What happens to CFD long position re capital raising

[$20shoes]

Okay, well I was under the impression that when a company comes out of a trading halt following a placement that the share price AND CFD price would be restructured to cater for the new dilution.
Hence, I assumed that my CFD broker would cater for this and adjust my stop to reflect the placement in the underlying equity.

This isn't so. There is no adjustment so you will always get taken out. I was caught on API and IIF this week and got smacked around because my stops aren't adjusted by my broker. That pretty much means that every placement you get caught in if long, will force a gap under your stop and take you out.

This seems to contravene the ASX framework for CFDs-

The ASX will adjust CFD’s in response to Corporate Actions to ensure (as far as possible) that buyers and sellers of
Equity CFD’s are not penalised by the event (i.e. neither better nor worse off as a result of a corporate action). The
value of the CFD holder’s positions both before and after the corporate event should be equal (exclusive of market
movement) regardless of whether they are long or short.

As an eg, you can see below the disparity between API equity (top graph) and CFD. You can see the price has been reweighted on the equity to cater for the placement.

Do you guy's experience the same problem with CFDs when long??

 

[skc]

Okay, well I was under the impression that when a company comes out of a trading halt following a placement that the share price AND CFD price would be restructured to cater for the new dilution.
Hence, I assumed that my CFD broker would cater for this and adjust my stop to reflect the placement in the underlying equity.

This isn't so. There is no adjustment so you will always get taken out. I was caught on API and IIF this week and got smacked around because my stops aren't adjusted by my broker. That pretty much means that every placement you get caught in if long, will force a gap under your stop and take you out.

This seems to contravene the ASX framework for CFDs-

The ASX will adjust CFD’s in response to Corporate Actions to ensure (as far as possible) that buyers and sellers of
Equity CFD’s are not penalised by the event (i.e. neither better nor worse off as a result of a corporate action). The
value of the CFD holder’s positions both before and after the corporate event should be equal (exclusive of market
movement) regardless of whether they are long or short.

As an eg, you can see below the disparity between API equity (top graph) and CFD. You can see the price has been reweighted on the equity to cater for the placement.

Do you guy's experience the same problem with CFDs when long??

I have no personal experience myself but I see where you are coming from. However, they did say they will adjust the price (which I assume they did), and not that they would adjust the stop.

Did you have the opportunity (say during trading halt) to adjust the stops yourself?

Can you envision a situation where they adjusted someone's stop automatically, and this person turn around and accuse them of letting his / her losses run?

 

[Wysiwyg]

I don't understand the graphical share price differences.

 

[$20shoes]

I don't understand the graphical share price differences.

You can see in the CFD, the share price reached a high of $1.20 odd, which of course it did in the underlying equity as well. However, when the equity returned from a trading halt you can see the share price restructure now shows the high at 0.95c.

 

[$20shoes]

I have no personal experience myself but I see where you are coming from. However, they did say they will adjust the price (which I assume they did), and not that they would adjust the stop.

Did you have the opportunity (say during trading halt) to adjust the stops yourself?

Can you envision a situation where they adjusted someone's stop automatically, and this person turn around and accuse them of letting his / her losses run?

During the trading halt I couldn't adjust them. Yes I see your point ( from the broker's perspective). I guess this is just part and parcel of trading. Thankfully I only bet a small percentage of my capital, but if you used your leverage to buy in big and then got caught in a placement...well, hello margin call.

 

[skyQuake]

During the trading halt I couldn't adjust them. Yes I see your point ( from the broker's perspective). I guess this is just part and parcel of trading. Thankfully I only bet a small percentage of my capital, but if you used your leverage to buy in big and then got caught in a placement...well, hello margin call.

Check with your CFD provider. You may actually have gotten the rights even though your position was stopped out. Although its a non-renouncable offer, the CFD provider held the shares on your behalf; and you will be able to apply for the entitlements.
I'm fairly sure there should be some cash compensation if there is no adjustment (check your P/L, maybe they adjusted ur entry price accordingly?)

If the CFD provider has done nothing, then it is possible to royally screw them over.
A few shares announce entitlement offers in announce; Thus you are able to buy/sell before the Ex-date. Short the hell out of them and reap the profits when it gaps down on ex-date with that provider

Also, please provide the name of the provider

 

[Wysiwyg]

Yes the synthetic market provider I use has neglected to adjust the historical pricing on API also.

 

[$20shoes]

Check with your CFD provider. You may actually have gotten the rights even though your position was stopped out. Although its a non-renouncable offer, the CFD provider held the shares on your behalf; and you will be able to apply for the entitlements.
I'm fairly sure there should be some cash compensation if there is no adjustment (check your P/L, maybe they adjusted ur entry price accordingly?)

If the CFD provider has done nothing, then it is possible to royally screw them over.
A few shares announce entitlement offers in announce; Thus you are able to buy/sell before the Ex-date. Short the hell out of them and reap the profits when it gaps down on ex-date with that provider

Also, please provide the name of the provider

Thanks Skyquake. Actually I am entitled to the offer, but I think the CFD provider will pick them up on my behalf only come ex date and if they are in the money.

Because my broker's compliance team is reviewing the trade at this moment to ensure that their processes are being followed and executed correctly during and after trading halts concerning placements, I will hold off on naming them. They are reputable however, and I have been happy with their service.

 

[skyQuake]

Thanks Skyquake. Actually I am entitled to the offer, but I think the CFD provider will pick them up on my behalf only come ex date and if they are in the money.

Because my broker's compliance team is reviewing the trade at this moment to ensure that their processes are being followed and executed correctly during and after trading halts concerning placements, I will hold off on naming them. They are reputable however, and I have been happy with their service.

Cheers, all is well then. I only want the name if they DON'T do adjustments. So I can short the crap out of the next thing that announces an upcoming Entitlement issue

 

[$20shoes]

Cheers, all is well then. I only want the name if they DON'T do adjustments. So I can short the crap out of the next thing that announces an upcoming Entitlement issue

A little arbitrage hey... Could be an interesting money maker. I'll let you know if they don't do adjustments.

 

[skc]

I am pretty sure CFD providers should make the adjustments to the P/L.... but I thought the issue here is stops and whether they should be moved without the trader's consent. And the answer is clearly no. Did they not offer phone deal so you can move your stop?

IB (not a CFD provider) has a model where they remove any pending orders on a share that's gone ex-div. But funny they don't actually do that for ex-rights shares.

CFD holders are definitely not entitled to rights participation, although CFD providers should replicate the same economic effects of the underlying holder to their best effort. Which means an adjustment to P/L in this case.

Cheers, all is well then. I only want the name if they DON'T do adjustments. So I can short the crap out of the next thing that announces an upcoming Entitlement issue

Lol.. I have tried this many times. Invariably, only smallish companies do these things (i.e. having ex date after announcement) and with my provider they are not on the shortable list. In fact, I suspect they remove these companies from the shortable list when such announcements happen. WTP and BKW are two recent examples.

May be I needed to change provider. PM me if you find any provider that let you short TRY.

 

[skyQuake]

fwiw, ASX purges ALL orders when a share does a rights/entitlement.
Only orders held on the Brokers/CFD provider's server are not purged. (eg stops and other conditional orders)

 

[$20shoes]

I should have checked out the phone deal, and seeing what they could do...my ignorance there, and will look into.

with respect to rights participation, for clarity's sake, yes they will adjust my profit/loss to simulate the participation in the subscription.

I guess what it came down to with the stops, is not that I wanted my stop adjusted simply because the shares were opening lower per se'. Rather, I was under the impression my stop might be recalculated based on the reweighting given to the underlying equity.

Eg: with API if my stop is 10% lower than $1.20 (approximate high just before when it went into a trading halt, so stop is at $1.08.

When the equity re-trades and the SP range has been recalculated to reflect the same market cap ( ie, the old highs before the halt are now $0.94c) I was hoping that the stop would be 10% away from 0.94c. That doesn't happen.

I would have eventually been stopped out of API anyway....