Thursday, 6 September 2012

Corporate actions on Interactive Brokers

As I have mentioned several times in the past, I use Interactive Brokers to trade shares as it offers some of the cheapest trading cost going around especially if you want to trade in various international markets.  In addition you really can't get cheaper trading costs for Australian shares through any other broker.

The one major downside (which I have highlighted before) was that it did not offer access to dividend reinvestment plans.  When a company I had invested in through Interactive Brokers announced an equity raising at a significant discount to both the current price and TERP (theoretical ex rights price) I was worried that I would not be able to participate for several reasons including:
  1. Interactive Brokers did not offer access to DRP's so would they offer access to corporate actions such as these?
  2. The bigger issue was that when equity raising's are done in Australia, US investors are generally excluded from participating
    • This is because these equity raising's are not SEC compliant as they do not need to be
    • Even though I am not a US citizen, when you invest through Interactive Brokers, the shares are held by Interactive Brokers (not you) and as they are a US entity I thought this would be a real issue
If it turned out that I could not participate in the equity offering I would have lost a lot of money.

However it turned out my worries were unfounded

Interactive Brokers does allow you to participate in corporate actions such as these and they must have an Australian registered entity holding your shares because there were no restrictions at all on the participation in this raising.  It also allowed you to participate in any oversubscription facility.

Note however that the process for taking up your rights under the equity offering are different to other brokers

With other brokers you use your shareholder number to take up any offerings.  This is either done through the share registry (e.g. ComputerShare or Link Market Services) or through the company's website.

Because Interactive Brokers hold the shares in your name you need to do it through their website.  Below are a brief set of instructions on how to access corporate actions on Interactive Brokers website

Step by Step guide to undertaking corporate actions on Interactive Brokers

1. Log into account management

2. Go to the messages or corporate actions
If you have not viewed it before you can view it as a new message however as I have viewed mine before I have to click the corporate actions tab and link indicated below:

3. Select your corporate action

Note that there are various rules about participation in corporate actions.  For example Interactive Brokers requires you to have the cash or facilities available to fund your selection.  Further if you are applying for an oversubscription you need to fully apply for your entitlement and then apply for further shares in any facility

Overall assessment

I was actually surprised at how easy this function was to use.  There are quite strict time limits on when you need to submit your instructions (for Australians it is 7 days before the official close of the offer) so keep an eye on this.

The ease of use and functionality associated with the corporate actions is a big plus in Interactive Broker's favour.  Having seen and used this, I am even more confused about why they do not offer the option of dividend reinvestment plans as you could use the same functionality.

You may also be interested in
Interactive Brokers Wire Transfers - Too Easy
When NOT to use the cheapest broker
Interactive Brokers - No DRP
Trading on your phone, ipad or tablet: Benefits and pitfalls

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