Extraordinary dividend to be factored in for OIS valuation: Sebi advisory panel

Our Markets Bureau

Mumbai, Aug 28: THE Securities and Exchange Board of India (Sebi) advisory committee on derivatives has decided to adjust the strike price of options on individual stocks (OIS) for extra-ordinary dividend, which is over 10 per cent of the market value of the underlying stock.

The decision of the sub-committee of the Sebi advisory committee follows the recent announcement of hefty 500 per cent dividend by long distance telecom major VSNL. The total dividend was 16.18 per cent of the market price of Rs 309 on July 10, 2001.

According to the revised adjustment, in case of declaration of extra-ordinary dividend, total dividend amount (special/ordinary) would be reduced from the strike price of the option contract on that stock. The revised strike prices would be applicable from the ex-dividend date specified by the exchange, an NSE statement said on Tuesday.

Based on these conditions, the extra-ordinary of 500 per cent declared by VSNL, the sub-committee decided that the full value of dividend, ie. Rs 50 would be deducted from all the cum-dividend strike prices on the ex-dividend date in the cash market. In case of extra ordinary dividend, the market price would mean the closing price of the scrip on the day previous to the date of the announcement of the dividend. However, in case when the announcement of dividend is made after the close of market hours, the same day’s closing price would be taken as a market price. Further, if the shareholders of the company change the rate of dividend in the AGM, then to decide whether the dividend is extraordinary or not would be based on the rate of dividend communicated to the exchange after AGM and the closing price of the scrip on the day previous to the date of the AGM.