Adjustments in F&O contracts of RELIANCE on account of bonus issue

[nithin_kumrr]

Reliance Industries Limited (RELIANCE) has announced a bonus share issue in the ratio of 1:1 (1 equity share for every share held) and set October 28, 2024, as the ex/record date to determine eligible shareholders.

As a result of Reliance Industries announcing the issue of bonus shares, the Futures and Options contracts in Reliance Industries 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 for exchanges to adjust 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 a bonus issue of A: B is defined as (A+B)/B. For Reliance Industries Limited, the adjustment factor is (1+1)/1 = 2, since the bonus issue ratio of 1:1.

Adjustment for Options Contracts:

Strike Price: The adjusted strike price is calculated 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 500.

Example:

Assume you hold a position in Reliance Industries Limited 3000 CE, the current lot size is 250. On ex-date, the 3000 CE will be adjusted to 1500 (Strike Price 3000 / Adjustment Factor 2) and the lot size will be adjusted to 500 (Current Lot Size: 250 * Adjustment Factor 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 500.

Example:

Assume you are holding a position in Reliance Industries Limited OCT FUT and on pre-ex-date (Oct 25, 2024) futures close at 3000, on ex-date the price will be adjusted to 1500 (Price on pre-ex-date: 3000 / Adjustment Factor: 2)

While the lot size will be adjusted to 500 (Current lot size: 250 * Adjustment Factor: 2).

---

---

Holders of F&O contracts are not eligible for corporate action benefits.

If you are holding equity shares of Reliance Industries on ex-date (October 28, 2024) you will be eligible to receive the bonus shares. The credit of shares can take up to 15 days from the record date (October 28, 2024). You can learn more about this here.

---

You can learn more about what bonus issue is here:

An explainer on the difference between a stock split and a bonus issue

Stock splits and bonuses are two common corporate actions that investors get confused with. In this article, we take a look at stock splits and bonuses and how these two corporate impact your holdings and the share prices. Before we dive into what a stock split and a bonus issue are, it’s important to understand two dates: the Record date and the Ex-date. These dates determine your eligibility for any corporate action. The record date is the cut-off date on or before which you need to have th…

[blackswan]

Please tell us what happens to RELIANCE stocks that we hold.

When will we receive the bonus shares in the demat account?

[Deeps]

If you hold shares of Reliance as of the record date, the bonus shares will be credited to your demat account. Reliance Industries Limited (RELIANCE) has declared a 1:1 bonus share issue, meaning one equity share will be given for every share held. The ex/record date to determine eligible shareholders is set for October 28, 2024. Typically, based on the Registrar & Share Transfer Agents (RTA), the bonus shares are credited to your demat account within 15 days of the record date.

[dcd]

Hi, I have Reliance shares pledged. Kindly let me know if those shares will continue to be pledged (I understand their value will become half), or will they be unpledged automatically before the record date?

[nithin_kumrr]

@dcd

Hi, I have Reliance shares pledged. Kindly let me know if those shares will continue to be pledged (I understand their value will become half), or will they be unpledged automatically before the record date?

Hi @dcd , the collateral margin will be adjusted at the end of the record date. For example, if you have pledged shares worth Rs. 1 lakh, the collateral margin will be reduced based on the corporate action ratio (in this case, 1:1), hence it will be reduced to approximately 50k. Once the bonus shares are credited, the clearing corporation (CC) will update the pledged shares, and the collateral margin will be increased accordingly.

[shravan_kumar_induku]

What happens to positions taken with collateral margin in this case, will account go to margin shortfall if the earlier margin was fully utilized ? will the F&O positions be squared off since margin has reduced ?

[ChinTan_MehTa]

Btw, SEBI had put out a circular recently that October 1st onwards, the Bonus shares shall be credited on T+2 days. Why would it take 15 days now?

SEBI | Enabling T+2 trading of Bonus shares where T is the record date

[ShubhS9]

@ChinTan_MehTa

SEBI had put out a circular recently that October 1st onwards, the Bonus shares shall be credited on T+2 days. Why would it take 15 days now?

Reliance has approved bonus issue in September, this circular is applicable for companies approving bonus issue from October 1.

[ChinTan_MehTa]

That’s incorrect. It is applicable for all having record dates from October 1st onwards.

Anyways, the shares have been credited to the demat account. Listing is awaited.