The Board of Directors of Berger Paints India Ltd (BERGEPAINT) in its meeting held on August 9, 2023, announced the issue of bonus shares in the ratio of 1:5 (1 equity share of the company for every 5 equity shares held). The ex-date being September 22, 2023.
As a result of BERGEPAINT announcing the issue of bonus shares, the Futures and Options contracts in BERGEPAINT will be adjusted according to the framework prescribed by SEBI. The adjustment will be both in Strike Price and Lot Size of Options and Price and Lot Size of the Futures contract. You can check the announcement from the exchange here.
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 the case of corporate actions here. The adjustments are carried out in such a way that the value of the position of the market participants, on the cum and ex-dates for the corporate action, continue to remain the same as far as possible.
Here’s how the adjustment works out:
Calculation of the adjustment factor:
The adjustment factor for the Bonus issue of A: B is defined as (A+B)/B. In the case of BERGEPAINT, the adjustment factor is (1+5)/5 = 1.2 since the bonus issue ratio is 1:5.
Adjustment for Options Contracts:
Strike Price: The adjusted strike price is arrived at by dividing the old strike price by the adjustment factor.
Lot Size: The adjusted lot size is arrived at by multiplying the old market lot by the adjustment factor. The revised lot size would be 1320.
Example:
Assume you hold a position in BERGEPAINT 740 CE, the current lot size is 1100. On ex-date, the 740 CE will be adjusted to 616.7 (Strike Price 740 / Adjustment Factor 1.2) and the lot size will be adjusted to 1320 (Current Lot Size: 1100 * Adjustment Factor 1.2).
Adjustment for Futures Contracts:
Futures base price: The adjusted futures base price is arrived at by dividing the settlement price of the future one day before the ex-date by the adjustment factor.
Futures lot size: The adjusted market lot will be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 1320.
Example:
Assume you are holding a position in BERGEPAINT SEP FUT and on pre-ex-date (September 21, 2023) futures close at 780, on ex-date the price will be adjusted to 650 (Price on pre-ex-date: 780 / Adjustment Factor: 1.2)
While the lot size will be adjusted to 1320 (Current lot size: 1100 * Adjustment Factor: 1.2).
Holders of F&O contracts are not eligible for corporate action benefits.
If you are holding equity shares of BERGEPAINT on ex-date (September 22, 2023) you will be eligible to receive the bonus shares. The credit of shares can take up to 15 days from the record date (September 22, 2023). You can learn more about this here.
You can learn more about what bonus issue is here: