Understanding corporate actions

Overview

A corporate action is a change that a company makes that affects its investors by adjusting the organization's debt or equity structure. This can be a simple name change or a more complex event like a merger or a stock split. These changes can affect your portfolio, but Wealthsimple handles the processing of these events for you.

Corporate actions, such as stock splits, reverse stock splits, mergers, acquisitions, and dividends, typically take between 1 and 6 business days to process. In some cases, it can take a few extra business days to complete. During this time, your shares may appear as "inactive" before the new shares are added to your account.

How to view corporate actions in your account

To view corporate actions that have affected your account, follow these steps:

The Activity feed will display a wide range of corporate actions, including less common ones you may see only occasionally.

These corporate actions will appear in one of two formats:

• Hold and receive: You keep your existing securities and get additional securities or cash
• Submit and receive: Your existing securities are exchanged for different securities or cash

Stock splits and reverse stock splits

What is a stock split?

A stock split is a corporate action that increases the number of shares in a company while decreasing the share price proportionally.

For example, if you had one share of a stock priced at $10 and the company underwent a 10-for-1 stock split, you'd hold 10 new shares worth $1 each. Your book cost stays the same at $10 overall.

What is a reverse stock split?

A reverse stock split (also known as a consolidation) is a corporate action that decreases the number of shares in a company while increasing the share price proportionally.

For example, if you held 10 shares of a stock priced at $1 each and the company underwent a 1-for-10 reverse split, you'd hold 1 new share worth $10. Your book cost stays the same at $10 overall.

What to expect with your holdings

Our internal operations team automatically processes stock splits and reverse stock splits, so you don't have to do anything. After the split, the number of shares you own will change, and the shares will trade at a new price.

If you end up with a partial share from a stock split, you can sell it just like a regular share. If you end up with a partial share from a reverse stock split, we'll automatically convert this partial share into cash, and you'll see the value added to the cash balance in your account.

Mergers and acquisitions

What is a merger?

A merger is when two separate companies join to form one new company, which usually adopts a new name and leaves the two original companies no longer in existence. Merger transactions usually don't require cash to take place.

What is an acquisition?

An acquisition happens when one company (the acquiring company) buys most or all of another company's shares (the target company). This transaction is sometimes called a takeover and requires cash.

What to expect with your holdings

Our internal operations team processes all mandatory corporate actions, so no action is required on your end. Your shares will remain inactive in your portfolio until the merger or acquisition is complete, meaning you won't be able to sell them during this time.

Mergers and acquisitions can have tax implications, depending on how the deal is structured and the type of account you hold your shares in. Consider seeking professional advice.

Dividends

A dividend is a distribution of a company's profits to its shareholders. Dividends are typically paid out on a regular basis. Wealthsimple supports dividend stocks as long as they meet our eligibility criteria. You'll receive dividends in the cash balance of the Wealthsimple Trade account where you hold the stock. The currency depends on your account type and where the stock trades:

• CAD account: Dividends are always paid in CAD. If a dividend is declared in USD, it's converted to CAD.
• USD account: Dividends are paid in the currency the stock trades in: CAD for Canadian-listed stocks and USD for US-listed stocks.

The three important dates for dividend payment eligibility are the Ex-dividend Date, Record Date, and Pay Date.

• The Ex-dividend Date is the date when the stock starts trading without the value of its next dividend payment.
• The Record Date is the day the company checks its records to identify its shareholders.
• The Pay Date is the day the company pays out the dividend to its shareholders.

To qualify for a dividend payment, here's what you need to know about buying and selling your shares:

• Buying: Your shares need to be settled in your account by the Ex-dividend Date. Trades take 1 business day to settle, so you need to buy at least 1 business day before the Ex-dividend Date.
• Selling: You can sell your shares on the Ex-dividend Date and still receive the dividend.

Dividends from fractional shares are a portion of the total dividend, proportionate to the fractional amount that you own. For example, if you own 0.267 shares in stock XYZ and the dividend is $1.00, you'll get $0.27 in dividends.

Dividend payments may appear in your Activity section before being posted to the cash balance of the investment account to which the dividend is paid. This is because we're waiting to receive funds from our depository first before paying out the dividend to your account. Most dividends are paid within 1–2 business days, though some may take up to 6 business days after we receive payment from our depository.

How to check if you're eligible for a dividend payment

You can check whether you're eligible for a dividend payment in your Activity feed. To check, follow these steps:

1. Log in to the Wealthsimple app
2. Tap the Activity tab at the bottom of the screen
3. Tap the Filter icon in the top right corner, select Dividends as the type of activity, then tap Apply
4. Tap the dividend activity for your security to view its details

You'll see the dividend's status (Announced, Record date, or Paid), the expected payment date, your holdings on the Record Date, the gross dividend rate, and the net dividend amount.

Delisted or worthless securities

What are delisted or worthless securities?

Securities in your account may change status, becoming either delisted or worthless.

• Delisted securities are removed from major stock exchanges but may still have value and can often be traded over-the-counter (OTC).
• Worthless securities have little to no market value and usually can't be sold on any market.

Here are some important considerations about delisted and worthless securities:

• Cease Trade Orders (CTOs): If there's a CTO on the security in your province, you may not be able to remove it from your account.
• Tax implications: Removing or keeping a worthless security can affect your taxes. Consider seeking professional advice.

You can't buy additional shares of a delisted stock or ETF through our platform. If you own a delisted stock or ETF, you have the following options:

• Continue holding the shares in case the stock or ETF is eventually re-listed.
• Sell the shares if they're trading OTC by placing a limit sell order.

If you believe a stock or ETF in your account has become worthless, you have the following options:

• Remove the stock or ETF from your account.
• Keep the stock or ETF and potentially claim a loss on your taxes.

Removing a worthless security

To remove a worthless security, contact our support team to see if it's eligible for removal. If it is, you'll need to fill out a form to authorize the removal, which transfers ownership of the security to Wealthsimple Investments Inc. This removal will appear as a $0 sale on your tax slip, allowing you to claim it as a loss.

Keeping a worthless security

If you choose to keep the security, you may be able to claim a capital loss on your tax return under certain conditions. This applies if the company has gone bankrupt, been shut down by court order, or stopped doing business and the investment has no value.

Voluntary corporate actions

Some corporate actions are voluntary, which means you choose whether to take part. If you don't do anything, you won't be included.

To take part, contact our support team before our deadline for the event. There's also a processing fee of $50 plus sales tax, which must be available in your account.

The sales tax depends on the province you live in. Here's what the total fee comes to, including tax:

Your shares also need to be settled in your account by our deadline for the event, which we'll confirm when you contact our support team. Trades take 1 business day to settle, so if you're buying shares to take part, you need to buy them at least 1 business day before the deadline. For example, if the deadline is November 5, you'd need to buy the shares by November 4.

For cash payouts from voluntary corporate actions, the currency you receive depends on your account currency:

• CAD account: You'll receive CAD cash.
• USD account that chooses to receive USD: You'll receive USD cash, as long as you've upgraded to USD accounts.
• CAD account that chooses to receive USD: Your cash is converted to the CAD equivalent.

Tender offers and Dutch auctions

A tender offer is when a company offers to buy back shares from its shareholders at a set price, for a limited time. A Dutch auction is a type of tender offer where the company sets a price range, and you choose the price you'd sell at. Taking part is optional.

Keeping your shares: If you want to keep your shares, you don't need to do anything. Your shares stay as they are unless you choose to take part.

Fee: The $50 processing fee plus sales tax is charged for taking part, whatever the outcome. This means you'll pay it even if the company only buys back some of your shares (known as proration).

How shares are accepted: The shares you tender (offer to sell) won't necessarily all be bought. The offer has to be finalized and announced as completed first. In a Dutch auction, shares you offer at or below the clearing price (the final price for the auction) are accepted and paid the clearing price, not the lower price you chose, so everyone gets the same price. Shares you offer above the clearing price are rejected and returned to you.

Odd-lot holders: To qualify as an odd-lot holder, you need to hold fewer than 100 shares in an account. This is based on each account, so 90 shares in a TFSA and 80 shares in an RRSP would each qualify on their own. It's based on how many shares you hold, so tendering fewer than 100 shares doesn't make you qualify.

Payout currency: Cash payouts depend on your account currency. A CAD account receives CAD cash. A USD account that chooses USD receives USD cash, as long as you've upgraded to USD accounts. A CAD account that chooses USD still has the cash converted to the CAD equivalent.

Rights offerings

A rights offering is when a company gives its existing shareholders the right to buy more shares, usually at a discount, by a set deadline. You can exercise your rights, sell them if they trade on the market, or let them expire. Taking part is optional.

Here are some key terms to know:

• Right: A temporary holding that lets you buy new shares at a set price before it expires. It shows up in your account as its own holding.
• Exercise: Using your rights to buy the new shares.
• Subscription price: The price you pay for each new share when you exercise your rights.
• Oversubscription: Asking for more shares than your rights entitle you to, if the offer allows it. You need to exercise all of your rights first, and you may receive fewer extra shares than you asked for.
• Expiry date: The last day to exercise your rights. After that, your rights lapse.

If you do nothing: Your rights have an expiry date. If you take no action, they lapse on that date, and your existing shares aren't affected. Not taking part is a perfectly valid choice, but the rights won't convert to anything once they expire.

Cost to exercise: You'll pay the subscription price for each new share, plus the $50 processing fee and sales tax. If you're also asking for extra shares (oversubscribing), the cost of those shares must be available too. All of it must be in the account that holds the rights.

Oversubscribing: Whether you can subscribe for more shares than your entitlement depends on the offer. If oversubscription is allowed, you'll need to exercise all of your rights first and tell us exactly how many extra shares you want. Extra shares are shared out among everyone who asks, so you may receive fewer than you requested. Some offers also limit how many extra shares you can ask for. Contact our support team to check what your offer allows.

Selling your rights: If your rights are trading on the market, you can sell them instead of exercising them.

Final elections: Once your election is submitted, it can't be changed or cancelled, so make sure you're certain before asking us to submit it.

Frequently asked questions