Ex-Dividend Date Order Reductions and Fractional Penny Rules
A customer enters an open order to Buy 100 XYZ at 44.50 (a buy limit). On the night before the ex-dividend date, XYZ declares a cash dividend of $0.35 per share. How will the specialist or market maker adjust this order on the ex-date morning?
Under FINRA Rule 5330, open orders below the market (Buy Limits and Sell Stops - BLiSS) are automatically reduced on the ex-dividend date by the exact dollar value of the cash dividend. $44.50 - $0.35 = $44.15 new limit price.
Complete Analysis & Legal Rationale
If the customer marked the order DNR (Do Not Reduce), the order would stay at $44.50.
Mathematical Step-by-Step Derivation
- Step 1: Original Order = Buy Limit @ $44.50.
- Step 2: Cash Dividend = $0.35.
- Step 3: Ex-Date Reduction = $44.50 - $0.35 = $44.15.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Reduced by exact cash dividend ($44.50 - 0.35 = $44.15).
Unmarked BLiSS orders are automatically reduced; staying at $44.50 requires a DNR instruction.
Prices are reduced on ex-date, never increased.
Orders are adjusted, not cancelled.
Official Standard: Mandatory downward adjustment of orders on ex-dividend date.