The ex-dividend date (coinciding with the reinvestment date for shares held subject to a dividend reinvestment plan) is an investment term involving the timing of payment of dividends on stocks of corporations, income trusts, and other financial holdings, both publicly and privately held.
As far as the company registrar is concerned, to determine the ultimate eligibility for a dividend or distribution, the record date, not the ex-date, is relevant.
[3] Usually, the person owning the stock at the end of the trading day one business day before the ex-date is also the person registered in the shareholders register on the record date, because companies set the ex-date and record date of the dividend in line with the settlement cycle of the security.
If, for whatever reason, a share transfer prior to the ex-dividend date is not recorded on the register in time, the seller is obligated to repay the dividend to the buyer when he receives it.
However, to create a level playing field when shares are traded on the London Stock Exchange during this benefit period an 'ex' date is set.
"[6] On some markets, after the close of business on the day before the ex-dividend date and before the market opens on the ex-dividend date, all open good-until-canceled limit, stop, and stop limit orders are automatically reduced by the amount of the dividend, except for orders that the customer indicated "do not reduce."
At the market opening on the ex-dividend date, the stock will trade at a lower price, adjusted for the amount of the dividend paid.
In the United States, the Securities and Exchange Commission (SEC) stipulates the T+1 rule, that stock trades settle one business day after purchase.
[10] An investor only needs to own the stock for one day (the record date) to be entitled to receive the dividend payment.
For example, in September 2017 the SEC shortened the T+3 rule to T+2 in U.S. securities markets, resulting in subsequent ex-dividend dates being a day later than they would have been before the change.
[12] Investors concerned with details of ex-dividend dates must also be aware of such rare changes to the trading system.