Adjustments for Corporate Actions

The SFE adjusts for corporate actions (eg. share splits or rights issues) to ensure (as far as possible) that buyers and sellers of NZFOX Share options contracts are neither better nor worse off as a result of a corporate action relating to the underlying equity shares.

In other words, the value of an NZFOX Share option holder’s position (be they an option buyer or seller) both before and after the corporate action will be more or less equal (exclusive of market movement) subject to rounding.

If the SFE were not to adjust an NZFOX Share option contract following the announcement of a corporate action which affects the underlying share price and/or the nature of the shareholding, the shares delivered by the seller may be more (or less) valuable than originally contracted and the buyer would receive shares that are worth more (or less) than originally contracted. This has implications for fairness and market integrity. In an adjustment, the assessment of the value of the underlying shares is exclusive of market movements. However, where the ex price is used in determining the adjusted contract unit, some market movement may be included.

See the SFE Bulletin (38/04) for more information.