General Securities Sales Supervisor (Series10) Practice Exam

What is the effect when a customer buys stock just before the record date of a stock split?

1. A They receive adjusted shares immediately

2. B They receive a due bill for additional shares

3. C No effect on share price

4. D They receive no additional shares at all

The correct answer is: B They receive a due bill for additional shares

When a customer buys stock just before the record date of a stock split, the transaction typically results in the issuance of a due bill. A due bill is a temporary document that represents the right to receive additional shares from the stock split that has been announced but not yet executed. In this scenario, the stock split occurs after the record date, meaning that the customer who purchased the stock just prior to the record date will not immediately receive the split-adjusted shares upon the execution of the split. Instead, they would be entitled to those additional shares at a later date. The due bill serves as a formal acknowledgment of their right to receive these additional shares, ensuring that they are accounted for in the transition following the stock split. This mechanism helps prevent any discrepancies or confusion in ownership and ensures that all shareholders receive their fair entitlement to shares in accordance with the terms of the split. The concept emphasizes the importance of understanding corporate actions and their timing relative to ownership records.