In traditional finance, the shares you hold may be impacted by corporate actions, and this is true for tokenised stocks and ETFs as well. Your tokenised stock’s balance can change based on how corporate actions influence the underlying asset.
What is a corporate action?
A corporate action (also known as a corporate event) is any activity carried out by an organisation that materially impacts its stock and therefore has implications for the holders of that stock (the organisation’s shareholders). When a publicly traded company initiates a corporate action, you can expect its stock price to be impacted.
Examples of corporate actions
Dividends
Distributions of a company’s earnings to its shareholders, either in cash or more shares. For a tokenised share, the increased value for the holder of the underlying share is reflected as an increase in the value of the tokens you hold. You don’t hold the underlying share, so you won’t receive cash or more shares, but you still benefit through the increase in the value of your tokens.
How dividend reinvestment works:
Dividends are handled through an automated "multiplier" process. Instead of a cash deposit, the underlying value of every token is increased. You can verify this by comparing your current holdings against the amount you originally purchased; the difference represents your accumulated dividends.
Stock splits
A company splits its shares, so it has a higher number of shares available but each share is worth less than before. For example, if one share in a company is $1,000 and they split their stock 10-for-1, each single share becomes ten $100 shares. While the value of your holdings is the same, you’d see a decrease in the company’s share price and an increase in the number of tokenised shares you hold.
Reverse stock splits
The opposite of a stock split: a company reduces its number of shares available while increasing its share price. For example, ten $100 shares may become one $1,000 share. The overall value remains the same, but you’ll see a decrease in the number of shares held accompanied by an increase in share price.
Mergers
Two or more companies join together to form a new single company. This is usually accompanied by a ticker symbol change to reflect the new company’s name, while shares from the original companies are translated into equivalent shares in the new one.
Corporate actions and tokenised stocks
Keep in mind that owning tokenised stocks does not grant you the same rights as shareholders, who are informed by companies about these events and have voting power to influence them. That said, you own digital tokens backed by real shares, so you still benefit from any increased holdings of the underlying share or increased value of that share.