Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[jeewee3000]

Lots of FUD here
I recall a time here when such things brought on the bans

Mods commence!

If you are referring to my earlier post where I worry about Belgian income tax due to my ignorance regarding stock splits/dividens, that is not FUD.

Everyone on here knows I'm a superbull but the Belgian Tax system takes everything they can get. So I'm worried until I get confirmation from my broker.

Either way, thanks @Boomer19 for the clarification posts.

 

[Boomer19]

ok, here’s how it works and will help explain the record date, to ex date thing.

Cash Dividends/Splits/Stock Dividends

Record Date: This is the date that the issuer of the security i.e. the company who's stock it is (e.g. Apple, IBKR, etc) declares as the date that all of the registered holders of the security on the books of the transfer agent are due the cash dividend, stock split etc. It is the case that most shares today are held electronically in "street name" at depositories like the Depository Trust Company (DTC) in the US, or the Canadian Depository for Securities (CDS) in Canada. These depositories typically have a nominee company that the stock is registered to. In the US, DTC's nominee company name is Cede & Co. So most US stock held on the record date of a dividend is registered to Cede & Co. Many stocks are globally traded and and held in other depositories internationally. It is also still the case that some shareholders hold stock registered directly in their name. Therefore, on record date, the Transfer Agent may know many different registered holders on the record date of the action and will allocate shares to the holders accordingly. Record date only serves as the basis for the distribution of shares to registered record date holders on the pay date.

Ex-Date: Ex, is Latin for "without". Ex-date is established by the primary listing exchange of the security because it is a trading convention. Ex-date is the date on which trades of the security are completed without rights to the dividend cash or stock. Ex-date can be prior to or after record date.

• For most cash dividends in the US, where the standard trade settlement cycle as of 8/2020 is T+2, the ex-date is record date -1. For example:
  • Stock ABC declares a USD .10 dividend per share with a record date of June 10th (assume all dates are business days).
  • If an investor buys shares of ABC stock up and including June 8th, the trade will settle by or on June 10th, the record date.
  • If an investor buys the stock on June 9th, the first day the that the buy trades will settle after the record date (settle date = 6/11) and therefore without rights to the dividend, they will not be record date holders and will not receive the dividend. Hence, ex-date is usually established by the exchange as record date - 1 on cash dividends on the US due to the T+2 settlement cycle.
  • Ex-date is not always record date - 1. As noted above, ex-date is declared by the exchange and while RD-1 is typical for cash dividends in the US and other T+2 settlement cycle venues, it is not always the case. See Due Bill Period Below.

Due Bill: A due bill is an IOU. Back in the day, say up until the late 90's, many trade settlements were still accomplished by delivering physical stock certificates from one broker to another. Due Bills were pieces of paper that were attached to the stock certificates when the securities were traded during the due bill period. The due bill notified the receiver (buyer) of the stock that the seller recognized and acknowledged the obligation to deliver a pending dividend to the buyer on pay date, or shortly thereafter.

Due Bill Period: The Due Bill Period is relevant when the record date occurs prior to the ex-date. As described above, the Transfer Agent for the Issuer will allocate dividends or split shares to holders on the record date. However, if the listing exchange declares that the ex-date is subsequent to the record date, trades that occur from record date through and including ex-date -1, the due bill period, are said to trade "with due bill". On pay date the transfer agent will look back at the record date holders & allocate the shares accordingly. However, if an investor purchased shares during the due bill period, which would be at the pre-split adjusted price, that investor would have received the shares with due bill attached and the seller, who would receive the additional split shares as the record date holder, would need to deliver the split shares to the buyer. This is all tracked electronically and completed automatically at Central Securities Depositories like DTC. But back in the day the seller, say Jon Doe Rosen, would have been the registered shareholder on the Transfer Agent's books on record date. The transfer agent would have sent a physical certificate registered in Jon's name to him on pay date representing the additional shares. Jon would have to endorse that certificate and forward it to the buyer.

Example:

Stock ABC declares a 2:1 forward split for record date June 15th, 2020 (assume all dates are business days).

The listing exchange for ABC declares ex-date to be June 25th.

This establishes the due bill period as 6/15/2020 through 6/24/2020 (ex-date -1).

Investor A is long100 shs of ABC @ $50.00 p/s = $5000.

Investor A sells the 100 shs of ABC @ $50 p/s on 6/18 to Investor B with due bill attached. The trade settles on 6/20. ← this is during the due bill period. Note that the trade occurs at the pre-split price of $50 p/s.

On ex-date the stock opens at $25 p/s. Investor B will lose half the stock value if not for the due bill.

Investor A owes the additional 100 shares he receives from the transfer agent as the record date holder on 6/15 to Investor B, who bought during the due bill period. The receipt of the additional 100 shs makes Investor B whole.

 

[Rockster]

Stocks splits have tremendous psychological value. Look how many people here are giddy on the news. Many people, including myself, view it as a bullish sign by management that the stock is going to continue to climb.

This.

Yes, there is no technical/fundamental reason why a stock split should affect share price but there is a psychological component. And as much as we try to make sense out of the market, a great deal of trading behavior is very influenced by the psychological, despite what we traders might like to tell ourselves sometimes.

 

[BornToFly]

I'd love that to be true. I'm just getting freaked out by the Tesla Investor Relations message which says otherwise:
View attachment 575304

So if I own a share on August 21st, I'm supposed to get a dividend of 4 shares after the 28th. What happens to people that buy a share between the 21st and 28th?

 

[Knightshade]

there is a difference between a stock dividend and a stock split

one is an income event
one is a dilution event

AFAIK neither results in dilution- everyone ends with the same equity they began with.

I cited 2 different accounting sources explaining this.

but there’s clearly different tax implications for a split, than a dividend

A cash dividend yes

A stock one- no. The dividend shares get the same holding period date as your original share, and there's no tax implications unless you sell the share just like any other share from that date.

There's accounting implications for the company on the back end- in that a dividend requires a journal entry a split does not- again explained in the links previously given.

it’s a forward split. equity neutral event.

5x shares
1/5 price

Nobody has disagreed with that in any way.

The entire debate is around the obligation of shorts to provide in lieu dividend payments to whomever they borrowed shares from.

Which has nothing at all to do with equity of the company or the value of a given share of stock.

the bullish action can cause shorts to cover, but the split in and of itself does not force a short to cover as many have said. shorts will not be forced to return shares by ex date or pay date

A split would not.

A dividend would

That's the difference.

Shorts are required by SEC regulations to provide an equal dividend to the lender that the lender would have gotten had they not lent their shares.


I even cited the regulation from the SEC website earlier in the thread.

If this is a dividend action, and not a split, the shorts must provide 4 real, voting, non-artificial shares per 1 borrowed share in lieu of the dividend the lender would've gotten on August 28th.

 

[Boomer19]

AFAIK neither results in dilution- everyone ends with the same equity they began with.

I cited 2 different accounting sources explaining this.



A cash dividend yes

A stock one- no. The dividend shares get the same holding period date as your original share, and there's no tax implications unless you sell the share just like any other share from that date.

There's accounting implications for the company on the back end- in that a dividend requires a journal entry a split does not- again explained in the links previously given.



Nobody has disagreed with that in any way.

The entire debate is around the obligation of shorts to provide in lieu dividend payments to whomever they borrowed shares from.

Which has nothing at all to do with equity of the company or the value of a given share of stock.







A split would not.

A dividend would

That's the difference.

Shorts are required by SEC regulations to provide an equal dividend to the lender that the lender would have gotten had they not lent their shares.


I even cited the regulation from the SEC website earlier in the thread.

If this is a dividend action, and not a split, the shorts must provide 4 real, voting, non-artificial shares per 1 borrowed share in lieu of the dividend the lender would've gotten on August 28th.

i agree with you mostly

one point, a stock dividend is taxable in many jurisdictions.

a forward split is not

if an optional dividend (where holder has choice to stock or cash) and i chose stock,
i pay dividend income on the stock choice as well as cash

 

[lafrisbee]

so a million shares just traded in the first minute...

 

[gavine]

This.

Yes, there is no technical/fundamental reason why a stock split should affect share price but there is a psychological component. And as much as we try to make sense out of the market, a great deal of trading behavior is very influenced by the psychological, despite what we traders might like to tell ourselves sometimes.

On the flip side, there's also a psychological component to a stock with a comma in the price. It makes the company seem more legit. I know when I see a stock with a large price, it demands respect. I'm not against the split, but I do like image of the stock having a high price.

 

[Pezpunk]

there is a difference between a stock dividend and a stock split

one is an income event
one is a dilution event

however, the category is dividend/distribution for both, when speaking in terms of corporate actions and how the street refers to them.
DTCC for example, categorizes distributions as:
cash divs
stock divs
spinoffs
forward splits

but there’s clearly different tax implications for a split, than a dividend

@jeewee3000 @Nocturnal

the legal mumbo jumbo used in prospectus is confusing. please don’t be confused by this.

it’s a forward split. equity neutral event.

5x shares
1/5 price

whether long, short, a stock loan contract between brokers, a pledge to OCC, whatever

i keep getting disagrees and i’m just trying to help straighten out peoples expectations.

the bullish action can cause shorts to cover, but the split in and of itself does not force a short to cover as many have said. shorts will not be forced to return shares by ex date or pay date

I believe you. But I have a lingering question, which is, what is the difference, then, between this type of dividend split and the other more direct split, and why would Tesla choose this method over a traditional split? It's illogical to assume the decision was arbitrary. So I am just trying to figure out what that reason might be, (or even why this other method exists) if it has no impact on anything (relative to a traditional split).

 

[StealthP3D]

Hopefully you two don't get the same dozens of disagrees from the same 3 guys who keep refusing to admit there's a difference between a stock dividend and just a stock split that I did for informing folks of this stuff last night

A stock dividend/split won't be taxed differently regardless of what you call it or it's underlying structure.

I've never been a naked short (that's reserved for market makers) so I can't tell you if this temporarily impacts their activities but I can say that naked shorts are a relatively minor portion of total shorted shares and any effect it may have would be transitory in nature. Likely a non-event in the bigger picture.

By far, the largest impact to markets is the psychological lowering of the price. Many investors who can't seem to wrap their heads arounds Tesla's outstanding opportunities that still lie ahead of them will no longer view the price of Tesla shares as being at "nosebleed" levels.

This is actually a huge advantage and is related to the same reason why Musk originally was somewhat reluctant to split shares. Namely, he wanted his TSLA successes on full public display with a huge share price relative to the low IPO price. The high share price was a feather in his cap. This split dilutes the that impression in a psychological manner that is impossible to understand from a rational perspective but Musk is a rational person and, when shown how a stock split would help TSLA achieve it's goals he understood it was the right thing to do. This is the same psychological effect that help power TSLA shares higher. It removes the perception that Tesla is priced at "nosebleed" levels and very bad things will happen to anyone willing to pay that much. Silly, I know. Thankfully, Musk is a pragmatic realist.

 

[M|S|M MYP]

Oh, you don't have to tell me about the "more is better" mentality, I learned that at an early age. Four years old to be exact.

I used to go next door to my 4 year old friends house for graham crackers. His mom would set up a card table in the garage so we could eat them with a small glass of milk. Why in the garage? Because it would get messy. Timmy would break his in half and tell me he "had more" than I did. But not for long - I would break mine into 4 sections and say "not any more". It didn't take long before Timmy's cracker was just a pulverized pile of powder that ended up on the garage floor as he always ended in an excited tantrum pulverizing them with his fists as he declared himself the winner while spreading the powder left and right off the table saying he had "millions" of crackers. But I was a smart kid who stopped before the powder stage so I could still eat mine. I could never figure out why Timmy seemed so intent on making powder and why his mom seemed unconcerned about this odd behavior. I just liked the crackers and milk.

'the powder' - funny how this is still prevalent as an adult

 

[Knightshade]

A stock dividend/split won't be taxed differently regardless of what you call it or it's underlying structure.

Once again you appear to be repeating what I said in the first place as if the person you're replying to had said the opposite and you're somehow providing new info.... why do you do that? It's kind of disruptive to the flow of the thread.

I mean I even provided links to the IRS in my original post showing that there's no tax implications either way. We already knew that. Pages ago.

In case you or anyone else missed them here they are again


https://taxmap.irs.gov/taxmap2016/pubs/p550-006.htm

"Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return."

It lists exceptions right below that but none would apply here


Further-

https://taxmap.irs.gov/taxmap2016/pubs/p550-026.htm#en_us_publink100010540

"The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. "

I've never been a naked short (that's reserved for market makers) so I can't tell you if this temporarily impacts their activities but I can say that naked shorts are a relatively minor portion of total shorted shares

Artful Dodger suggested exactly the opposite earlier- that most of the casual shorts were already out by this point and what was left was largely MMs/delta hedge shorts many of which would be more likely to be capable of naked shorting.

 

[Big Time]

Should I hold off buying more shares until after the split? When is the cut off date?

 

[StealthP3D]

For most folks outside Teslas account department there's no practical difference, but legally and financially there is one- and there is one as relates to short sellers having an obligation to the lender they borrowed shares from to provide the dividend to them.

But yesterday you were certain it was much more than that.

This won't affect normal short-sellers (other than from the direct impact of the rise in the price of the shares). Maybe it affects market makers in a temporary manner. But I have to think they have accounting tools at their disposal to deal with this kind of situation in a non-catastrophic way. They wouldn't naked short if they couldn't deal with a dividend stock split in a non-catastrophic way.

 

[Boomer19]

I believe you. But I have a lingering question, which is, what is the difference, then, between this type of dividend split and the other more direct split, and why would Tesla choose this method over a traditional split? It's illogical to assume the decision was arbitrary. So I am just trying to figure out what that reason might be, (or even why this other method exists) if it has no impact on anything (relative to a traditional split).

the language used is confusing. it’s a straightforward stock split based upon the info that the street is disseminating to brokers’ corporate action data feeds

the street categorizes these ‘dividend/distribution’ events in a lump category. but the subset of the use cases has different intricacies and tax implications.

 

[ggr]

And disrupting the smooth flow of the forum.

Again.

The minor problem with your observation is that in this case @Knightshade is correct.

 

[DFibRL8R]

From Barron’s, for what it’s worth, they see no unusual impact on options traders.

Tesla Stock Is Splitting 5 for 1. This Is What Happens to Options. — Barron's

 

[ZeApelido]

okay i'm done with this ding dong. he is clearly a short seller posting here under false pretenses making comically bad attempts to induce fear and doubt among bulls. Since he appeared, literally EVERY news event has caused him to post "OH NO, DOES THIS MEAN I SHOULD SELL?!?!" and every non event causes him to post "GEE I GUESS WE SHOULD SELL NOW, RIGHT, GUYS??"

he is either a troll or the stupidest investor of all time.

He's not old enough to invest, his mom does for him.

 

[Unpilot]

so a million shares just traded in the first minute...

Hmm i'm seeing a much different number

 

[Tslynk67]

Hey gang,

As a Belgian, I am against the announced stock split. If they did a forward-split I'd be fine with it, but TSLA is doing a stock dividend split, i.e. for each share held an investor receives 4 extra shares in dividend.

Enter the Belgian Tax system: all dividends - stock or cash - are income which are taxed at 30% income tax. ("roerende voorheffing")

So my current TSLA stock holdings will be taxed at (80% x 30%) = 24%

I asked my broker if there is no way around this and will get an answer before August 21st. If negative, it'll be way cheaper for me to sell my entire position and rebuy in September. (Which will be taxed too, albeit lower)

Or I'd have to convert everything to LEAPS but that's a risky play.

So for once the old "buy and hold" is definitely NOT the best investment strategey.

Any Belgians (@Lycanthrope @NicoV @Cohiba ) on this forum getting info from their accountants/brokers, please share. I will too when I hear more.

EDIT: just read the @StealthP3D post saying this stockdividend is a "no value" dividend. If this is true (and it feels that way, I mean I am holding shares of +/- $1500 each and they are being reduced in value equal to the amount of stock dividend I receive) and the Belgian Tax system taxes me 30% on 0$ I'm of course fine with it. Will update if I hear more.

EDIT2: @Boomer19 clarified some things regarding the terminology used in investing on the one hand and taxation on the other hand. I am less worried but am awaiting final confirmation from my broker.

To be clear: if there are no tax consequences I'm fully on board with the stock-split. I could buy LEAPS again frivolously!

Depends whether it's a private account or a personal one. If it's private, I was under the impression that it's tax-free unless you're "speculating", and that's almost impossible to prove.

If it's a company account then my accountant said the tax would be basically due on realised gains on the balance of the year.

But I'll check with him, but I'm confident there's no impact.

Edit: OK, I emailed my accountant to see, but I think it's just semantics in the IR/8-K wording, it's a split, simple as that