Spin-off processing is the work that depositories, custodians and brokers carry out when a company separates part of its business into a new listed company and distributes that company's shares to its own shareholders. Holders keep their parent shares and receive new shares at the announced entitlement ratio, for example one new share for every five held. As no decision is required from them, it is a mandatory corporate action. Outside North America the same event is usually handled as demerger processing.
Intermediaries set up the new security in their systems, calculate entitlements on positions at the record date, and credit the shares on the distribution date. Fractions are settled according to the stated fractional share treatment. The original purchase cost is divided between the parent and the new shares, using a ratio published by the issuer, through a tax lot adjustment.