Table of Contents

Introduction xvii

Acknowledgements xxi

About the Authors xxiii

Part I Introductory Elements 1

1 Basic Corporate Action Concepts 3

1.1 Introduction 3

1.2 Definition of Corporate Actions 3

1.3 Purpose of Corporate Actions 3

1.4 Impact of Corporate Actions 5

1.5 The Lifecycle of a Corporate Action 6

1.6 Summary 8

2 Event Description and Classification 9

2.1 Introduction 9

2.2 Event Descriptions 9

2.3 Event Classification 19

2.4 Event Combinations 20

2.5 Event Variations and Terminology 22

2.6 Summary 22

3 The Securities (and Corporate Actions) Market Place 23

3.1 Introduction 23

3.2 The Securities Market Place – Overview 23

3.3 Participants – The Corporate Actions Perspective 31

3.4 Summary 36

4 Static Data 37

4.1 Introduction 37

4.2 Securities Static Data 37

4.3 Participant Static Data 41

4.4 Sources and Maintenance of Static Data 45

4.5 Summary 47

5 Securities Position Management 49

5.1 Introduction 49

5.2 The STO’S Risk 49

5.3 Fundamentals of Securities Position Management 50

5.4 Generic Securities Accounting Principles 52

5.5 Extended Securities Position Management 53

5.6 Disparate Trade and Position Records 54

5.7 Reconciliation 54

5.8 Summary 55

Part II Mandatory Events 57

6 Overview of the Generic Corporate Action Lifecycle 59

6.1 Introduction 59

6.2 Issuer Communicates Event Data 60

6.3 Event Terms Capture and Cleansing 60

6.4 Determining Entitlement 60

6.5 Communication of Event Information 60

6.6 Calculation of Resultant Entitlements 60

6.7 Passing of Internal Entries 61

6.8 Collection and Disbursement of Resultant Entitlements 61

6.9 Updating of Internal Entries 61

7 Straight Through Processing 63

7.1 Introduction 63

7.2 STP and Corporate Actions 64

8 Event Terms Capture and Cleansing 67

8.1 Introduction 67

8.2 Event Terms 68

8.3 Sources of Event Terms 72

8.4 Availability of Event Terms 73

8.5 Cleansing of Event Terms 74

8.6 When to Apply Event Terms 76

8.7 Managing Changes to Event Terms Throughout the Lifecycle 76

8.8 Summary 77

9 Determining Entitlement 79

9.1 Introduction 79

9.2 The STO’s Risk 80

9.3 Types of Entitled Positions (Including Unsettled Trades) 80

9.4 Links Between Ownership Positions and Location Positions 84

9.5 Equity Event Entitlement Business Principles 84

9.6 Equity Event – Itemized Trading and Settlement Scenarios 92

9.7 Bonds Event Entitlement Business Principles 94

9.8 Applying the Business Principles in Practice 97

9.9 Balancing of Positions and Unsettled Trades 105

9.10 Reconciliation of Positions and Unsettled Trades 109

9.11 Summary 111

10 Communication of Event Information 113

10.1 Introduction 113

10.2 The STO’s Risk 114

10.3 Communicating with Position Holders 114

10.4 Communicating with Interested Parties 120

10.5 Summary 121

11 Calculation of Resultant Entitlements 123

11.1 Introduction 123

11.2 The STO’s Risk 124

11.3 Calculation of Resultant Cash Entitlements 125

11.4 Calculation of Resultant Securities Entitlements 126

11.5 Calculation of Resultant Entitlements Against Ownership Positions 130

11.6 Balancing Resultant Entitlements 132

11.7 Reconciliation of Resultant Entitlements 134

11.8 Determination of Collectible and Disbursable Accounts 136

11.9 Summary 136

12 Passing of Internal Entries 139

12.1 Introduction 139

12.2 The STO’s Risk 139

12.3 Mechanisms for Passing Internal Entries 140

12.4 Types of Internal Entries 141

12.5 Review of Required Internal Entries 149

12.6 Summary 150

13 Collection/Disbursement of Resultant Entitlements 151

13.1 Introduction 151

13.2 The STO’s Risk 152

13.3 Collection of Resultant Entitlements from the Custodian 153

13.4 Disbursement of Resultant Entitlements to Position Holders 154

13.5 Settlement of Claims 157

13.6 Write-Offs 160

13.7 Summary 160

14 Updating of Internal Entries 161

14.1 Introduction 161

14.2 The STO’s Risk 161

14.3 Mechanisms for Passing Internal Entries 162

14.4 Settlement Date Entries 162

14.5 Settlement of Claims and Transformations 166

14.6 Summary 166

15 Examples of Mandatory Events 167

15.1 Introduction 167

15.2 Bonus Issue 167

15.3 Share Split 174

15.4 Bond Maturity 179

Part III Events with Elections 185

16 Concepts of Events with Elections 187

16.1 Introduction 187

16.2 The STO’s Risk 188

16.3 Impact of Events with Elections 188

16.4 Events with Elections Lifecycle 190

16.5 Summary 191

17 Management of Mandatory with Options Events 193

17.1 Introduction 193

17.2 Mandatory with Options Event Terms 194

17.3 Determining Entitlement to Mandatory with Options Events 196

17.4 Communication of Mandatory with Options Event Information 196

17.5 Receipt of Election Decisions 198

17.6 Recording and Validating Received Election Decisions 200

17.7 Managing Overdue Election Decisions 202

17.8 Issue of Election Decisions 203

17.9 Over-Elections 209

17.10 Calculation of Resultant Entitlements 211

17.11 Passing of Internal Entries 214

17.12 Collection and Disbursement of Resultant Entitlements 217

17.13 Updating of Internal Entries 217

17.14 Summary 217

18 Management of Voluntary Events 219

18.1 Introduction 219

18.2 Voluntary Event Terms 220

18.3 Determining Entitlement to Voluntary Events 221

18.4 Communication of Voluntary Event Information 222

18.5 Receipt of Election Decisions 222

18.6 Recording and Validating Received Election Decisions 223

18.7 Managing Overdue Election Decisions 224

18.8 Issue of Election Decisions 225

18.9 Over-elections 225

18.10 Calculation of Resultant Entitlements 225

18.11 Passing of Internal Entries 227

18.12 Collection and Disbursement of Resultant Entitlements 231

18.13 Updating of Internal Entries 231

18.14 Summary 231

Part IV Multi-stage Events 233

19 Concepts of Multi-Stage Events 235

19.1 Introduction 235

19.2 The Life of a Multi-stage Event 235

19.3 The STO’s Risk 239

19.4 Impact of Multi-stage Events 239

19.5 Lifecycle Elements of the Multi-stage Event 241

19.6 Summary 246

20 Management of a Rights Issue 247

20.1 Introduction 247

20.2 The Operational Life of a Rights Issue 247

20.3 Rights Issue Event Terms 248

20.4 Nil Paid Rights Distribution 250

20.5 Nil Paid Rights Subscription 253

20.6 Un-subscribed Nil Paid Rights Expiry 258

20.7 Summary 259

21 Example of a Rights Issue 261

21.1 Introduction 261

21.2 Event Terms 261

21.3 Nil Paid Rights Distribution 262

21.4 Nil Paid Rights Trading 266

21.5 Nil Paid Rights Subscription 266

21.6 Unsubscribed Nil Paid Rights Expiry 272

21.7 Final Securities Positions 273

22 Concepts of Takeover Events 275

22.1 Introduction 275

22.2 The STO’s Risk 276

22.3 Features of Takeovers 276

22.4 Impact of Takeover Events 281

22.5 Takeover Event Lifecycle 284

22.6 Summary 284

23 Management of Takeover Events 285

23.1 Takeover Event Terms 285

23.2 Determining Entitlement to Takeover Events 288

23.3 Communication of Event Information 289

23.4 Management of Election Decisions 290

23.5 Managing Unsuccessful Takeovers 291

23.6 Over-Acceptances 291

23.7 Calculation of Resultant Entitlements 293

23.8 Passing of Internal Entries 296

23.9 Collection and Disbursement of Resultant Entitlements 297

23.10 Updating of Internal Entries 298

23.11 Summary 298

Part V Taxation 299

24 Concepts and Management of Taxation 301

24.1 Introduction 301

24.2 Taxable and Non-Taxable Events 301

24.3 Introduction to Capital Gains Tax and Income Tax 302

24.4 The STO’s Risk 305

24.5 Summary 305

25 Management of Income Tax 307

25.1 Introduction 307

25.2 Gross Income 308

25.3 Foreign Witholding Tax 309

25.4 Net Income After Deduction of Foreign Withholding Tax 310

25.5 Position Holder’s Domestic Income Tax 310

25.6 Net Income After Deduction of Foreign Withholding Tax and Position Holder’s Domestic Income Tax 313

25.7 Determining Tax Rates for Position Holders 318

25.8 Ensuring Correct Withholding Tax is Deducted by the Location 321

25.9 The STO as Collector of Taxes 322

25.10 Tax Reclaims and Tax Rebates 323

25.11 Communicating Income and Tax Details 326

25.12 Summary 329

Part VI Issuer Notices 331

26 Concepts and Management of Issuer Notices 333

26.1 Introduction 333

26.2 The STO’s Risk 333

26.3 Information Only Events 334

26.4 Issuer Meetings with Proxy Voting Events 335

26.5 Summary 339

Part VII Objectives and Initiatives 341

27 Objectives and Initiatives 343

27.1 Introduction 343

27.2 Objectives 343

27.3 Initiatives to Achieve the Stated Objectives 345

27.4 Challenges in Achieving the Stated Objectives 351

Glossary of Terms 353

Index 383

About the Author

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.