Stock split announcements usually mention a few dates — record date ("date of record"), split date ("distribution date", "pay date", or "payment date"), ex date ("ex-split date"). Examples:
Each Apple shareholder of record at the close of business on August 24, 2020 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020.
Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.
In the case of the Tesla split, the record date is August 21, the split date is August 28 (Friday), and the ex date is August 31 (Monday).
Apple's Investor Relations FAQ provides definitions of these dates:
What is the effective date of the split?
There are several key dates.
The Record Date – August 24, 2020 - determines which shareholders are entitled to receive additional shares due to the split.
The Split Date – August 28, 2020 - shareholders are due split shares after the close of business on this date.
The Ex Date – August 31, 2020 - the date determined by Nasdaq when Apple common shares will trade at the new split-adjusted price.
However, further down in the FAQ, there is an explanation that seems to contradict the definition of the record date given above:
What happens if I buy or sell shares on or after the Record Date and before the Ex Date?
If you buy shares on or after the Record Date but before the Ex Date, you will purchase the shares at the pre-split price and will receive (or your brokerage account will be credited with) the shares purchased. Following the split, you will receive (or your brokerage account will be credited with) the additional shares resulting from the stock split.
Judging by the Apple FAQ, the way the record date works for stock splits is completely different from the way the record date works for cash dividends. With cash dividends, people who become shareholders of record after the record date are not entitled to the dividends. With stock splits, however, people who purchase shares after the record date (but before the ex date) are entitled to the stock split. Furthermore, for stock splits, the record date comes before the ex date, whereas for cash dividends, the record date comes after the ex date.
It appears that I am not the only one confused about this. A quick internet search reveals years and years of confusion regarding the record date for stock splits. An extremely common point of confusion is the apparently incorrect assumption that the record date for stock splits works in the same way as the record date for cash dividends.
A few questions:
- Am I right that the record date for stock splits works differently from the record date of cash dividends?
- The only relevant dates for a stock split seem to be the split date (on which I will receive new shares after the market closes), and the ex date (on which I can sell the new shares on stock exchanges at a post-split price). It seems that the record date is completely irrelevant. What is the record date for?
- From my understanding, the price of the stock will be reduced at the instant the new shares are distributed (on the split date). Is this correct?