Below you can find a brief description of the Corporate Actions Event LifeCycle. In general Corporate Actions Events will follow the same set of processes from its beginning to the end (below described as 10 processes, some of which may have sub-processes).
Please note the ripple-on effect that each activity or information will need to have. Every stage described below has to follow through the chain of market players in the industry all the way down to the final beneficiary owner of the shares.
Companies constantly assess their current situation and strategy going forward. They do this with the help of all sorts of advisors. Security analysts may not be impressed with the company and there may be a need to improve the balance sheet. Shareholders may not be happy with the recent share price development and may call for action. Accountants and financial controllers will also have an influence on the direction the company is going to. Often the board of directors hire the help of strategy consultants to request input from all stakeholders and establish a roadmap. It’s possible a special task force is created with specialists from several areas, for example the company’s operations department, workers unions etc. A lead agent with specialised expertise to organise Corporate Action events is hired to plan the execution of the event. The Lead Agent may have to request help from Issuer CSD’s to plan the event. Usually a lawyer is part of the team to ensure there are no legal consequences. Once the strategy and plans are determined, most Corporate Actions events require shareholder approval at the AGM. This means that the proposed Corporate Action event becomes a voting point in the agenda. The run up to the confirmed announcement can take several years and dozens of people can be involved with it. It’s good to realise that at this stage the plans are not in the public domain yet and the people involved may have to sign confidentiality agreements.
Communicating the event / Event announcement
Once the issuer has decided that it will start a corporate actions event, it will have to advise all relevant parties about all aspects of the event. Usually the lead agent will write an official document (prospectus) about the event which will be sent to all first ring market participants. The lead agent will also go to the issuer CSD who in turn will notify all direct custodians who will notify all global custodians, etc.
Major events often reach the public domain before the event is announced or confirmed by the agent or the company. At this point the status of the event information would be called “unconfirmed”. Often this will result in a competition about who can provide the most details at the earliest point in time.
There are many ways in which the information can be passed on. The most common messaging system used is the SWIFT messaging system. Every party in the market needs to be able to gather the information and the speed and accuracy with which market players notify their clients are major competitive factors in the industry.
Data vendors play an active part in the communication about the event. Sub phases of the event notification process are:
- Data scrubbing (vendors may be checking websites or proxy agendas to detect upcoming corporate action events early)
- Cleansing (in the early stages the information is often of poor quality and cleansing is required)
- Validation (validation involves checking with the company or the agent or other parties that announced details are correct.
The intermediaries in the industry often receive data from several sources. The information received may not always be the same so a much used concept in the industry is the creation of a so called “golden copy” which is the copy that contains the essence of confirmed information by combining the feeds from different sources.
One of the major Issuer CSD’s is DTCC in the United States and they have created a workflow chart which describes the process that agents must follow for processing Mandatory Corporate Actions Events → download the workflow chart for Mandatory Events Life Cycle at DTCC. It can also be found on www.dtcc.com.
As an investor you want to know about the event as soon as possible and the graph on the right demonstrates why. This is the share price of a UK stock called “Greene King” when a “Scheme of Arrangement” event was announced on the 19th of August 2019.The shareprice shot up from GBX 563 to GBX 850 overnight (GBX is pence). This graph also demonstrates why the people involved in the deal will probably have to sign confidentiality agreements.
Every relevant party, in turn, has to notify their underlying clients about the upcoming event. This usually happens by means of creating an “event” in the inhouse systems. All relevant dates like deadlines, Pay Dates, Ex Dates and Record Dates need to be diarised to ensure that important actions are taken at the right moment and are not forgotten (missing a deadline can lead to very substantial losses). All systems and other departments need to be prepared and all necessary amendments to systems need to be made. Often, the information published by the agent has to be translated from another language. All information that is not clear will need to be followed up on by contacting the previous link in the chain. Additional event updates need to be sent down the chain as well.
On and after important dates like Record Date and Ex Date, eligible positions need to be established and claims or transformations of pending trades need to be processed. (for a more detailed description on claims processing, please refer to our market claims section).
In case of voluntary events shareholders are required to send an instruction about what decision they wish to make in regards to the event. The leadagent will set a certain deadline after which no instruction will be accepted anymore. Every party down the chain will offset a certain amount of time in order to be able to receive, interpret, process and pass on the instruction. Setting the tightest deadlines for their clients is something competitors can distinguish themselves on. But tight deadlines increase the risk something goes wrong. Many market players will offer to proactively remind their clients about upcoming deadlines, either through electronic systems or by courtesy phone calls.
Once all instructions for voluntary events are submitted or in the case of a mandatory event a certain date has been reached, everybody needs to establish what their or their clients’ entitlements are. The registrar of the company needs to take a “snapshot” of the holders of record in the shareholder register and provide it to the paying agent. In many cases, like for example a stock split the shareholder register needs to be amended at this stage to reflect the event. Messages need to be sent to underlying clients so that they can prepare themselves regarding what action to take upon receipt of the proceeds.
At this stage the calculations for tax is also started. You can read more about taxation on our Tax page.
The lead agent usually triggers payment in the systems of the issuer CSD. Once the lead agent releases the proceeds of the event (cash or stock) it is everybody’s turn to pay their clients as quickly as possible so that the final shareholder can make use of the proceeds as quickly as possible. Confirmation of Payment messages need to be cascaded down to underlying clients.
Several message types are being sent: Corporate Action messages, for example MT566 but also settlement messages, for example MT54x.
Corporate Actions events can be very complex and due to high volumes in trading it can be a challenge to keep track of what you or your clients are entitled to. Therefore every event needs to be reconciled before and after it has finished to make sure that everything has been processed properly. The reconciliation process needs to happen at the level of each intermediary in the chain of industry players, but also between them. A separate Swift Message type is used for this (usually in end of day batches). For example a broker will send statement and transactions messages to their clients. This way the clients know that they reconcile with their broker. The broker will receive similar messages from their custodian.
There are the types of Reconciliations involved in the Corporate Action Life Cycle:
- Cash and Stock
- Transactions and Balances
Corresponding messages used are:
MT910 (Confirmation of Credit)
MT950 (An account statement contains an opening balance, the debit and credit entries booked to the account and a closing balance)
MT535 (Statement of Holdings)
MT536 (Statement of Transactions)
Reporting about the event will take place during and after the event. Fund managers for example have to update their holders in the monthly reporting. If a stock split has happened on one of the underlying shares for example, this will have to be communicated.
There are several ways in which Corporate Action Processing gets invoiced. Ways in which payments are collected at each level in the chain of intermediaries are payments per;
- Instruction / election
- Claim / transformation
- Each message is charged at their own rate