Delivery of Notices and Corporate Action Deadlines

When securities are held in street name, the issuer does not know who the beneficial owners are. Only the broker-dealer's (BD's) name appears on the books. This creates an obligation for BDs to forward all issuer-related materials to the actual owners.

FINRA Rule 2251 requires BDs holding securities in street name to promptly forward all issuer-related materials to beneficial owners. This includes:

  • Proxy materials and voting instructions
  • Annual reports and financial statements
  • Information statements
  • Dividend notices
  • Tender offer documents
  • Rights offering materials
  • Any other communications from the issuer

Think of it this way: The issuer mails everything to whoever is listed as the registered owner. When that registered owner is a BD (because shares are in street name), the BD becomes the middleman responsible for getting those materials into the hands of the person who actually owns the shares.

Exam Tip: Gotchas

  • The issuer does not know who the beneficial owners are when securities are held in street name. The BD is responsible for forwarding all materials.
  • The obligation is to forward promptly, not "when convenient" or "upon request."

Key Corporate Action Deadlines

Different corporate actions have specific deadlines that shareholders must meet.

Tender offers:

  • The SEC requires a minimum of 20 business days for tender offers to remain open (Rule 14e-1)
  • Shareholders must respond by the expiration date to participate
  • The offering company must keep the tender offer open for at least this minimum period
  • Shareholders can withdraw tendered shares at any time before the deadline

Exam Tip: Gotchas

  • Tender offer minimum is 20 business days, not calendar days. This distinction is frequently tested.
  • Shareholders can change their minds and withdraw tendered shares before the expiration date.

Rights offerings:

  • Rights have an expiration date and become completely worthless if not exercised or sold before that date
  • The rights period is typically 30 to 60 days
  • Shareholders have three choices: exercise the rights (buy additional shares at the subscription price), sell the rights on the market, or let them expire

Exam Tip: Gotchas

  • Rights that expire unexercised have zero value. There is no extension or refund.
  • A BD should make sure clients are aware of approaching rights expiration deadlines.

Record date and ex-date:

  • The record date determines which shareholders are eligible to participate in a corporate action
  • Only shareholders who own the stock as of the record date receive dividends, rights, or voting privileges
  • The ex-date (ex-dividend or ex-rights date) is set one business day before the record date under the current T+1 settlement cycle

Think of it this way: If you buy a stock on or after the ex-date, the trade will not settle in time for you to be the registered owner by the record date. You will miss the dividend or rights distribution.