This Notice is being issued to provide Participants with further information on the Adjustment implication for IFL ETOs.
ASX Participants and ASX Clear (ASXCL) Participants are advised that IOOF Holdings Limited (ASX Code: IFL) has announced an pro rata accelerated non-renounceable entitlement offer on Monday 31 August 2020. The terms of the issue are 1 for 2.09 at $3.50 per new security. New securities issued under the Entitlement Offer will not be eligible for the dividend declared on 31 August 2020. Participants are advised to refer to all announcements made by IFL for details and the full timetables for the institutional and retail offer tranches.
Implied Market Value of Pro Rata Accelerated Non-Renounceable Entitlement Offer
Participants are advised that the ETO adjustment will be based on the market value of the rights (whether positive or negative) as determined by ASX with reference to the VWAP for ex-entitlement shares and the entitlement price to subscribe for the new shares, and any dividend difference between the new shares and existing shares.
The indicative timetable (from the ETO’s perspective) is:
IFL announcement of offer during trading halt
ETOs exercise restriction effective from Monday, 31 August 2020, pending adjustment
Monday, 31 August 2020
IFL shares resume trading, ex-entitlement basis
ETOs resume trading on an under adjustment “UA” basis (* see notes below)
Wednesday, 02 September 2020
ETOs exercise restriction lifted
Thursday, 03 September 2020
· Participants may wish to consider making their clients, especially retail traders, aware of the issues relating to rights-style ETO adjustment for entitlement issues in relation to trading or exercise of ETOs on the ex-entitlement day.
· As with any rights-style adjustment that relies on market valuation, Participants are strongly advised that the adjustment to ETOs becomes effective on the commencement of ex-entitlement trading of the underlying securities. However, while any ETO trades entered into after the resumption of trading will be on an adjusted basis (“UA” Under Adjustment flag), the full extent of the adjustments will only be confirmed after VWAP and published by ASX after trading close on that day. Traders can estimate indicative adjustments when the market opens or during the course of the day.
Adjustment to ASX ETOs
ASX has consulted with ASXCL on the implications for IFL ETOs in relation to the entitlement offer. ASX will determine the following adjustment under ASX Operating Rule  Adjustments, Appendix 2230 Procedure 10 Alternative Adjustments as follows:
New contract size is calculated as follows:
TC = OC + n*r/S
TC = theoretical new contract size (prior to any rounding) which is used in intermediate calculations
OC = old contract size (currently 100)
n = the number of entitlements or rights attributed to each OC determined by the issue ratio (1/2.09 *100)
r = the market value (whether positive or negative value) of the each entitlement or right as determined by ASX, calculated as: S - d - C where:
S VWAP ex-entitlement of existing shares on the first day of trading ex-entitlement that the ETOs have also resumed trading (Wednesday, 02 September 2020), using the volume-weighted average price on ASX market.
d = ordinary dividend and special dividend for which the new shares are not entitled to (d=$0.115)
C = consideration paid to exercise the implied rights (i.e. offer entitlement price) (C=$3.50)
Participants should be aware that there are certain market conditions that can lead to a negative value for ‘r’. A negative ‘r’ used in the calculation above will create an adjustment where the contract size is adjusted downwards and the exercise price is adjusted upwards. Please see the example of Arrium Limited “ARI”.
The new strikes are calculated as follows:
NS = OS * OC/TC
OS = Old Strike
NS = New Strike
For the strike calculations, the theoretical new contract size (TC) used by ASX is rounded to 4 decimal places, and the strike factor (OC/TC) is rounded to 6 decimal places.
ETO Cash Equalisation Adjustment Payments for Contract Size Roundings
Participants should refer to Derivatives Notices 050/13 dated 14 August 2013, 042/13 dated 15 July 2013 and update 045/13 dated 17 July 2013 “ETO Cash Equalisation Adjustments for Contract Size Roundings” This is applied for all adjustment events effective 26 August 2013.
The cash adjustment payments will be posted by ASXCL as close as practicable to the effective adjustment date. For clarity, ETOs are LEPOs and non-LEPOs (ordinary options, American or European). Takers will be credited and writers debited a cash equalization payment for any contract size rounding calculations. (For share consolidations, it is possible for a LEPO taker to be debited if the LEPO strike is standardized back to 1 cent after initial rounding).
Where the old contract size of a series before an adjustment is 100, ASX will apply a standardizing “TMC threshold” so that if the calculated theoretical new contract size falls between 100 and to up to but not including 102, the theoretical new contract size will be truncated to the standard 100, and a cash equalisation adjustment payment made. If the calculated theoretical new contract size falls above 102, then the theoretical new contract size will be truncated down to the nearest whole number, with a cash equalisation adjustment payment made.
OTC series (where any)
Clearing Participants are advised that any OTC series cleared by ASXCL under the ASX Equity OTC Clear service will be adjusted using the same formula as the ETOs as shown in this Derivatives Notice.
OTC series will be adjusted along with ETO adjustments on the night however, to maintain anonymity; the adjusted OTC series details will not be published in the Derivatives Notice but will be available to CPs the following morning via their own clearing systems.
ETO exercise restrictions (where any) in relation to an adjustment may occur during the period of 10 business days prior to and including expiry, will also apply to OTC series. However such exercise restrictions will not apply on expiry day of an OTC.
Participants are advised that as the contract size is changing, arrangements may need to be made for additional lodgement of underlying shares to account for any collateral denoted as specific cover.
Participants should be aware of the content of this Notice as it sets out the treatment of the accelerated Non-Renounceable Entitlement Offer with respect to open positions in ASX IFL ETO contracts.
Exercises Restricted Pending ETO Adjustment
An exercise restriction was applied to IFL ETOs after the announcement of the entitlement offer.
The exercise restriction will be lifted the day after the first day trading resumes on an ex-entitlement (or ex-rights) basis, at Start of Day on Thursday, 03 September 2020.
A listing restriction was applied from Monday, 31 August 2020. The listing restriction will be lifted, at Start of Day on Thursday, 03 September 2020.
A further notice will be issued after the close of business following the resumption of trading of the underlying securities on an ex-entitlement basis, Wednesday, 02 September 2020. The notice will detail the adjusted contract size and adjusted strikes. Participants are reminded that trading on the ex-entitlement day will be on an “under adjustment” basis (UA trading) and effective that day, notwithstanding the adjusted specifications are published by ASX only after close of trading.
Brendan Laird, Senior Manager Settlement Operations
1800 814 051