How F&O positions of Bajaj Finserv will be adjusted

The NSE (in its circular) has laid out the process flow for adjustment of futures and options contracts of Bajaj Finserv Ltd (BAJAJFINSV). The company had announced a 1:1 bonus plus a stock split wherein the face value of Bajaj Finserv will be split from Rs5 per share to Rs1 per share. The ex-date for these two corporate actions has been fixed as 13th September, which means investors must have the shares of Bajaj Finserv credited in their demat accounts by 13th September evening to be eligible for the bonus shares and stock split.

Let us first understand how an investor holding 100 shares of Bajaj Finserv will be impacted by this corporate action. Let us look at the 1:1 bonus first. Due to the bonus via capitalization of reserves, the number of shares held will double from 100 shares to 200 shares. Subsequently, when the stock is split 5 for 1, the 200 shares of face value Rs5 will stand converted into 1,000 shares of face value 1. Thus the person holding 100 shares of Bajaj Finserv on 13th September will be holding 1,000 shares post the bonus and split.

How bonus and split will be adjusted in Futures & Options?

The total adjustment factor for the combined effect of the bonus and the split would be an adjustment factor of 10. Obviously, we have seen that in the above illustration that a person holding 100 shares will end up holding 1,000 shares post the bonus and the split. As the number of shares go up 10-fold, the market price of the stock will also get adjusted downward proportionately. That is because, bonuses and splits are value neutral and do not have any impact on the shareholder wealth. Let us first look at the futures contracts impact.

How the bonus and split will impact futures contracts of Bajaj Finserv?

Here is how the NSE Clearing will adjust the futures contracts outstanding of Bajaj Finserv. All open positions in futures contracts with the underlying security as BAJAJFINSV as of the end of day on September 12th, 2022 will be adjusted as under:

    • The adjusted positions will be arrived at by multiplying number of contracts in the pre-adjusted position by the adjustment factor of 10. Thus 1 lot would become 10 lots and this applies to long and short positions. 

    • The adjusted price will be arrived at by dividing the pre-adjustment price by the factor of 10 so that it is reflective of the bonus and the split. 

    • This is what it means in real terms. If you are long on 1 lot of Bajaj Finserv Futures (comprising of 50 shares) at a price of Rs17,200 as on 12th September, then post the 13th of September, the position will get adjusted such that you are long on 10 lots of Bajaj Finserv (500 shares) at an average price of Rs1,720.
There is one point to note in this adjustment of futures. To avoid differences arising due to rounding off the adjusted settlement price, all open positions in futures of BAJAJFINSV will be marked-to-market on September 12th, 2022 based on daily settlement price. These would be carried forward at the adjusted value. From 13th September, daily MTM settlement of futures contracts will continue as per normal procedures.

How the bonus and split will impact Options contracts of Bajaj Finserv?

Here is how the open positions in options of Bajaj Finserv will be adjusted for the bonus and split. 

    • Firstly, the strike price will be adjusted by dividing the old strike price by the adjustment factor of 10. 

    • Subsequently, the adjusted positions in options will be arrived at by multiplying the number of contracts in the pre-adjusted position by the factor of 10. 

    • Thus if you are long on 1 lot of Bajaj Finserv (50 shares) call option of strike price 17,250, then post the adjustment, you will be long on 10 lots of Bajaj Finserv (500 shares) at a revised strike price of Rs1,725.