Actions On and After Pay Date - Voluntary Corporate Action
Actions to take on and after pay date
On pay date of a voluntary corporate action event, certain actions should be undertaken.
Lending agents are obligated to ensure underlying beneficial owners receive all entitlements, as if the securities were held in custody and not party to lending activity.
Loan positions should be treated as a whole position unless booked at different manufactured dividend rates. In instances where scale back ratios are applied at beneficial owner level, the beneficial counterparty must provide the recipient counterparty with a breakdown of underlying client positions when sending instructions on the event.
On pay date any new entitlements should be reflected on the recipient counterparty's internal system and details sent to collateral teams. Collateral valuations should include any new transactions recorded, or old loans closed.
When recording or closing a loan, the CA team at both counterparties should notify their collateral team of the action taken; detailing the security, loan ref, number of shares and the CA contact they have agreed this with at their counterpart. This communication should help ensure a smooth and effective collateral flow.
New loans are booked and suppressed by the beneficial counterparty as the new loan will be a creation of additional entitlements and will not require physical delivery of securities. The recipient counterparty should reflect the same increase on their side.
If loans are being closed (rights loans or coupon loans on pay date) then this is done on pay date and collateral returned to the counterparty. This would happen even if the new entitlement is not available until a later date.
In some cases, such as exchanges or splits, the collateral can be carried over to the new loans booked. This should be communicated to the collateral teams when the CA teams record the new loans. Payment should be received on pay date.
The beneficial counterparty records all non-tradable lines attached to corporate actions, such as dividend coupons, non-tradable referred lines. The loans are booked at rates and prices agreed between parties. Pay date +1 and onwards. The beneficial counterparty should check for cash payments due by monitoring the relevant currency accounts daily. Recipient counterparties should email the beneficial counterparty to confirm value date on payments made. The beneficial counterparty should respond, confirming receipt of funds once payment has been received. The beneficial counterparty will make any payments to recipient counterparties on pay date and confirm value date via email, to ensure funds are recognised and not returned. Contract compare should also be checked to ensure new loan positions are booked and match. Any differences need to be escalated to recipient counterparties in order to match.
The beneficial counterparty is contractually due payment in full on pay date. Therefore, chasing for payments should be done from pay date + 1 onwards. If payments are not made on pay date, recipient counterparties should provide a valid reason for non-payment and an expected pay date so any cash or stock exceptions can be narrated as per regulatory industry requirements. (COAC-104)
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