Question

If a customer has entered an open order to sell 1,000 shares of ABC at $70 and ABC announced a 2 for 5 split that is allowed by stockholders, how will the order be adjusted by the DMM on the ex-split date?

Sell 1,000 shares of ABC at $70

Sell 400 shares of ABC at $175

The order would be cancelled

Sell 2,500 shares of ABC at $28

Answer 1

2 shares earlier have turned to 5, so it means that 1 share that was earlier has turned to 2.5.

The earlier order before the split was to sell 1000 shares, so now it will be 2,500 shares.

Similarly, the price of each share was 70 which will come down to 70/2.5 = 28, as now 1share is 2.5, so its price will be going down by 2.5times.

So the correct option is the last one.

"Sell 2,500 shares of ABC at $28"

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