause reconciliation breaks.
Cash Posting. Cash dividends, cash-in-lieu of fractional shares, merger cash consideration, tender offer proceeds, and return of capital distributions all generate cash entries. Posting must occur on the correct date (payment date for dividends, settlement date for mergers and tenders) and to the correct account.
Accrued Income Adjustments. For bonds, corporate actions such as issuer defaults, early redemptions, or consent solicitations may affect accrued interest calculations. The system must recognize any accrued interest up to the effective date and adjust subsequent accrual.
Unrealized Gain/Loss Recalculation. After any cost basis adjustment, unrealized gains and losses must be recalculated across all affected tax lots. This affects client reporting, tax projections, and rebalancing decisions.
Tax Lot Updates. Each corporate action must be applied at the individual tax lot level, not at the aggregate position level. A client who acquired shares across multiple dates and prices will have different cost basis amounts per lot, and the corporate action must respect these differences. For a spin-off, every tax lot in the parent position generates a corresponding tax lot in the spin-off position.
Performance Calculation Impact. Corporate actions must be properly reflected in performance calculations to avoid distorting returns. Dividends are investment income. Stock splits and reverse splits are non-economic events that should not create artificial gains or losses. Mergers and spin-offs may require linking old and new securities in the performance calculation engine. The Modified Dietz or daily valuation method must account for corporate action cash flows on the correct dates.
The complexity and time-sensitivity of corporate actions make them a significant source of operational risk. A robust control framework is essential.
Announcement Sourcing Accuracy. Relying on a single data source increases the risk of processing an event based on incorrect terms. Best practice is to cross-reference at least two independent sources (e.g., DTCC and Bloomberg) and flag discrepancies for manual review.
Processing Deadline Management. A deadline calendar or tickler system must track every open corporate action with its key dates (ex-date, record date, election deadline, payment date). Automated alerts should fire at defined intervals before each deadline (e.g., 5 business days, 2 business days, 1 business day before election deadline).
Entitlement Reconciliation. After payment or settlement, expected entitlements (calculated from positions held on the record date) must be reconciled against actual receipts from the depository or custodian. Differences may arise from: positions settling after the record date, DTC claim adjustments, agent errors, or rounding differences. All variances must be investigated and resolved.
Voluntary Action Election Verification. Before submission, elections should be verified against client positions (cannot elect more shares than held), client instructions (election matches what the client requested), and firm policies (no conflicts of interest, appropriate for the client's investment profile). A maker-checker process (one person prepares, another reviews and approves) reduces error risk.
Missed Corporate Action Detection. A periodic scan should compare positions held against a feed of announced corporate actions to detect any events that were not processed. Missed dividends are the most common gap, particularly for thinly traded or foreign securities. A reconciliation of expected vs. received income at the account level is an effective catch-all control.
Error Correction Procedures. When a corporate action is processed incorrectly (wrong ratio, wrong date, wrong accounts), the correction process must: reverse the incorrect entries, apply the correct entries, notify affected clients if the error impacted their statements or tax reporting, and document the root cause and remediation steps. All corrections should be reviewed and approved by a supervisor.
Segregation of Duties. Setup, approval, and submission of corporate actions should involve at least two individuals. The person who enters the event parameters should not be the same person who approves the processing. Incorrectly processed corporate actions can flow through to Form 1099-B (cost basis reporting), Form 1099-DIV (dividend income), and client statements. Errors caught after tax forms are issued require corrected filings, which are operationally burdensome and damage client confidence.
Scenario: Acquirer Corp announces the acquisition of Target Inc. The merger terms are: for each share of Target Inc, shareholders receive $25.00 in cash plus 0.4 shares of Acquirer Corp stock. The merger is expected to close on March 15. Target Inc has CUSIP 876543210. Acquirer Corp has CUSIP 012345678. The firm holds Target Inc across 3,200 client accounts with positions ranging from 10 to 50,000 shares. Total firm-wide position is 4.8 million shares. Acquirer Corp's closing price on March 15 is $80.00.
Design Considerations:
Analysis:
Step 1 — Pre-Event Validation: Verify merger terms across DTCC, Bloomberg, and the issuer's proxy filing. Confirm: consideration per share ($25.00 cash + 0.4 shares), effective date (March 15), fractional share policy (cash-in-lieu at market), CUSIP changes, and tax treatment (Section 368 reorganization). Discrepancy check: Bloomberg initially reported the ratio as 0.40; DTCC reported 0.4000. These are consistent. No discrepancy.
Step 2 — Position Snapshot on Record Date: Extract all accounts holding Target Inc as of the record date. For mergers, the record date is typically the effective date. Total: 3,200 accounts, 4,800,000 shares. Validate against custodian position files. Two accounts show discrepancies due to pending settlements — flag for manual review after settlement.
Step 3 — Entitlement Calculation (Per Account Example): Client account holds 1,500 shares of Target Inc with the following tax lots:
Cash entitlement: 1,500 shares x $25.00 = $37,500.00. Stock entitlement: 1,500 shares x 0.4 = 600.0 shares of Acquirer Corp (no fractional shares in this case).
For an account holding 113 shares: Stock entitlement: 113 x 0.4 = 45.2 shares. Whole shares: 45. Fractional portion: 0.2 shares. Cash-in-lieu: 0.2 x $80.00 = $16.00.
Step 4 — Cost Basis Allocation (Section 368 Reorganization): Under Section 368, the total cost basis in Target Inc shares carries over to the Acquirer Corp shares and any boot (cash) received. The allocation requires determining the relative fair market values of the stock and cash components.
Total consideration per share: $25.00 cash + 0.4 x $80.00 stock = $25.00 + $32.00 = $57.00. Cash percentage: $25.00 / $57.00 = 43.86%. Stock percentage: $32.00 / $57.00 = 56.14%.
For Lot 1 (800 shares, $25,600 total basis): Basis allocated to cash: $25,600 x 43.86% = $11,228.07. Cash received: 800 x $25.00 = $20,000.00. Taxable gain on cash portion: $20,000.00 - $11,228.07 = $8,771.93. Basis allocated to stock: $25,600 x 56.14% = $14,371.93. Shares received: 800 x 0.4 = 320 shares. Per-share basis: $14,371.93 / 320 = $44.91.
For Lot 2 (700 shares, $26,600 total basis): Basis allocated to cash: $26,600 x 43.86% = $11,666.76. Cash received: 700 x $25.00 = $17,500.00. Taxable gain on cash portion: $17,500.00 - $11,666.76 = $5,833.24. Basis allocated to stock: $26,600 x 56.14% = $14,933.24. Shares received: 700 x 0.4 = 280 shares. Per-share basis: $14,933.24 / 280 = $53.33.
Step 5 — System Processing: For each of the 3,200 accounts, the processing engine executes atomically:
Step 6 — Post-Settlement Reconciliation: Compare expected entitlements (cash and shares) against actual receipts from DTC. For Schwab-custodied accounts, compare the Schwab corporate action confirmation against the firm's calculations. Investigate any discrepancy. Common issues: pending settlements that altered the record-date position, DTC claiming adjustments for trades settling after the record date, and rounding differences on cash-in-lieu calculations.
Scenario: MegaCorp launches a self-tender offer to repurchase up to 10 million shares of its common stock at $50.00 per share (current market price: $46.50). The offer is open for 20 business days. The firm holds MegaCorp across 1,400 client accounts totaling 2.1 million shares. Clients may elect to tender all, some, or none of their shares.
Design Considerations:
Analysis:
Step 1 — Client Notification (Day 1-2 After Announcement): Generate notifications to all 1,400 affected accounts. Each notification includes: tender price ($50.00), premium to market (7.5%), maximum shares the company will accept (10 million), election options (tender all, tender a specified number, or do not tender), the firm's default election (do not tender), internal election deadline, and a reminder that proration may apply if the offer is oversubscribed.
For advisory accounts, the advisor receives the notification and decides on behalf of the client within the scope of the advisory agreement. For self-directed accounts, the client receives the notification directly.
Step 2 — Election Collection (Days 2-17): Elections trickle in over the offer period. The operations team tracks election status:
For the 150 non-respondents, the firm sends a reminder notification on Day 15. By the internal deadline (Day 17), an additional 90 accounts respond (60 elect to tender, 30 elect not to tender). The remaining 60 non-respondents receive the default election of "do not tender."
Final election tally:
Step 3 — Election Submission (Day 17-18): The firm submits its aggregated election of 1,455,000 shares to DTC via the PTOP system. The submission specifies the firm's participant number, the event ID, and the total shares tendered. At the account level, the firm maintains its own records of per-client elections.
Step 4 — Proration (After Expiration, Day 20+): The tender offer expires. Total shares tendered across all holders: 18 million shares (oversubscribed by 80%). The company will accept 10 million shares, so the proration factor is 10,000,000 / 18,000,000 = 55.56%.
Odd-lot holders (fewer than 100 shares) are accepted in full per the offer terms. The firm identifies 45 odd-lot accounts totaling 2,800 shares — all accepted without proration.
For non-odd-lot accounts, the proration factor of 55.56% is applied:
Firm-wide proration: 1,455,000 shares elected, less 2,800 odd-lot shares = 1,452,200 non-odd-lot shares. Accepted: 1,452,200 x 55.56% = 807,162 shares (rounded). Returned: 645,038 shares plus the odd-lot difference.
Step 5 — Settlement Processing: For each account with accepted shares:
Example for one account:
Step 6 — Post-Settlement Activities: Reconcile DTC settlement against expected entitlements. Verify that prorated quantities match the agent's published proration factor. Communicate final results to clients, including: shares accepted, shares returned, cash received, and realized gain/loss. Update tax lot records and performance systems.
Scenario: ParentCo announces it will spin off its technology division as NewTechCo. Distribution ratio: 1 share of NewTechCo for every 5 shares of ParentCo held on the record date of June 10. Fractional shares will be aggregated and sold on the open market, with cash-in-lieu distributed to holders. ParentCo currently trades at $120.00. NewTechCo is expected to begin trading at approximately $30.00. The IRS Form 8937 published by ParentCo allocates 80% of the pre-spin cost basis to ParentCo and 20% to NewTechCo.
The firm holds ParentCo across 2,500 accounts totaling 3.6 million shares.
Design Considerations:
Analysis:
Step 1 — Pre-Event Setup: Set up NewTechCo as a new security in the master security file: assign or receive the new CUSIP, establish pricing feeds, configure the security in the portfolio accounting system, and set up trading capabilities (the security may trade on a "when-issued" basis before the distribution date).
Step 2 — Position Analysis: Extract all ParentCo positions as of the record date (June 10).
Fractional share example: Account holds 1,237 shares of ParentCo. NewTechCo entitlement: 1,237 / 5 = 247.4 shares. Whole shares: 247. Fractional: 0.4 shares. Total fractional shares across all 650 accounts are aggregated into whole shares, sold on the market, and the cash proceeds are allocated back to each account proportionally.
Step 3 — Cost Basis Allocation: The issuer's Form 8937 specifies: 80% of pre-spin cost basis remains with ParentCo, 20% is allocated to NewTechCo.
Example for one account with two tax lots:
Lot 1 cost basis adjustment: ParentCo retained basis: $51,000 x 80% = $40,800.00. New per-share basis: $40,800 / 600 = $68.00. NewTechCo allocated basis: $51,000 x 20% = $10,200.00. NewTechCo shares from Lot 1: 600 / 5 = 120 shares. Per-share basis: $10,200 / 120 = $85.00. Acquisition date for NewTechCo lot: inherits the original date of 2018-03-20 (holding period tacks).
Lot 2 cost basis adjustment: ParentCo retained basis: $66,885 x 80% = $53,508.00. New per-share basis: $53,508 / 637 = $84.00. NewTechCo allocated basis: $66,885 x 20% = $13,377.00. NewTechCo shares from Lot 2: 637 / 5 = 127.4 shares. Whole shares: 127. Fractional: 0.4 shares.
For the fractional 0.4 shares: Basis of fractional portion: ($13,377.00 / 127.4) x 0.4 = $42.00 (approximately). Cash-in-lieu received: 0.4 x $30.00 (market price at sale) = $12.00. Realized loss on fractional share: $12.00 - $42.00 = -$30.00 (loss).
NewTechCo Lot 2 (whole shares only): 127 shares, basis = $13,377.00 - $42.00 = $13,335.00, per-share basis = $105.00. Acquisition date: 2022-08-11 (holding period tacks).
Step 4 — System Processing: For each of the 2,500 accounts:
Step 5 — Post-Processing Validation: Run a firm-wide reconciliation:
Step 6 — Ongoing Monitoring: The issuer's Form 8937 with the final allocation percentages may not be available until several weeks or months after the spin-off. If the firm used preliminary estimates (e.g., based on when-issued trading), the cost basis allocation must be revised when the final Form 8937 is published. This revision may require amended tax lot records and, if tax forms have already been issued, corrected 1099-Bs.