When a corporate or fund company restructures its shareholdings, this is called a corporate action. There are several ways a company might reorganize, including a stock split.
A stock split is a corporate action that increases the number of shares available on the market by a specified multiple while decreasing the share price proportionally to prevent any change in capital.
Keep in mind that while your current share price will be reduced, the number of shares will increase by the same amount to prevent any changes. Once the corporate action is processed- I.e. when the updates shares are reflected in your account- the value of the position remains the same. Once trading resumes on the new shares, the price is subject to change with market movement.
For example, in a 7 for 1 stock split, the company share price would decrease by a factor of 7, while the company’s outstanding shares would increase by a factor of 7.
Why do stock splits happen?
The purpose of a stock split is to make a company’s shares more accessible. This occurs by making the individual share price more affordable which in turn adjusts the number of shares available. This would not affect the company’s overall value but can facilitate the trading of company shares among investors which could improve liquidity.
How is this reflected on Wealthsimple Trade?
Our back-office automatically updates your holdings to reflect corporate actions and no action is needed on your end. Wealthsimple Trade does not support fractional shares or the rounding up (or down) of fractional shares, so any partial shares generated by this split will be liquidated and allocated as cash to your Trade account.
Will I see this reflected in my account?
Absolutely- you will see this reflected on your monthly statement. Please note that corporate actions and the sale of fractional shares will not show up in your account’s activity tab.