Cum-Ex in Concept

Abstract

This chapter examines the essential features of the cum-ex trade and outlines the ‘base template’ which was the foundation for the later refinement and expansion of the trade. The chapter begins by dealing separately with a number of the individual components that are relevant to the cum-ex trade: it explains the concept of dividend arbitrage, the workings of withholding taxes and tax credits, the distinction between cum-dividend and ex-dividend share sales, the idea of a settlement time lag, the workings of the dividend adjustment mechanism, and the concept of short selling. The discussion then explains how these individual components were assembled and synchronized in order to deliver the basic cum-ex trade.