1.2 Introduction of Securities Conversion - Splits and Mergers

This topic describes about the overview of securities conversions.

Securities conversion refers to corporate actions in which a security held by an investor is transformed into another security, as per predefined terms and regulatory guidelines. Two of the most common types of securities conversions are stock splits and mergers.

Stock Split

A stock split is a corporate action where a company increases the number of its outstanding shares by issuing additional shares to existing shareholders according to a specified ratio. The price per share decreases proportionally, so the total value of each shareholder’s investment remains unchanged. The overall company value (market capitalization) also remains constant after the split.

• When a security splits, its static data including ISIN, face value, and the number of outstanding shares is adjusted.
• The system automatically updates securities positions and investor records based on the split ratio.

Example: If a shareholder holds 100 shares and the company announces a 2-for-1 split, the system will update the portfolio to reflect 200 shares, with the same total investment value as before the split.

Merger

A merger occurs when two or more companies consolidate into a new entity or one company absorbs another. As a result, shareholders receive new securities in exchange for their current holdings based on a predetermined conversion ratio. This ensures all shareholders receive the appropriate value according to the merger agreement.

• The system will automatically update investor records, adjust entitlements, and manage the conversion ratios as outlined in the merger terms.
• Mergers may reduce the number of shares and increase the per-share price, often to help maintain or boost the market value per share.

For both stock splits and mergers, the system automatically updates investor records, adjusts entitlements, and manages conversion ratios.

Within the context of a security conversion, the following terms are used:

• Source Securities: The original securities held before the corporate action (split or merger).
• Target Securities: The new securities that result after the conversion.

This topic contains the following sub-topics:

• Instrument Conversion Maintenance
  This topic provides systematic instructions to instrument conversion maintenance.
• Security Conversion Maintenance Summary
  This topic provides the systematic instruction to security conversion maintenance summary.
• Instrument Conversion Deal Input
  This topic provides systematic instructions to instrument conversion deal input.
• Securities Bank Parameter Maintenance
  This topic describes about the securities bank parameters maintenance.
• Securities Instrument Definition
  This topic describes about the securities instrument definition
• Securities deal input
  This topic describes about the securities deal input.
• Settlement/Liquidation and completion
  This topic describes about the settlement/liquidation and completion.
• Instrument Conversion Monitor
  This topic provides systematic instructions to instrument conversion monitor.
• BEP and Premium\ Discount Accrual
  This topic describes about BEP and premium\ discount accrual.