Merci de désactiver le bloqueurs de pub pour visualiser cette vidéo.
Stock market orders: for a better understanding of the reasons why price data may be adjusted
11 March 2024

Stock market orders: for a better understanding of the reasons why price data may be adjusted

Certain corporate actions have a direct impact on the price of a listed company's securities and result in an adjustment being made to their historical data. Investors need to understand why this happens: this month's dossier gives me the opportunity to explain this.

Facts

Mr C informed me that he had instructed his account keeper to place an order to purchase 20 shares in Company A on 17 February 2022, and that this instruction was executed at the price of €151.00.

However, a few months later, after checking the historical price data for share A, Mr C noted that the highest price on Euronext for that day was €137.56.

Consequently, Mr C lodged a complaint with his account keeper in 2023, expressing his incomprehension as to the price at which his order had been executed, assuming that an error had occurred to his detriment when the order was executed.

The account keeper responded that there had been no error in executing the order, and forwarded him all the quotations from the price provider. Mr C then asked Company A itself, which merely confirmed the execution price.

Still unable to understand why his execution price was different from the price he believed had been reached on 17 February 2022, Mr C contacted me to request compensation calculated on the basis of the difference in price between the execution price of his order (€151.00) and the highest price he believed had been reached on that day (€137.56).

Investigation

I questioned Mr C's account keeper, who told me that in June 2022, i.e. a few months after Mr C's order was executed, Company A had issued bonus shares and that as a result of this event, Euronext had adjusted the price of security A.

The account keeper noticed that Mr C had used the ‘adjusted’ price to (incorrectly) assert that the price of share A had not exceeded €137.56 on 17 February 2022.

In his response, the account keeper pointed out that the ‘non-adjusted’ price of security A for 17 February 2022 had varied between €148.90 and €151.32, justifying the execution price of €151.00 for Mr C's order.

Recommendation

I have carefully examined all the information in this dossier.

During the course of my investigation, it became clear to me that the maximum price of €137.56 that Mr C had seen for 17 February 2022 was actually the 'adjusted' maximum price for that day and not the 'non-adjusted' price of the security.

To find out, one year later, the maximum price actually observed on 17 February 2022, Mr C should have referred to the 'non-adjusted' price of the security, which reflects the price data actually recorded at time 't'. 

I explained to Mr C that adjusting the price after certain corporate actions (bonus share issues, consolidation of a security, stock split, etc.) is crucial if the share price is to accurately represent the total value attributed to the undertaking by investors. 

Share price adjustment is a standard practice, set out in the Euronext rules [TRADING MANUAL FOR THE OPTIQ TRADING PLATFORM (2.7)], designed to maintain the integrity of the financial markets and to provide investors with an accurate view of the value of an undertaking, thereby facilitating informed investment decisions.

As regards the share price of Company A, I referred to the ‘adjusted’ share price and noted that all the data prior to the aforementioned bonus share issue had been modified and adjusted to preserve the historical comparability of the price data after the share distribution. Without this adjustment, the bonus share issue would necessarily have distorted the interpretation of the undertaking's performance, giving the impression that the share price had fallen when in fact it had risen.

Thus, I was able to explain to Mr C that an adjustment made following a bonus share issue allows an undertaking’s financial position to be accurately reflected and avoids any distortion in the share price.

After carefully examining the historical data for the price of share A, I was able to reassure Mr C that no anomaly had occurred in the processing of his order, which he would have been able to see had he looked at the execution price of his order prior to the bonus share issue, from which he had indeed benefited, and not only one year later. 

Finally, I took the opportunity to inform Mr C that, if necessary, non-adjusted prices can be viewed on the Euronext website by using the filter. 

This is done by clicking on the 'details' tab in the 'historical data' section for the chosen security and selecting the 'adjusted' or 'non-adjusted' filter.

Lesson to be learned

Certain securities transactions, such as bonus share issues, have a direct impact on the price of a security and require an automatic correction of the price of the share in question to ensure comparability of the data over time.

Therefore, investors must make a clear distinction between the ‘adjusted’ price and the ‘non-adjusted’ price:

  • the ‘non-adjusted’ price is only useful for finding the price observed for a security at a point in the past before a corporate action necessitating an adjustment.
  • the 'adjusted' price provides a complete and coherent view of the price of a security, taking into account events that have affected this security, which enables investors to better assess the performance and real value of a share over a given period.

While I have observed that some listed companies publish ‘adjusted’ and ‘non-adjusted’ historical data on their websites, it is up to an account keeper's client service department to provide clear explanations on this subject.

It is regrettable that the adjustment made to the price data for security A was not clearly explained to Mr C by his account keeper or by the issuer itself, who clearly did not understand Mr C's valid question. The account keeper and the listed company could, through a better understanding of the question posed, have explained the distinction between the ‘adjusted’ and ‘non-adjusted’ prices when Mr C made his complaint.