Due Bills and Late Ex-Dates

Normally the ex-dividend date is set a day or two before the record date, so that anyone who buys before the ex-date settles in time to be the official holder of record and receive the dividend, while anyone buying on or after the ex-date does not. Occasionally — often around a stock dividend, spinoff, or a corporate action announced close to its record date — the ex-date ends up falling after the record date instead of before it. That mismatch would let someone who already sold their shares before the record date, but whose sale hasn't settled yet, technically still show up as the holder of record and collect the payment they'd already been compensated for in the sale price.

A due bill fixes this: it's a legal instrument attached to the trade obligating the seller to pass the entitlement (the dividend, the spinoff shares) on to the buyer, even though the official record shows the seller as the recipient. Brokers track due bills and process the pass-through automatically so the economic effect matches what both parties actually agreed to.

Worked example

A company sets its record date for a special stock dividend on a Tuesday but only announces the corporate action, and therefore its ex-date, the following Thursday — after the record date has already passed. Anyone who bought the stock on Monday (before the record date) and is the official holder of record on Tuesday should receive the dividend under normal record-keeping. But if that buyer already agreed to sell to someone else with a Thursday settlement, a due bill attaches to that trade, requiring the seller to forward the dividend to the buyer, since the buyer economically owned the stock through the relevant period.