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Mandatory Corporate Action Events

Mandatory Corporate Action Events

Event Announcement - Preliminary checks

Event details may be received from various vendor sources. As these events cover capital structures that must take place, emphasis should be placed on preliminary checks to ensure there are no restrictions / terms that would require the recall of the loan position before the entitlement date. Counterparties should ensure they are aware of any specific market nuances or laws that may impact the Corporate event management. Key dates should be reviewed and monitored for Ex-1 or Ex, depending on the market. Positions should be fully reconciled between parties prior to record date. If any difference is identified in the information the identifying counterparty should raise it with their counterparty immediately. (IBP-144 AGREED IN 2017)

Actions to take during timeline of the event

On Ex-1, CA teams at both counterparties should notify collateral teams of the event to ensure price adjustments in the market do not prompt incorrect returns of collateral. Restrictions may be placed on the asset from Ex to pay date depending on the event type. Both counterparties should record the new entitlements on systems on record date plus one without delay. Depending on the event, original (parent) loans may be required to be bilaterally closed. If pay date is after books closed date; new entitlement shares should remain as a pending settlement on record date plus one until pay date. The beneficial owner will send the recipient counterparty a notification when the new entitlements have been settled. Both counterparties should notify their collateral teams when closing and creating new positions from the corporate action. Please refer to the separate collateral paper for further details. Fractional positions; in most markets it is best practice for both the lender and borrower to round down when calculating entitlement positions. New share entitlements should be calculated on the whole lent position (per MDR), rather than per loan. Fractional cash should be paid based on the market price for the whole share. If the fractional payment is of minimal value, the lender and borrower can agree to write off this payment. In markets such as Korea, where loans are tracked, segregated and fractions accounted for, entitlements should be rounded down per specific loan and fractional cash claimed and paid for per transaction. Contract Compare should be checked on pay date plus one to ensure new loan positions are booked and match. Any differences need to be escalated to borrowers in order to match. Any cash and stock breaks are narrated as per regulatory industry requirements. (IBP-145 AGREED IN 2017)

Cash Entitlements

The beneficial counterparty is contractually due payment in full on pay date. If payment is not received, counterparties should raise a query on pay date + 1 . If payments are not made on pay date, recipient counterparty should provide a valid reason for non- payment. In addition to reviewing Contract Compare prior to and on pay date, Contract Compare should be checked on pay date plus one to ensure newly created positions are reconciled. Any differences need to be escalated to counterparties immediately. Any cash and stock breaks are narrated as per regulatory requirements. (IBP-146 AGREED IN 2017)

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