There are two types of stock splits – forward stock split & reverse stock split. Forward stock split increases the number of shares and decreases the stock price, while reverse stock split decreases the number of shares and increases the stock price. Stock splits do not change the total value of a position as the stock price is adjusted by the same ratio as the stock share quantity adjustment.
Forward Stock Split example:
If you hold 10 shares of ABC trading at $40 per share, after a 4 for 1 (4:1) forward stock split, you will own 40 shares valued at $10 per share.
Reverse Stock Split example:
If you hold 10 shares of XYZ trading at $50 per share, after a 1 for 5 (1:5) reverse stock split, you will own 2 shares valued at $250 per share.
What happens to fractional shares?
For forward stock splits:
If your position includes whole and fractional shares, any resulting entitled fractional shares will be directly added to your position.
If your position includes only whole shares, any resulting entitled fractional shares will be paid out as cash-in-lieu (CIL).
For reverse stock splits, any resulting entitled fractional shares typically will either be paid out as CIL, or rounded up to the next whole share, depending on a company’s allocation decision.
What happens to pending GT90 orders?
For both forward and reverse stock splits, any pending/open options or equity stock GT90 orders are automatically cancelled either after market closes on the date prior to the effective date, or before market opens on the effective date.