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Voluntary Corporate Action Events

Voluntary Corporate Action Events

Event Announcement - Preliminary Checks

Both counterparties should review key dates and check current and pending positions including any pending returns. A pre-advice received should be sent from recipient counterparty to beneficial counterparty on books closed date plus one which should include positions, options and deadlines. If any differences are identified, these should be raised with the counterparty immediately. Counterparties should check any potential risks in processing the event on loan. For example, restrictions on oversubscribing, scale back ratios which can leave entitlement differences with loan and custody positions, events where market movements are not allowed between record date and instruction deadline. Once risks are identified prompt action to mitigate those risks should be taken. Short notice recalls may be required and system restrictions placed to prevent movement on the security. Any restrictions/issues should be communicated as soon as possible to counterparties in order to highlight any risks or concerns. It may be possible for the recipient counterparty to manufacture entitlements in order to maintain the loan position. Alternatively, the loan should be promptly recalled and returned if record date has not passed. The beneficial owner counterparty should diarise to send pre-advices to counterparties on the event to agree deadlines. This notification should include all relevant information - positions and instruction deadlines (where applicable) along with options available on the event, highlighting the default option. Pre-advices should be sent to counterparties within a reasonable timeframe of the event, allowing all parties sufficient time to agree terms and where applicable return stock if agreement cannot be reached. (IBP-148 AGREED IN 2017)

Actions to take during timeline of the event

If record/entitlement date is on / after instruction deadline, the outstanding positions need to be monitored daily until record date plus one. If the position and deadline has previously been agreed but there is a change to the reconciled position such as a loan or return settlement, then both parties will need to re-agree the new position as soon as possible. Any pending movements need to be checked for settlement dates to ensure there are no issues with settlement after deadline/being returned after instructions have been sent. If event details and entitlements cannot be agreed by both counterparties, then the position shall be recalled and returned prior to record date. Firms may identify events as high or low risk depending on internal procedures. Restrictions for low risk events may be added on the morning of the event deadline by the beneficial counterparty to prevent further movement until pay date/record date+1. This will ensure outstanding positions are final as per agreement between counterparties and will ensure instructions match the positions accordingly. Restrictions for high risk event may be added on an announcement of an event and for a longer period. The deadline should be reasonable in relation to the market deadline. In some cases, the beneficial counterparty may need to negotiate with recipient counterparties for an extension to the agreed deadline if instructions are not complete. Instructions are uploaded and checked by the beneficial counterparty before being sent to recipient counterparty via secure email in a pre-determined format as agreed between counterparties, and which may be described in an SLA. Instructions should be signed by two recognised signatories. Recipient counterparties should confirm receipt of all instructions received from the beneficial counterparty by email. If an email confirmation is not received then a phone call will be made to the recipient counterparty to ensure the instruction is received. Some elections are time sensitive (sale instructions, FCFS offer elections). Recipient counterparty should confirm receipt of the election via email as soon as possible after receipt and before close of business on the same day. It is essential that recipient counterparties include contact details on email correspondence when agreeing deadlines so the beneficial counterparty can reach the relevant person handling an event if necessary. No returns should be made by the recipient counterparty after receipt of instructions unless communicated and agreed directly with the beneficial counterparty. (IBP-149 AGREED IN 2017)

Actions to take before pay date

If entitlement ratios / cash rates are known before the response deadline, the beneficial counterparty will include the cash and/or stock entitlements on the instruction sent. When confirming receipt of elections, the recipient counterparty should also confirm whether or not they agree with the entitlement. If the entitlement ratio is not announced until PD or a couple of days before, the recipient counterparty should send an email to the beneficial counterparty confirming the entitlement to be recorded. The beneficial counterparty should check and confirm agreement. Any discrepancies should be raised immediately. Payment details should be provided to recipient counterparty either manually or on automated claims on PD-2, to ensure payment can be made promptly on pay date. For events with WHT (such as French OSDR's) or subscription costs (rights issues and open offers) the beneficial counterparty will send claims to the recipient counterparty requesting account SSIs and seeking agreement on the cash amount on PD-2, so payment can be received by the recipient counterparty on PD. All mandatory entitlement events, cash and stock entitlements should be agreed by pay date-2 where possible. (IBP-150 AGREED IN 2017)

Actions to take on and after pay date

Lending agents are obligated to ensure underlying beneficial owners receive all entitlements, as if the securities were held in custody and not party to lending activity. Loan positions should be treated as a whole position unless booked at different manufactured dividend rates. In instances where scale back ratios are applied at beneficial owner level, the beneficial counterparty must provide the recipient counterparty with a breakdown of underlying client positions when sending instructions on the event. On pay date any new entitlements should be reflected on the recipient counterparty's internal system and details sent to collateral teams. Collateral valuations should include any new transactions recorded, or old loans closed. When recording or closing a loan, the CA team at both counterparties should notify their collateral team of the action taken; detailing the security, loan ref, number of shares and the CA contact they have agreed this with at their counterpart. This communication should help ensure a smooth and effective collateral flow. New loans are booked and suppressed by the beneficial counterparty as the new loan will be a creation of additional entitlements and will not require physical delivery of securities. The recipient counterparty should reflect the same increase on their side. If loans are being closed (rights loans or coupon loans on pay date) then this is done on pay date and collateral returned to the counterparty.This would happen even if the new entitlement is not available until a later date. In some cases, such as exchanges or splits, the collateral can be carried over to the new loans booked. This should be communicated to the collateral teams when the CA teams record the new loans. Payment should be received on pay date, please refer to the collateral paper for further details. The beneficial counterparty records all non-tradable lines attached to corporate actions, such as dividend coupons, non-tradable referred lines. The loans are booked at rates and prices agreed between parties. Pay date +1 and onwards. The beneficial counterparty should check for cash payments due by monitoring the relevant currency accounts daily. Recipient counterparties should email the beneficial counterparty to confirm value date on payments made. The beneficial counterparty should respond, confirming receipt of funds once payment has been received. The beneficial counterparty will make any payments to recipient counterparties on pay date and confirm value date via email, to ensure funds are recognised and not returned. Contract compare should also be checked to ensure new loan positions are booked and match. Any differences need to be escalated to recipient counterparties in order to match. The beneficial counterparty is contractually due payment in full on pay date. Therefore, chasing for payments should be done from pay date + 1 onwards. If payments are not made on pay date, recipient counterparties should provide a valid reason for non- payment and an expected pay date so any cash or stock exceptions can be narrated as per regulatory industry requirements. (IBP-151 AGREED IN 2017)

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