What is a stock split?
A stock split is a corporate action where the company issues additional shares to its shareholders. It multiplies the number of shares owned by the shareholder by a specified ratio as determined by the company.
A stock split doesn’t change a company’s market capitalisation, but it helps to lower the price of each individual share. The main benefit is making shares more accessible to a wider pool of investors.
For example, Company X announced a 5-for-1 stock split where the record date and effective date of the split were set for 10 May and 20 May, respectively. This means, if an investor holds shares of Company X by 10 May, he is eligible for the stock split and his holdings will be updated after the effective date on 20 May.
- If the investor owned 100 Company X shares initially, he'd receive 500 shares after the split.
- If each share was worth $200 at first, the post-split stock price would be $40 per share ($200 / 5 = $40).
As you can see, the investment value is not diluted by a stock split. The total investment value remains at $20,000 before and after the split.
A reverse stock split, on the contrary, reduces the number of shares owned by a shareholder by a specified ratio as determined by the company, which raises the price-per-share simultaneously.
For example, in a 1-for-10 reverse stock split, an investor who owns 100 shares before the reverse stock split will own 10 shares after the reverse stock split. The price of each share after the reverse stock split will be increased proportionally as well - in this case 10 times the initial share price before the reverse stock split, assuming zero market movements.
What happens to my holdings in Syfe Brokerage in the event of a stock split or reverse stock split?
After the effective date of the stock split or reverse stock split, the number of shares you hold in your Syfe Brokerage account will be adjusted accordingly. This adjustment will be reflected in your monthly statement.
Please note that you may not be able to trade the affected share while these adjustments due to such corporate actions are made.
Trading on a split-adjusted basis (using the adjusted share prices after the split) will begin after the effective date.