OptionsXpress Holdings Inc.’s chief executive said the company followed all required procedures for a big special dividend to be paid under rules that confused many investors.
The Chicago brokerage’s shares dipped as much as 14 percent before the open last Tuesday as investors wrongly thought that holding shares through the previous day, the so-called “record” date of Dec. 13, would entitle them to the $4.50 per-share payout.
Because of rarely invoked Nasdaq rules governing dividends greater than 25 percent of a company’s market capitalization, the real date of interest for dividend-seekers is Dec. 28, the “ex-dividend” date. The company’s late November press release announcing the move didn’t mention the ex-dividend date.
Investors scrambled to repurchase shares once they put those pieces together, and the stock rebounded. But many were incensed that the company, Nasdaq or regulatory authorities didn’t do a better job of communicating the special rules that apply to big dividends like the brokerage’s.
Chief Executive David Fisher acknowledged that the unusual set of events was confusing, as was the company’s failure to stress the ex-dividend date in its press release.
“Not having done this before, and there haven’t been too many (big special dividends) lately, we didn’t have a lot to go by. … Obviously hindsight is 20/20,” Fisher said.
Fisher said the company knew of the rule beforehand and made all relevant disclosures with Nasdaq and the Financial Industry Regulatory Authority. He also said it checked industry sources such as Bloomberg and Internet sites such as Yahoo Finance to make sure they listed the correct ex-dividend date.
“The information was out there. If you looked on our site for the ex-dividend date, it said the 28th. … If you looked on Yahoo Finance, it said the 28th,” he said.
None of that stopped investors from failing to realize their Dec. 14 sales would prevent them from receiving the payout.
“If they’re going to have some rules and regulations like this, there ought to be some common sense to them,” Marv Haupt, a 66-year-old retiree in New Hudson, Mich., told Dow Jones Newswires. He said he sold 1,500 shares that morning at around $18 per share before realizing that “there was a mistake, because the price started coming up again.”
Stocks typically drop the day they go “ex-dividend,” or the first day they trade without a payout implied in the price. The special Nasdaq rules are intended to prevent especially large payouts from causing the stock to drop with a big thud. NYSE Euronext has similar rules for the same reason.
A Nasdaq spokesman did not immediately respond to requests for comment. A FINRA spokeswoman declined to comment.
Stephen Nelson, a securities attorney at the Nelson Law Firm in White Plains, N.Y., said OptionsXpress was not legally required to tell investors when the stock would trade ex-dividend.
If investors were confused and sold their shares too early to receive the dividend, Nelson said he does not feel too badly for them.
“People who sold the stock after Dec. 13, but before Dec. 28, at an elevated price have no right to complain,” he said. It’s wrong for an investor to think the market will pay the same high price for shares after a dividend as before, he added.
Fisher stressed that investors who want to receive the special dividend should hold the stock into the close on Dec. 27, which entitles them to the payout.
OptionsXpress is just one of many companies announcing special dividends in recent months, and its experience with little-invoked exchange rules is likely to be watched by other firms considering large payouts.
