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Corporate Actions
A Guide to Securities Event Management
Michael Simmons (Author), Elaine Dalgleish (Author)
9780470870662, Wiley
Hardback, published 27 January 2006
432 pages
25.2 x 17.6 x 2.9 cm, 0.879 kg
Corporate actions are events that affect large corporations through to the individual investor - even those that own a single-share! All organizations that hold equity and debt securities for themselves and/or on behalf of others are affected when the issuer of a security announces an income or corporate action event. The successful management of the array of different event types requires understanding of the inherent risks, and tight controls at critical points in the event lifecycle. The management of income and corporate action events are important and essential parts of the securities industry business. Written by authors with many years experience within this sector, Corporate Actions: A Guide to Securities Event Management sets out to demystify the subject and provides a thorough, step-by-step introduction to corporate actions and income events.
Corporate Actions is a comprehensive source for understanding a major component of operational processing. The individual components and their relation to each other within the corporate actions lifecycle are explained in detail, through which the reader will gain a clear and thorough understanding of the lifecycle together with potential processing risks and the strategies to mitigate
Corporate Actions is essential reading for all those involved in the securities industry, from new recruits to those involved in both the day-to-day operations process and those within executive management. It will also prove invaluable to those providing consultancy and software solutions to the securities industry.
Corporate Actions is the first major work on this subject. Many people within the securities industry have heard of corporate actions - many people know they can be highly risky - many organizations have lost vast sums of cash in attempting to process them - very few understand them!
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
Subject Areas: Finance & accounting [KF]
