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Fabian Banchiero, VP and Regional Manager Latin America & Caribbean Division
October 27, 2005
Corporate Actions: The Main Custodian Workload And Risk
Why is it an issue ?
Definition and volumes Possible event types
Computation of entitlement
The proposed matrix most frequent and cumbersome events
Record and ex-date. Is 15022 the solution ?
Corporate Actions: Why Is It An Issue ? The main operational risk linked to: ..Lack of rules regarding dates A cumbersome. . with no international standard . wording .Global securities position (not individual entries) . risky and manual process highlighted in all market WGs: Giovannini rule 3.Multiple dead lines along the chain .. language .Complex timetable.Clarity of notification : type. G 30 rule 8…etc.Lack of STP due to numerous possibilities .
Central Bank Sub Custodian Central Depositary Tax Authorities .Corporate Actions: General Flow Client Clients of Client Custodian Issuing Company Vendor Carrier Domestic/Foreign Reg.
10%. Europe.10% .Using mainly.000. not only. Main issuers/issues : still Governments and public companies .e.Bonds.Corporate Actions: Definition And Volumes Definition: any event of any interest potentially involving existing holders of a securities. i. . with or without impact on securities or cash position. More on specific instruments.: no precise and agreed definition U. Europe. MMI and short term instruments : near to 10.000 worldwide for USD 37 billion.000. manual process : far from 100% STP .S.000 events a year to monitor for a large Custodian : if no automation ==> no efficient deliveries .Equities: 50. Definition: A change to the capital structure or the financial organization of a company that results in a change to the securities of the company.000 different issues for $44 billion.000 to 1.From 100.1-2%. Latin America. Latin America.5%.Equities often more complex/risky to handle than bonds .
. squeeze out ex : market split. Example : Tax treatment as client election. ex : disclosure ex : class action. bankruptcy.. tax . Depending on : Issuers decisions ex : dividend payment Issuer bylaws Investor decision Markets decisions. active.Corporate Actions: Possible Event Types An huge number of possible combination with new types of events created every year. Third party decision Legal and regulatory ex : hostile take over ex : meeting. de-listing.
000 types) with old securities Y/N ex : merger with new securities Y/N ex : rights with new shareholder Y/N ex : subscription tradable/not tradable Y/N ex : odd lots. warrants with prior-announcement Y/N ex : hostile bid .Corporate Actions: Possible Event Types With minimum 218 possibilities (more than 200. rights with cash Y/N ex : income with tax on cash Y/N ex : redemption of ZC with Tax on Securities Y/N ex: stock div with sec client election Y/N ex: right issues with cash client election Y/N ex : currency option with restrictions/exclusion Y/N ex : US investors with entitlement limits Y/N ex : privatization with dead line Y/N ex : convertible.
. Investor …to pure nightmare Registrar Paying agent Data Vendors Tax Authorities client clients Issuer Central Depo sub custo global cus CB B/S Same entitlement rules and time table .Spreading Clear Information All Along The Chain Issuer From simple situation..
.? Record date When does transfer of ownership and entitlement occur ? .? Actual Trade date settlement date ex date Event date time Contractual settlement date Announcement date What if…..Computation Of Entitlement: Rules Depend On Regulation Issue : define an entitled position in the book of the Custodian What if….
on loan/borrowed/collateral/pledge An example on the French market for the most frequent Equity event : general ordinary and extraordinary meetings .or any traded (i. . post trade date) positions recorded in issuer book for registered securities .announcement is done 1 month before event .e. No blocking of position.to receive .to deliver . Issue : non domestic custodian do not monitor registration.settled . settled positions.registered/out for registration .Computation Of Entitlement: Rules Depend On Regulation In other words : when and for which positions does transfer of ownership and related entitlements occur for positions .entitlement is blocking of shares. 5 days before meeting if the share is bearer (99% of listed Equities) for any Traded positions .
Corporate Actions: The Matrix To Build Up BE ACTV ATTI BIDS BONU BPUT BRUP BSPL CAPG CHAN CLSA CONS CONV ……. ... …etc… 100 event types CH DE DK EI ES FI FR GB GR IT LU SE SP PT Main common issues Unclear scope of Corporate Event (ex: EU class action) Taxable income Meetings-proxy Restrictions and disclosures Standard timeframe for any event Computation of entitlement = ownership and record date .
non-us certification Redemptions Meetings : lot of issues around proxy due to lack of agreement on record date entitlement .With withholding tax or reclaim .e. i.Corporate Actions: Frequent Events Focus on 3 frequent events: more than 80% of events Taxable income and related processes .With or with out currency option .With certification.With or without stock option (optional div) .
Record date does not exist everywhere. or migration to XML necessary ? If vendors are on SWIFT. Is 15022 FIN the answer.Corporate Actions: record and ex-date Is harmonization of ex date and record date a priority for CA STP processing ? Record date is linked to registration and rules for transfer of ownership. could we envisage any changes ? Dematerialization could be the first long term target to achieve if it clarifies transfer of ownership ? .
Corporate Actions at BNY 14 .
Notice of Event .Corporate Actions .Booking and Reporting .Instructions Chasing and Processing .Market Players Issuing Companies Data Vendors Sub-custodians .Market Info .Proxy Voting .Booking and Reporting Central Bank Tax Authorities Central Depository .Projections .Projections .Market Info .Instruction Chasing and Processing .Brokerage BNY Global Custodian BNY’s Clients Clients of BNY’s Clients .Notice of Event .Access to CB/CD .
Mission (Information Management) Information Sources Local custodians Third Party Custodians Vendors Corporate Action Notification System Notification SWIFT (MT564) Fax INFORM iCANS .Corporate Actions .
drawings) .early .elective) Redemptions (partial .Mission (Information Management) Notifications: What? All information on: Corporate events (mandatory .Corporate Actions .
Mission (Information Management) Notifications: When? Upon announcement : Preliminary On ex-date: Client deadline -2: Client deadline: Interim definitive / Definitive Reminder Reminder Manual Automatic .Corporate Actions .
Mission (Information Management) Notifications: To whom? Holder Pending receipt New Holders .Corporate Actions .
use of templates Highlight options for elective events .Corporate Actions .Mission (Information Management) Notifications: How? Standardized .
option Standing Instructions . event number.Corporate Actions . 599) . description.Fax Format ISIN.iCANS . entitled position.SWIFT (MT 565.Mission (Instruction Management) Instructions Receipt Communication . account number. sec.
Pending Corporate Actions reporting .SWIFT (MT 566) .INFORM .Settled Corporate Actions reporting .Fax What? .Mission (Transaction Management) Transactions Reporting How? .Corporate Actions .
iCans. Clients can: Receive CA notifications electronically Receive intra-day notification updates Receive a consolidated notification for all accounts holding a position at same subcustodian Send authenticated electronic responses Instructions processed real-time and STP Create special instructions Track status of responses Override standing instructions Choose several authorization levels Reduce processing risks .Interactive Corporate Action Notification System Mainframe application related to BNY Corporate Action Services for Global custody clients accessible via BNY’s mainframe.
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