What is Meant by Pari Passu?
Pari Passu simple means equal to, in shareholding terms. If you hold a security that was received by way of a rights issue, stock dividend, or scheme of arrangement for example) the stock may be held on a temporary line before being merged with the “parent stock”. This could be because the entitlement that you received was not due to receive the next dividend income payment, so remains on a temporary line until after the ex-date of the company dividend.
Pari Passu refers to two or more loans, bonds, or series of preferred stock having equal rights of payment or level of seniority. For asset management firms, the term denotes an equal allotment of trades to strategically identical funds or managed accounts. This term is also often used in bankruptcy proceedings where creditors are said to be paid pari passu, or each creditor is paid pro rata in accordance with the amount of his claim. Here its meaning is “equally and without preference.”
In relation to dividends:
Some shares are issued without the right to receive a particular dividend, or more than one dividend paid from a certain financial period. These shares normally result from either:
- Rights issues
- Open offers
The shares not entitled to a particular dividend will be held on a referred/registered line until they rank pari passu with existing sharers. The shares will rank pari passu the day after the date of the last divdend they are not entitled to.