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Lesson 9

Dividends Accrual

How and when are dividends accrued in CFD trading?

If you have an open position in CFDs on shares, indices, and/or Exchange Traded Funds (ETFs) at the start of the business day (00:00 h EET), which coincides with the so-called “Ex-date”, then a dividend is accrued (added) to your account for an open long position, or deducted (withheld) for an open short position.

The “Ex-date” is the date at which, if you own shares of a given company (respectively, if you have a short position), you are entitled to receive (respectively, pay) a dividend. These dates are announced by the issuer companies and are usually included in the decisions of the General Meeting of Shareholders.

With the arrival of the Ex-date, shares will start trading without the right to a dividend. This circumstance is reflected in the price of shares.

Note: Each country has a different practice when paying dividends. In most European countries, for example, dividends are being paid once a year, while in the US this is happening on a quarterly basis.

The above information should be taken into account when trading CFDs on shares, indices, and/or ETFs, since with the arrival of the Ex-date for the company (respectively, an index which includes it) you have an open position on may significantly change the value of your position, as well as lower (respectively, increase) the balance in your account with the amount of the dividend you have paid (received).

1) Dividends on positions in CFDs on shares and Exchange Traded Funds:

a) On long positions: The net amount of the dividend will be added to your account. This is the dividend which is the dividend announced by the company, with the tax on the dividend deducted. Please note that this tax is different for each country.

Example: The Ex-date for 3M company shares (stock exchange code: MMM) is on 22.08.2012. The company has announced a gross dividend of 0.590 USD per share. If the tax on dividends in the US is 10%, then for each 3M share you have owned at the start of 22.08.2012 you will receive a dividend equal to 0.531 USD = [0.590 USD – (0.590 USD × 10%)].

b) On short positions: The gross amount of the dividend will be withheld from your account.

Example: The Ex-date for 3M company shares (MMM) is 22.08.2012. The company has announced a gross dividend of 0.590 USD a share. So for each 3M share you have been “short” on at the start of 22.08.2012, you will have to pay a dividend of 0.590 USD.

2) Dividends on positions in CFDs on indices:

The amount of the dividend, which you will receive (will have to pay), is calculated proportionally to the weight of the company included in the index.

Note: The weight of individual components within each index is calculated using a different method. Therefore, distribution of dividends is calculated differently for each index.

Example: The Ex-date for 3M company shares (MMM) is 22.08.2012. The company has announced a gross dividend of 0.590 USD per share. The company is a component of the US30 index and on 22.08.2012 its weight in the index is 5.45%. The closing price on 22.08.2012 for a 3M share is 92.68 USD, and that of US30 is 13172.76 USD.

Dividend for 1 CFD on US30 = 0.590 USD × 13172.76 USD × 5.45% = 4.57 USD
92.68 USD

So, if at the beginning of 22.08.2012 you have had an open long position, then you will receive 4.57 USD for each CFD on US30. Respectively, if you have had an open short position, then 4.57 USD will be withheld from you for each CFD on US30.

Deltastock reserves the right to change the amount and the way of payment and deduction of dividends, in case of amendments in the applicable legislation governing dividend distribution by issuers, including with a view of taking into account the applicable taxes levied on dividends in the issuer’s or another jurisdiction.

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