Assimilation

Absorption of a new issue of stock into the parent security where the original shares did not fully rank pari passu with the parent shares.  After the event, the assimilated shares rank pari passu with the parent, meaning that they carry exactly the same entitlements and rights (for example entitlement to dividend). Also referred to as funging of shares.

    • Company Reorganisation event whereby one line of security is absorbed into another. Occurs when securities with different characteristics, for example, shares with different entitlements to dividend or voting rights, become identical in all respects, for example, pari-passu or assimilation
    • Pari Passu means “all things equal”, so when two lines of security are assimilated, they become identical in all respects.
    • Equities
      • Interim Shares
      • Ordinary Shares
    • Fund units
    • Issuer

The issuer will see one security being debited from their Issuer Account at the CSD (if they have one) and the other security being credited. The issued amount of both securities will be amended correspondingly.

    • Registrar

The Registrar will need to record all the eligible positions as per close of day Record Date. On the Effective Date of the event they will need to close the register for the absorbed security and update the register of the absorbing security.

    • Agent Bank

The Agent Bank (Paying Agent of the event) will credit the absorbing shares onto the issuer account at the CSD (if they have one) and debit the absorbed shares that will be taken out of circulation. The issued amounts of each line of securities will be amended accordingly. It will often be the Paying Agent who triggers the payment downstream. This means that the transactions will be effected in the accounts of the CSD participants and messaging is sent.

    • Security Identification Provider

Numbering Agencies need to update the status of the old share to “extinct” or “deleted” or something that reflects that the transaction has taken place. Equally, the issued amount of the absorbing security needs to be increased and it will probably need a status update as well.

    • Exchange

Any exchange that was listing the absorbed security will need to delist the absorbed security and potentially list the absorbing security if it wasn’t already doing so.

    • Index

Any index that included the absorbed security will need to exclude the absorbed security from the index and include the absorbing security if it wasn’t already doing so.

    • Issuer CSD

At CSD level the absorbed shares need to be booked out and the absorbing shares need to be increased by the correct amount. To effect this, bookings (free of payment) need to be made. Trades on the absorbed line that are in “matched” status as of Record Date of the Assimilation event need to be cancelled and reinstated on the absorbing line. Messaging is sent down the chain.

    • Global / Direct Custodian / Investor CSD

At Custodian level the absorbed shares need to be booked out and the absorbing shares need to be increased by the correct amount. To effect this, bookings (free of payment) need to be made. Trades on the absorbed line that are in “matched” status as of Record Date of the Assimilation event need to be cancelled and reinstated on the absorbing line. Messaging is received from the Issuer CSD and (often ingested by automated systems) and subsequent messaging is generated and sent further down the chain.

    • Broker Dealer

At Broker Dealer level the absorbed shares need to be booked out and the absorbing shares need to be increased by the correct amount. To effect this, bookings (free of payment) need to be made. Trades on the absorbed line that are in “matched” status as of Record Date of the Assimilation event need to be cancelled and reinstated on the absorbing line. Messaging is received from the Custodian and ingested by automated systems after which – in turn – messaging is sent further down the chain.

    • Stock Lending Broker / Collateral Agent

If the absorbed stock is on loan, then both the stock lending brokers (or all 3 if it’s 3rd-party lending) need to effect the transaction in their books. Stock may have to be recalled. Same applies to stock that is held as collateral.

    • Fund Manager

Fund Manager need to include the change in the fund accounting and possibly in the NAV.

    • Transfer Agents
      • In case the fund manager uses a Transfer Agent, then the transfer Agent needs to handle the transactions as a result of the Assimilation event.
      • These transactions need to be included in investment statements that are sent to investors also.
    • Data Vendors and Rating Agencies

Vendors will have to update their systems with the correct information for both securities and send messaging to their clients about it.

    • Retail Bank
      • At Retail Bank level the absorbed shares need to be booked out and the absorbing shares need to be increased by the correct amount. To effect this, bookings (free of payment) need to be made. Trades on the absorbed line that are in “matched” status as of Record Date of the Assimilation event need to be cancelled and reinstated on the absorbing line. Messaging is received from the Custodian and ingested by automated systems after which – in turn – messaging is sent further down the chain.
      • When the beneficial owner holds the absorbed securities through for example a Fund or an ETF, then the Retail Bank does in that case not need to take action on the event.
    • Beneficial Owner

Beneficial owner will have to take note of the changes and reconcile these within their systems (if applicable)

    • Reasons

Occurs when securities with different characteristics, eg shares with different entitlements to dividend or voting rights become identical in all respects, eg pari passu or assimilation. May be scheduled in advance eg. shares resulting from a Bonus Issue may become fungible after a preset period of time, or may result from outside events, eg, merger, reorganisation, issue of supplementary tranches, etc..

    • Purpose

An Assimilation event is often used in combination with Interim Lines (also referred to as Dummy Lines), for example when newly issued shares should be excluded from Dividend Entitlement or voting rights for a period of time.

    • CAEV
      • PARI
    • CAMV
      • MAND
    • CAEP
      • REOR
    • CAOP
      • SECU
    • Qualifier CAEV = PARI
    • CAOP = SECU 
    • Mandatory event => field 22F: CAMV = MAND
    • Linking 2 or more events
      • Assimilations (or Pari Passu) are often part of a bigger reorganisation involving several Corporate Action Events in sequence. SMPG provides guidelines how these events can be linked to each other in the messaging. For example, in ISO 20022, this can be achieved via the EventsLinkage sequence and the “LinkedCorporateActionIdentification” and “LinkedOfficialCorporateActionEventIdentification” elements.

May be scheduled in advance, for example, shares resulting from a bonus may become fungible after a pre-set period of time, or may result from outside events, for example, merger, reorganisation, issue of supplementary tranches, etc.

    • Record Date
    • Paydate
    • Seev.031
    • Seev.036
    • Sese.025

Example (that took place in reality):

From 08/05/2009, the 477,531,720 ordinary shares (ISIN CODE FR0010697060) will be assimilated on Euronext Paris to the ordinary shares (ISIN CODE FR0004161677) issued by Carrefour Property Development.

Further to the assimilation of the 473,531,720 ordinary shares described above, the number of outstanding ordinary shares (FR004161677) on Euronext Paris increased as follows:

Old number of outstanding securities: 53,752,078

Number of assimilated securities: 477,531,720

New number of securities: 531,283,798

Dividend due date: from the year 2009

Explanation:

As can be seen holders of security FR0010697060 will be debited these securities on the 08/05/2009 and get credited securities of FR0004161677 instead. From that moment on all shareholders of all ordinary shares are entitled to receive dividends from the issuer of the stock.

Let’s say that an individual shareholder hold the following in their account

ISIN FR0010697060 in a retail bank trading account

* Settled amount of shares in their account: 100

* Traded balance: (the sum of all pending deliveries and receipts):  250 (meaning that they have bought 250 more shares of FR0010697060 than they sold but that haven’t settled in their account yet).

–> Their custodians will debit them the 100 shares FR0010697060 and will credit them 100 shares FR004161677. Their retail bank will do the same.

–> Their custodians will cancel all pending trades on FR0010697060 and will re-instruct those trades on FR004161677. Their retail bank will do the same.

Open trades will be cancelled on the absorbed security and reinstated on the absorbing security

It’s common for the ratio to be 1:1 in Assimilation Events, so fractions of stock are unusual.

There could be consequences for Capital Gains Tax, for example when to funds are assimilated and the absorbing fund is worth more then the absorbed fund. As always this is something that every investor should take up with their own tax adviser.

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