Due Bills: The 25 Percent Threshold That Pushes an Ex-Date Past the Payable Date

The rule that the one-line summary leaves out

The most repeated sentence about one-day settlement is that the ex-dividend date and the record date now fall on the same day. That is accurate for ordinary distributions and wrong for large ones. The dividing line is a stated threshold: twenty-five percent of the value of the subject security. Above it, the ex-date is not pulled toward the record date at all but pushed to the first business day after the payable date, so the security keeps trading with the distribution attached for days or weeks after the record date has passed.

That gap is not an anomaly but the ordinary operation of a rule that survived two settlement-cycle changes without altering its own trigger while everything underneath it changed.

What the settlement rule says, including the clause that reverses it

The settlement cycle itself lives in eCFR, 17 CFR 240.15c6-1, Settlement Cycle. Paragraph (a) reads: except as provided in paragraphs (b), (c), and (d) of this section, a broker or dealer shall not effect or enter into a contract for the purchase or sale of a security (other than an exempted security, a government security, a municipal security, commercial paper, bankers' acceptances, or commercial bills) that provides for payment of funds and delivery of securities later than the first business day after the date of the contract unless otherwise expressly agreed to by the parties at the time of the transaction.

The trailing clause is not decoration: quoted without it, the rule reads as an absolute ceiling, and it is not one. Paragraph (b) removes three more categories: unlisted limited partnership interests, security-based swaps, and securities the Commission exempts by order. Paragraph (c) puts firm-commitment offerings priced after 4:30 p.m. Eastern at the second business day rather than the first, with the same express-agreement clause attached.

SEC Release No. 34-96930, Shortening the Securities Transaction Settlement Cycle sets May 28, 2024 for the amendments to Rule 15c6-1(a). FINRA Regulatory Notice 24-04 states that its amendments become operative on May 28, 2024, the compliance date the SEC announced for amended Rule 15c6-1 and new Rule 15c6-2, or such later date as may be announced by the SEC for compliance with such rules. The date is an announced compliance date, not a permanent fixture.

One thing 15c6-1 does not do is set ex-dates. The release that shortened the cycle names corporate action processing once, in its response to comments on T+0 settlement, where the Commission lists it among the impediments to shortening the cycle further than it did, but it does not designate ex-dividend dates or address due bills, so attributing the ex-date convention to the settlement rule is a category error.

Where the ex-date is actually designated

The operative text is FINRA Rule 11140, Transactions in Securities Ex-Dividend, Ex-Rights or Ex-Warrants. Paragraph (a) establishes that all transactions other than cash transactions shall be ex-dividend, ex-rights or ex-warrants on dates designated by the Uniform Practice Code Committee or by the appropriate national securities exchange, following receipt of definitive information under SEA Rule 10b-17. The date is designated, not derived by a broker.

Paragraph (b)(1) covers cash dividends or distributions, stock dividends, and the issuance or distribution of warrants which are less than 25 percent of the value of the subject security. If the definitive information is received sufficiently in advance of the record date, the date designated as the ex-dividend date shall be the record date if the record date falls on a business day, or the first business day preceding the record date if the record date falls on a day designated by the Committee as a non-delivery date.

Paragraph (b)(2) inverts the summary, and its opening clause defines the scope: in respect to cash dividends or distributions, stock dividends and/or splits, and the distribution of warrants, which are 25 percent or greater of the value of the subject security, the ex-dividend date shall be the first business day following the payable date. Cutting that sentence down to the threshold alone deletes the categories it applies to.

Exchange rules run parallel. NYSE Rule 235 states that transactions in stocks shall be ex-dividend or ex-rights on the record date fixed by the corporation or the date of the closing of transfer books. The exchange's explainer, NYSE, Ex-Date Dividends, says the ex-date is set on the record date under the current T+1 settlement cycle except under specified circumstances, and gives due bills as one of them. The Listed Company Manual phrases the small case as a norm, not a universal: normally, a distribution of less than 25 percent is traded ex on the record date.

What twenty-five percent is in dollars

The rule states a ratio, never a dollar figure, so the threshold has to be converted per security: the minimum qualifying distribution is a quarter of the reference price. No institution publishes this as a table, so it is computed below, and each row checks by multiplying the middle column by four.

Reference price	Distribution at 25 percent	Check
10.00	2.50	2.50 x 4 = 10.00
20.00	5.00	5.00 x 4 = 20.00
25.00	6.25	6.25 x 4 = 25.00
30.00	7.50	7.50 x 4 = 30.00
50.00	12.50	12.50 x 4 = 50.00
75.00	18.75	18.75 x 4 = 75.00
100.00	25.00	25.00 x 4 = 100.00
200.00	50.00	50.00 x 4 = 200.00

The language is 25 percent or greater, so the boundary sits inside the large-distribution branch. A 2.50 distribution on a 10.00 reference price is exactly 0.25 and qualifies; 2.49 is 0.249 and does not. That one cent separates an ex-date on the record date from an ex-date after the payable date.

The rule says value of the subject security without specifying which price and which moment supplies it, so the table is an arithmetic boundary rather than a determination. The determination is made under paragraph (a), and a distribution near the line stays undetermined until the ex-date is published.

The due bill is what fills the gap

Between the record date and a post-payable ex-date, buyers purchase a security that still carries a distribution the issuer will not send them, because they are not on the register. The instrument that transfers the entitlement is defined in FINRA Rule 11630, Due-Bills and Due-Bill Checks.

Paragraph (a) defines a due-bill as an instrument employed for the purpose of evidencing the transfer of title to any security or rights pertaining to any security contracted for, or evidencing the obligation of a seller to deliver such to a subsequent purchaser. The definition does not stop there: a due-bill shall not be transferable or assignable by the purchaser.

Paragraph (c) sets the attachment condition: a security sold before it trades ex-dividend, for stock and scrip dividends, or ex-rights, and delivered too late for transfer on or before the record date, shall be accompanied by a due-bill for the distribution to be made. Where the due-bill evidences an obligation to deliver stock, the purchaser prorates the contract value and pays the balance upon redemption. That requirement carries its own carve-out, and dropping it produces a false general rule: the requirement to pro-rate shall not apply to stock dividends less than ten percent, or to spinoffs, or to rights. Paragraph (d) extends the same timing to cash distributions and to bond and unit investment trust interest.

Redemption timing in paragraph (e) is conditional rather than fixed: due-bills shall be redeemable on the date on which the security or rights are issued by the corporation, or as soon thereafter as the signer or guarantor can obtain transfer of the security or rights into denominations necessary to effect the redemption. Reading only the first half produces a hard date the rule does not promise.

Failure is paragraph (f). A due-bill presented for redemption and not honored may, at the buyer's option, be treated as a fail to receive, and the distribution may be bought in for the account and risk of the seller under Rule 11810. The paragraph then adds the timing limit: buy-ins under it must be executed after the payable date as determined by the issuing corporation.

Counting the window in business days

The rule says first business day following the payable date and stops there, so the window is whatever the issuer's record-to-payable spacing makes it. Holding the record date at 14 October 2026, a Wednesday, and varying only the payable date gives the following. No exchange holiday falls between 14 October and 16 November 2026, so business days are simply weekdays in every scenario below.

Case	Payable date	Designated ex-date	Trading days that carry a due bill
Under 25 percent	does not set the ex-date	14 Oct 2026 (record date)	0
25 percent or greater	16 Oct 2026 (Fri)	19 Oct 2026 (Mon)	3
25 percent or greater	23 Oct 2026 (Fri)	26 Oct 2026 (Mon)	8
25 percent or greater	30 Oct 2026 (Fri)	2 Nov 2026 (Mon)	13
25 percent or greater	13 Nov 2026 (Fri)	16 Nov 2026 (Mon)	23

Take the 30 October case. Record date and designated ex-date sit 19 calendar days apart, and the window of trading days that are still cum-distribution but settle after the register closed runs 13 business days, against 0 business days below the threshold.

The settlement arithmetic confirms each boundary. A purchase on 13 October settles 14 October and lands the buyer on the register. A purchase on 14 October, the record date, settles 15 October and misses it: below the threshold that buyer has bought ex, while above it the same buyer is still buying cum and receives a due bill. A purchase on 30 October, the payable date, settles 2 November and is still cum. A purchase on 2 November, the designated ex-date, settles 3 November with no entitlement.

Reading a distribution notice in the right order

The ex-date cannot be inferred from the record date alone once a distribution looks large, and three misreads follow from getting the order wrong.

A holding-period misread: a position bought after the record date but before a post-payable ex-date is still cum-distribution, so selling inside that window transfers an obligation, not just shares. That is what Rule 11630(c) describes.

A price-gap misread: on a post-payable ex-date, the reference price adjusts for a distribution the issuer already paid out days earlier. Treating that as a market event rather than a scheduled mechanical adjustment is a misattribution.

A remedy misread: when a due bill is not honored, the rule offers fail-to-receive treatment and a buy-in, but paragraph (f) fixes the earliest moment at after the payable date.

What Would Invalidate This

Several conditions break the reasoning above, each visible in the rule text rather than inferred.

The threshold denominator has no timestamp. Rule 11140(b)(2) says value of the subject security without naming a price or a moment, so a distribution close to the line cannot be classified by arithmetic alone. Under paragraph (a) the designation belongs to the Committee or the exchange, and the published ex-date is the answer, not the calculation.

Late information moves the date. Where definitive information does not arrive sufficiently in advance, the rule shifts to a discretionary standard: the first business day which, in the opinion of the Committee, shall be practical. A calendar built from record and payable dates cannot anticipate that.

The settlement cycle is a default, not a constant. Rule 15c6-1(a) yields to an express agreement of the parties, paragraph (b) removes several categories entirely, and firm-commitment offerings priced after 4:30 p.m. Eastern sit at the second business day under paragraph (c). A day count assuming one-day settlement everywhere will misplace boundaries there.

Non-delivery record dates flip the small-distribution branch. Below the threshold, the ex-date equals the record date only when that date falls on a business day. If the Committee designates it a non-delivery date, the ex-date is the first business day preceding it, and the zero-day window above becomes something else. Separately, for depositary receipts and for stock dividends or splits on foreign securities, the Committee designates the date directly and neither branch of paragraph (b) drives the answer.

Exchange rules are phrased as norms. NYSE Rule 235 points to the record date or the date of the closing of transfer books, the exchange's ex-date page carves out specified circumstances including due bills, and the Listed Company Manual says a sub-25-percent distribution is normally traded ex on the record date. None of those is universal, and quoting them as universal is how the original summary broke.

Concrete Framework

A checklist for the moment a distribution notice appears, in the order the rules impose rather than date order.

1. Compute the ratio before reading any date. Divide the announced distribution by the reference price and keep the unrounded quotient; do not round to a percentage and then compare.
2. Test against 25 percent, treating the boundary as inside. The rule reads 25 percent or greater, so exactly 0.25 is on the large-distribution branch. Dollar equivalents: 2.50 on a 10.00 price, 12.50 on 50.00, 25.00 on 100.00.
3. If the result is near the line, stop calculating and wait for the designation. The rule does not fix the valuation moment, and paragraph (a) assigns the designation to the Committee or the exchange. A published ex-date settles it; an estimate does not.
4. Locate the ex-date on the correct branch. Below the threshold, expect the record date, unless it is a designated non-delivery date, in which case expect the first business day preceding it. At or above, expect the first business day following the payable date.
5. Count the window in business days from the calendar. Record date through payable date inclusive, weekends and exchange holidays excluded. In the worked example that was 13 business days for a 30 October payable date, against 0 below the threshold.
6. Classify the position against that window. Before it: on the register. Inside it: still cum, delivered with a due bill, and selling transfers the obligation with the shares. On or after the ex-date: no entitlement.
7. Check whether proration applies before assuming a cash adjustment. Rule 11630(c) requires the purchaser to prorate contract value where the due bill evidences an obligation to deliver stock, but not for stock dividends under ten percent, and not for spinoffs or rights.
8. Note the earliest remedy date, not just the redemption date. A buy-in for an unhonored due bill can only be executed after the payable date determined by the issuer.
9. Re-verify the settlement assumption for anything unusual. One-day settlement has been the compliance baseline since the announced date of 28 May 2024, or such later date as the SEC announces, and it yields to an express agreement of the parties, excludes several security types, and runs to the second business day for firm-commitment offerings priced after 4:30 p.m. Eastern.

This article describes settlement and corporate-action rules and their arithmetic. It is not investment advice and contains no recommendation to buy, sell or hold any security.