A corporate action is an event such as an exchange, merger, stock split or spin-off that affects the securities of a public traded company. Frequently corporate actions result in fractional shares which are converted to cash. This conversion generates a transaction known as “cash in lieu” which usually appears as a “journal” several days after the original transaction.
Because of the delay before all the necessary information is available, you must either enter incomplete transactions that you must later modify or live with unreconciled data in PortfolioCenter. Here are the two methods:
In both methods, you block all the interface transactions and use the appropriate transaction wizard to create the corporate action transactions.
1) Create & post, then edit – In this method, you post all the transactions created by the wizard including the sells for $0.00. This completes the corporate action and reconciles the shares, but the data is not correct. After you receive the cash in lieu transactions, you un-post the sells for $0.00 and replace the $0.00 with the dollar amount from the journal.
While Schwab Performance Technologies recommends this method, it’s not my first choice. The advantage of this method is all shares reconcile while the corporate action is in progress. But the glaring disadvantage is entering bad data — a practice I avoid like SEC auditors. This method also involves more steps than the other method and it is too easy to miss an account or forget to modify the transactions later.
2) Wait for all the information, then post – In this method, you delay posting the transactions created by the wizard until you have all the data. Once you receive the journals for the cash in lieu, you edit the sell transactions in the wizard and post everything.
While your accounts will not reconcile for a few days, the error report serves as a nice reminder that a corporate action is pending and you still have work to do. Plus it lists every account affected, making it harder to miss one.
This is my preferred method unless the corporate action happens to fall over the end of a quarter when bills are generated. Depending on the timing of the corporate action and your billing cycle, you may not have the freedom to leave accounts unreconciled. In this case, you’d need to use the first option.
Consider outsourcing to an expert.
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