Due Bill

Talbridge Corp declares a cash dividend. A customer sells her shares in a transaction that, under the applicable ex-dividend convention, entitles the BUYER to the dividend - but the transfer is not recorded in time, so the issuer's records still show the seller on the record date and the issuer pays the dividend to her. The instrument used to move that dividend to its rightful owner is:

1. A.A don't know (DK) notice, by which the receiving firm disputes the terms of the trade.Wrong. A DK notice signals that a firm does not recognise a submitted trade. Nothing about this trade is disputed.
2. B.A due bill - an instrument by which the seller undertakes to deliver to the buyer the distribution the buyer is entitled to receive.Correct. The due bill is the standard remedy when a distribution is paid to a seller who is no longer the beneficial owner.
3. C.A buy-in, by which the buyer purchases replacement shares in the market at the seller's expense.Wrong. A buy-in is the remedy for a persistent fail to deliver. The securities here were delivered.
4. D.A reclamation, by which the receiving party returns the securities and demands a corrected delivery.Wrong. Reclamation addresses a defective delivery of securities, not a misdirected dividend.

Why: A DUE BILL is the industry's correction mechanism when a distribution lands in the wrong hands because of a timing mismatch between the trade and the issuer's record date. It is an instrument by which the seller acknowledges that a dividend, interest payment, stock dividend or right belongs to the buyer and undertakes to deliver it. Due bills accompany the delivery of securities sold before the ex-date but settling after the record date, and they are also used for stock distributions where the ex-date is set after the payable date.

A company declares a 40 percent stock dividend payable Friday, June 26, to holders of record Friday, June 12. Marta buys 100 shares regular way on Monday, June 22. Who is entitled to the dividend shares?

1. A.The seller, because stock dividends always belong to the holder of recordThe due bill mechanism exists precisely to move the distribution from the record holder to the entitled buyer.
2. B.Marta, but only if she files a claim with the paying agentDue bills attach automatically through the clearing process; no claim filing is required.
3. C.Marta - for large stock dividends the ex-date is deferred until after the payable date, so she buys the shares with a due bill attachedCorrect - buying before the deferred ex-date carries the right to the distribution, delivered via due bill.
4. D.The seller, because Marta bought after the June 12 record dateThat is standard-distribution logic; at 25 percent or more, the deferred ex-date - not the record date - governs entitlement.

Why: For large distributions - 25 percent or more - the ex-date is deferred until the first business day AFTER the payable date. Anyone buying before that deferred ex-date, including Marta on June 22, buys the right to the distribution; the seller delivers the dividend shares by due bill. The clue is the 40 percent size, which flips the normal record-date logic. Review: ex-dates and due bills.