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

Typically, the Ex-Date for Open-End Investment Companies is set when?

1. The same day as the record date

2. 1 business day before the record date

3. 1 business day after the record date

4. 2 business days after the record date

The correct answer is: 1 business day after the record date

The Ex-Date for Open-End Investment Companies is typically set one business day before the record date. This is due to the way transactions are settled in the securities industry. In order to receive the dividends or distributions associated with the shares of a fund, an investor must own the shares prior to the Ex-Date. Since trades are settled on the second business day after the trade date (T+2), the Ex-Date must be set a day prior to the record date to ensure that all buyers by that date will officially own the shares by the record date. Choosing one business day after the record date would not align with this settlement cycle, as it would allow buyers who purchase on the Ex-Date to claim the dividend, which is contrary to the standard rules. Therefore, understanding the relationship between the Ex-Date, the record date, and the transaction settlement time frame is key to comprehending why the correct answer reflects the industry practice.