Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

What is the Ex-Date for Closed-End Investment Companies in relation to the record date?

1. 1 business day after

2. 1 business day before

3. 2 business days before

4. Same day as

The correct answer is: 1 business day before

For closed-end investment companies, the Ex-Date is set one business day before the record date. This is because in order to be entitled to a dividend or distribution, an investor must own the shares before the Ex-Date. The record date is the date on which the company identifies the shareholders who are entitled to receive the dividend or distribution. By implementing the Ex-Date as one business day prior to the record date, it facilitates the transaction settlement process. In the securities market, transactions typically settle on a T+2 basis, meaning that if a buyer purchases shares on the Ex-Date or later, the transaction will not settle until after the record date. Therefore, those who purchase shares on or after the Ex-Date would not be considered shareholders on the record date, thus excluding them from dividend eligibility. Understanding this timing is crucial for investors who want to manage their eligibility for dividends appropriately.