Question about Ex Dividend and EMH

Ignoring extended market hours dividends are fairly straightforward. You own the shares at close the day before the ex dividend date and you get the dividend. You buy the shares after open on the ex dividend date and you don’t get the dividend. I am wondering how extended market hours work (I assume I know the answer but would just like to be certain).

So the ex dividend date isn’t really a thing. The important date is the “Record Date” which will be the trading day after the ex dividend date with T+2 settlement of trades. So the question is when is a trade in the EMH recorded? If I buy or sell shares in the after market is it recorded as a trade on that day or carried over to the next day and if I buy or sell in the pre-market (ie before open) is it recorded as a trade on that day or the previous day. Where is the point in time that delimitates trades in terms of their record date?

My assumption is that the actual point in time is either close of the after market or open of the pre-market (ie a point in time when the extended market is closed).

This does raise a question what happens if we have 24 hour trading but I’ll leave that one

Hey, @WakeMeUp :wave:

The dividend settlement cycle is not influenced by the extended market hours - it is always done on the T+2 principle. This means that if you buy shares of a stock one day before the ex-dividend date in the extended market hours, you will still be eligible to receive the dividend payout.

@Momchil.G thank you for the reply. I’d like to just be absolutely clear on a couple of things if you don’t mind.

So if a share goes ex dividend on Wednesday. Is the cutoff the close of the after market on the Tues. Thus if people sell off in the after market and the price drops on the Tuesday after market close (but before EM close) and I buy I will still get the dividend. Conversely, if the pre-market opens on the Wed and the price still hasn’t been fully discounted I could sell and because I owned the shares on the Tues would still get the dividend even though I sold before the market opened on the ex dividend day

As someone who work in the industry the registrars or transfer agents use the record date which is T+2

In the UK most ex dates are on Thursdays with some exception

Using that example

If you buy on Wednesday and hold overnight, the dividend is yours, even if you then sell at market open on Thursday.

That is how the plumbing works

1 Like

@RumNCoke thanks for the reply. Yes that was my understanding and I understand the record date. I wanted to confirm 1) that a Weds purchase after market close (up to the end of the after market) would still have a record date of Friday and 2) that a sell before the market open on Thurs (ie in the pre market) would have a record date of Monday (ie was considered as a Thurs sell.

Essentially I am checking that EMH trades aren’t carried forward or (in the case of an pre market trade) carried back. In part I’m double checking that the threshold isn’t the close of the regular market it is the close of the extended hours market. Otherwise I would be able to sell in the after market on Weds, collect the dividend but not suffer the gap down on Thurs

@RumNCoke is right.

Let’s assume the ex-dividend date is Wednesday. If you buy the shares in the after-hours on Tuesday and sell them in the pre-market on Wednesday, you’ll still be eligible because it was the same date in the timezone where the exchange operates, and the T+2 is still applicable.