Corporate Actions

MICHAEL SIMMONS has spent the majority of his working life within the operational areas of international investment banks, most notably within the S.G. Warburg group in London. Having gained a detailed understanding of various back office tasks through many years of hands-on experience, he assumed managerial responsibility for a number of operational areas.In recent years, Michael has worked as head of business consultancy within a global computing services firm, and is now an independent analyst and trainer. Michael’s areas of expertise include all aspects of the fixed income and equity trade lifecycle and related activities, including operational risks and controls. Recent assignments include the offshoring of operational activities to India and operational risk analysis (the Sarbanes Oxley act). In addition, he creates and delivers training courses on the workings of the securities industry and associated operational aspects to audiences around the world.Michael is author of Securities Operations: A Guide to Trade and Position Management published by John Wiley & Sons, which describes the fundamental components of operational activities from a first-principles perspective. ELAINE DALGLEISH has spent her working life within the operational areas of investment banking and stock broking, working directly for international banking firms and financial software providers. Elaine’s hands-on experience spans various middle and back office operational disciplines in multiple markets. Whilst working directly in investment banking and stock broking, this has ultimately included the managerial responsibility for a number of operational areas.The focal point of Elaine’s working history is the consistent involvement with Corporate Actions operations, initially with the manual processing of events as a custodian, and subsequently working as a Senior Business Analyst, specialising in Corporate Actions, analysing client requirements, and consulting in process re-engineering for Tier 1 and 2 investment banks.As a consequence, Elaine has both observed and been directly involved in the evolution of global market practices of Corporate Actions operations and the move to automation.

• Introduction xviiAcknowledgements xxiAbout the Authors xxiiiPart I Introductory Elements 11 Basic Corporate Action Concepts 31.1 Introduction 31.2 Definition of Corporate Actions 31.3 Purpose of Corporate Actions 31.4 Impact of Corporate Actions 51.5 The Lifecycle of a Corporate Action 61.6 Summary 82 Event Description and Classification 92.1 Introduction 92.2 Event Descriptions 92.3 Event Classification 192.4 Event Combinations 202.5 Event Variations and Terminology 222.6 Summary 223 The Securities (and Corporate Actions) Market Place 233.1 Introduction 233.2 The Securities Market Place – Overview 233.3 Participants – The Corporate Actions Perspective 313.4 Summary 364 Static Data 374.1 Introduction 374.2 Securities Static Data 374.3 Participant Static Data 414.4 Sources and Maintenance of Static Data 454.5 Summary 475 Securities Position Management 495.1 Introduction 495.2 The STO’S Risk 495.3 Fundamentals of Securities Position Management 505.4 Generic Securities Accounting Principles 525.5 Extended Securities Position Management 535.6 Disparate Trade and Position Records 545.7 Reconciliation 545.8 Summary 55Part II Mandatory Events 576 Overview of the Generic Corporate Action Lifecycle 596.1 Introduction 596.2 Issuer Communicates Event Data 606.3 Event Terms Capture and Cleansing 606.4 Determining Entitlement 606.5 Communication of Event Information 606.6 Calculation of Resultant Entitlements 606.7 Passing of Internal Entries 616.8 Collection and Disbursement of Resultant Entitlements 616.9 Updating of Internal Entries 617 Straight Through Processing 637.1 Introduction 637.2 STP and Corporate Actions 648 Event Terms Capture and Cleansing 678.1 Introduction 678.2 Event Terms 688.3 Sources of Event Terms 728.4 Availability of Event Terms 738.5 Cleansing of Event Terms 748.6 When to Apply Event Terms 768.7 Managing Changes to Event Terms Throughout the Lifecycle 768.8 Summary 779 Determining Entitlement 799.1 Introduction 799.2 The STO’s Risk 809.3 Types of Entitled Positions (Including Unsettled Trades) 809.4 Links Between Ownership Positions and Location Positions 849.5 Equity Event Entitlement Business Principles 849.6 Equity Event – Itemized Trading and Settlement Scenarios 929.7 Bonds Event Entitlement Business Principles 949.8 Applying the Business Principles in Practice 979.9 Balancing of Positions and Unsettled Trades 1059.10 Reconciliation of Positions and Unsettled Trades 1099.11 Summary 11110 Communication of Event Information 11310.1 Introduction 11310.2 The STO’s Risk 11410.3 Communicating with Position Holders 11410.4 Communicating with Interested Parties 12010.5 Summary 12111 Calculation of Resultant Entitlements 12311.1 Introduction 12311.2 The STO’s Risk 12411.3 Calculation of Resultant Cash Entitlements 12511.4 Calculation of Resultant Securities Entitlements 12611.5 Calculation of Resultant Entitlements Against Ownership Positions 13011.6 Balancing Resultant Entitlements 13211.7 Reconciliation of Resultant Entitlements 13411.8 Determination of Collectible and Disbursable Accounts 13611.9 Summary 13612 Passing of Internal Entries 13912.1 Introduction 13912.2 The STO’s Risk 13912.3 Mechanisms for Passing Internal Entries 14012.4 Types of Internal Entries 14112.5 Review of Required Internal Entries 14912.6 Summary 15013 Collection/Disbursement of Resultant Entitlements 15113.1 Introduction 15113.2 The STO’s Risk 15213.3 Collection of Resultant Entitlements from the Custodian 15313.4 Disbursement of Resultant Entitlements to Position Holders 15413.5 Settlement of Claims 15713.6 Write-Offs 16013.7 Summary 16014 Updating of Internal Entries 16114.1 Introduction 16114.2 The STO’s Risk 16114.3 Mechanisms for Passing Internal Entries 16214.4 Settlement Date Entries 16214.5 Settlement of Claims and Transformations 16614.6 Summary 16615 Examples of Mandatory Events 16715.1 Introduction 16715.2 Bonus Issue 16715.3 Share Split 17415.4 Bond Maturity 179Part III Events with Elections 18516 Concepts of Events with Elections 18716.1 Introduction 18716.2 The STO’s Risk 18816.3 Impact of Events with Elections 18816.4 Events with Elections Lifecycle 19016.5 Summary 19117 Management of Mandatory with Options Events 19317.1 Introduction 19317.2 Mandatory with Options Event Terms 19417.3 Determining Entitlement to Mandatory with Options Events 19617.4 Communication of Mandatory with Options Event Information 19617.5 Receipt of Election Decisions 19817.6 Recording and Validating Received Election Decisions 20017.7 Managing Overdue Election Decisions 20217.8 Issue of Election Decisions 20317.9 Over-Elections 20917.10 Calculation of Resultant Entitlements 21117.11 Passing of Internal Entries 21417.12 Collection and Disbursement of Resultant Entitlements 21717.13 Updating of Internal Entries 21717.14 Summary 21718 Management of Voluntary Events 21918.1 Introduction 21918.2 Voluntary Event Terms 22018.3 Determining Entitlement to Voluntary Events 22118.4 Communication of Voluntary Event Information 22218.5 Receipt of Election Decisions 22218.6 Recording and Validating Received Election Decisions 22318.7 Managing Overdue Election Decisions 22418.8 Issue of Election Decisions 22518.9 Over-elections 22518.10 Calculation of Resultant Entitlements 22518.11 Passing of Internal Entries 22718.12 Collection and Disbursement of Resultant Entitlements 23118.13 Updating of Internal Entries 23118.14 Summary 231Part IV Multi-stage Events 23319 Concepts of Multi-Stage Events 23519.1 Introduction 23519.2 The Life of a Multi-stage Event 23519.3 The STO’s Risk 23919.4 Impact of Multi-stage Events 23919.5 Lifecycle Elements of the Multi-stage Event 24119.6 Summary 24620 Management of a Rights Issue 24720.1 Introduction 24720.2 The Operational Life of a Rights Issue 24720.3 Rights Issue Event Terms 24820.4 Nil Paid Rights Distribution 25020.5 Nil Paid Rights Subscription 25320.6 Un-subscribed Nil Paid Rights Expiry 25820.7 Summary 25921 Example of a Rights Issue 26121.1 Introduction 26121.2 Event Terms 26121.3 Nil Paid Rights Distribution 26221.4 Nil Paid Rights Trading 26621.5 Nil Paid Rights Subscription 26621.6 Unsubscribed Nil Paid Rights Expiry 27221.7 Final Securities Positions 27322 Concepts of Takeover Events 27522.1 Introduction 27522.2 The STO’s Risk 27622.3 Features of Takeovers 27622.4 Impact of Takeover Events 28122.5 Takeover Event Lifecycle 28422.6 Summary 28423 Management of Takeover Events 28523.1 Takeover Event Terms 28523.2 Determining Entitlement to Takeover Events 28823.3 Communication of Event Information 28923.4 Management of Election Decisions 29023.5 Managing Unsuccessful Takeovers 29123.6 Over-Acceptances 29123.7 Calculation of Resultant Entitlements 29323.8 Passing of Internal Entries 29623.9 Collection and Disbursement of Resultant Entitlements 29723.10 Updating of Internal Entries 29823.11 Summary 298Part V Taxation 29924 Concepts and Management of Taxation 30124.1 Introduction 30124.2 Taxable and Non-Taxable Events 30124.3 Introduction to Capital Gains Tax and Income Tax 30224.4 The STO’s Risk 30524.5 Summary 30525 Management of Income Tax 30725.1 Introduction 30725.2 Gross Income 30825.3 Foreign Witholding Tax 30925.4 Net Income After Deduction of Foreign Withholding Tax 31025.5 Position Holder’s Domestic Income Tax 31025.6 Net Income After Deduction of Foreign Withholding Tax and Position Holder’s Domestic Income Tax 31325.7 Determining Tax Rates for Position Holders 31825.8 Ensuring Correct Withholding Tax is Deducted by the Location 32125.9 The STO as Collector of Taxes 32225.10 Tax Reclaims and Tax Rebates 32325.11 Communicating Income and Tax Details 32625.12 Summary 329Part VI Issuer Notices 33126 Concepts and Management of Issuer Notices 33326.1 Introduction 33326.2 The STO’s Risk 33326.3 Information Only Events 33426.4 Issuer Meetings with Proxy Voting Events 33526.5 Summary 339Part VII Objectives and Initiatives 34127 Objectives and Initiatives 34327.1 Introduction 34327.2 Objectives 34327.3 Initiatives to Achieve the Stated Objectives 34527.4 Challenges in Achieving the Stated Objectives 351Glossary of Terms 353Index 383