The Board of Directors of Tata Steel Limited (TATASTEEL) declared a dividend of Rs. 3.60/- per share, the ex-dividend date being June 21, 2024.
SEBI has prescribed a framework to the exchanges for adjustment of corporate actions in derivative contracts at the time of the corporate action. The exchange has published everything regarding the adjustments in case of corporate actions here. Accordingly, if a company declares a dividend at and above 2% of the market value of the underlying security, it is considered as an extra-ordinary dividend and the exchange will take action in the adjustment of the futures and options contracts in the underlying security.
Since the dividend declared by TATASTEEL is above 2% of the market value of the security, the exchange has published this circular on the adjustment of F&O contracts in TATASTEEL on the ex-date: June 21, 2024.
Adjustment for future contracts:
All positions in futures contracts of TATASTEEL will be marked-to-market on the last cum-dividend date, i.e. June 20, 2024, based on the daily settlement price of the respective futures contract. Subsequently, open positions will be carried forward at the daily settlement price less Rs. 3.60 (dividend amount) for the respective futures contract.
From June 21, 2024,(ex-dividend date), daily mark-to-market settlement of the futures contracts would continue as per normal procedures.
For example:
Assume you bought 1 lot (5500 quantities) of TATASTEEL futures on June 20th, 2024, at Rs. 180, and the daily settlement price at the market close is Rs. 184, you would have made a mark-to-market profit of Rs. 4 per share.
On June 21, 2024, the previous day’s position will be carried forward at Rs. 180.4 (i.e. 184 – 3.6). If the closing price on June 21st, 2024, is Rs. 186, you’ll make a mark-to-market profit of Rs. 5.6 per share.
Adjustment for options contracts:
The full value of the dividend i.e. Rs. 3.60 will be deducted from all the cum-dividend strike prices on the ex-dividend date. All positions in existing strike prices will continue to exist in the corresponding new adjusted strike prices.
For example:
The strike price of Rs. 190 Call Option will be reduced to Rs. 186.4 on June 21st, 2024, and the positions in Rs. 190 Call Option will continue to exist in Rs. 186.4 Call Option.
The lot size of the F&O contracts will not change.
Also, if you hold equity shares of TATASTEEL in your Demat account as of June 21st, 2024 (ex-date) you will be entitled to receive the dividend which will be credited directly to your primary bank account within 30 to 45 days from the record date.