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Global Corporate Actions ACSDA Leadership Forum October 9 th 2007

Global Corporate Actions ACSDA Leadership Forum October 9 th 2007. David Hands DTCC Solutions Product Management. Dan Lu Nanjun Deng Yingman Jiang GCA VS Operations Shanghai. Global Corporate Actions: A global challenge that CSDs can play an important role in developing solutions.

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Global Corporate Actions ACSDA Leadership Forum October 9 th 2007

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  1. Global Corporate ActionsACSDA Leadership ForumOctober 9th 2007 David Hands DTCC SolutionsProduct Management Dan Lu Nanjun Deng Yingman Jiang GCA VS Operations Shanghai

  2. Global Corporate Actions: A global challenge that CSDs can play an important role in developing solutions Agenda • A look at Global Corporate Actions • Complexity of Global Corporate Actions • DTCC Solutions - GCA Validation Service • The role ASCDA can play in Global Standards Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  3. Corporate Actions cover all parts of the globe with different levels of complexity and volumes • GCA VS announces more than 900,000 Corporate Actions yearly • North America leads the world in the number of Corporate Actions announced* yearly ~70% • Cash Dividends is the dominate Announced Event Type ~30% US/CA = 54.8% (Scale adjusted) * Announced events does not include scheduled payments (eg Bond Interest) Source: GCA VS – DTCC Solutions (July ’06 – August ’07) Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  4. Time and effort required to process a Corporate Action announcement (Benchmarked against US/Canada) Volume vs Complexity - Corporate Actions By Country Volume vs Complexity - Corporate Actions By Country Source: DTCC GCA Validation Service, data 1 to 30 September 2004 Source: DTCC GCA Validation Service, data 1 to 30 September 2004 10000 10000 Corporate Action Announcement Corporate Action Announcement US/Canada US/Canada Corporate Action Announcement Corporate Action Announcement Effort (Relative) and Volume Effort (Relative) and Volume Effort (Relative) and Volume Effort (Relative) and Volume (Relative) by Regional Average (Relative) by Regional Average (Relative) by Regional Average (Relative) by Regional Average Asia Asia 1000 1000 Europe Europe Relative Volume Relative Volume 100 100 South America South America Central America Central America 10 10 Africa Africa Middle East Middle East 1 1 0 0 5 5 10 10 15 15 20 20 25 25 30 30 35 35 40 40 45 45 50 50 Relative Effort Relative Effort Markets that are more mature and have higher volumes are relatively easier to validate the terms of the Corporate Action Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  5. Corporate Actions can be complex and extend over a period of time, thereby, increasing risk to ALL Parties • A UK Rights Issue can go through many stages requiring timely notification and action all of which increase risk • The Rights Issue can last for a couple of months before the event reaches its conclusion • A Rights Issue may not go through all these stages which adds further complexity United Kingdom Rights Issue Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  6. Similar Corporate Actions can be processed differently between markets, even within the same market, increasing risk • A Market that issues shares in ‘bearer’ form will issue entitlement ‘coupons’ (including Cash dividends) which can be tradable • A Market that issues shares in ‘registered’ form will issue entitlements directly to the shareholder or where a shareholder choice is permitted a form/right will be issued • Issuers within a Market may treat the same type of Corporate Action differently Netherlands Stock Optional Dividend (late 1990’s) Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  7. Too add to the complexity and timeframes of Corporate Actions most, if not all, of the Issuer communication is in paper • A US Tender Offer requires a prospectus to be Issued and filed with the Regulator - Securities Exchange Commission (SEC) • The Issuer provides only paper information • DTC and Data Vendors ‘translate’ paper into electronic data • Lack of STP from the Issuer introduces delay and potential error United States Tender Announcement flow example Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  8. CSDs are well positioned to play a pivotal role in developing new processes to enhance STP and reduce Risk See: www.csd8.org / Presentations / Breakout Session • CSD8 (8th annual meeting of Central Securities Depositories) • Corporate Action breakout sessions focused upon 3 areas: • Risks in Corporate Actions Processing • Automation and Standardization • CSD Roles in Corporate Actions • Attendees identified 3 main issues: • Standard Format & Delivery (enable STP) • Timely and Complete Announcements • Centralized process for Corporate Action Announcements Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  9. DTCC developed a solution to address Global Corporate Action Announcements by creating a “golden copy” • Volume: processed 900,000 global corporate action events in 2006 • Location: Offers round-the-clock support from offices in New York, London, Shanghai • Sources: gathers information from 160 countries on about 1.6 million separate securities monitored by the validation service • Accuracy: service offers “golden copy” data on corporate actions worldwide • The GCA Validation Service is a global service that operates with a regional footprint Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  10. DTCC GCA VS clients require near real time notification of Corporate Actions delivered in a standardized manner • Corporate Action announcements received from multiple sources are ‘standardized’ • Key Data Elements are completed • Announcements are separated into Event, Option and Payout details • Detailed Text added (where needed) to provide complete coverage of the event Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  11. DTCC GCA VS provides additional information to provide a complete view of the Corporate Action • Statuses Track Accuracy, Timeliness and Completeness of Data • Reference to Associated Event for the Same Security • Links to Multi-market for the Same Event Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  12. Market Practice Groups created by SWIFT to establish usage rules for ISO 15022 The Securities Market Practice Group coordinates global input for ISO / SWIFT Maintenance Group SMPG Corporate Action documentation includes: Global Document for MT564-8 Guidelines for ~20 Countries The need to bring the Issuers closer to the Investor Community is recognized globally Similarly to DTCC, Euroclear is investing in new systems to harmonize processing within the its markets To maximize investment return Euroclear have proposed using ISO20022 to model the communication between the Issuer and CSD A Global effort is needed to manage risk and improve efficiency through effective standardized communication and processing • The European Union is undergoing a ‘harmonization’ effort to standardize processing of the securities industry • The ‘Giovannini Group’ identified a number of barriers to standardization including Corporate Actions (Barrier 3) • SWIFT Standards leading part of this initiative (Barrier 1) based upon ISO 15022 and ISO 20022 messaging Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  13. ACSDA is well positioned to support and even lead the development of Standards within ACSDA countries • ACSDA formed Corporate Action Working Group to address common issues • Business Case: • Global Initiatives for Corporate Actions require input from ACSDA Countries • Attract Investment into local economies with greater Corporate Action disclosure • Organization: • 3 Regional Chairs: South America, Central America and North America, South Africa and the Caribbean • Initial Objective: • Map the Corporate Actions landscape within the individual ACSDA countries to provide a foundation for information exchange • At the ACSDA 8th AGM (March 2006, El Salvador) agreed to focus upon: • Promotion of Best Practices & ISO 15022 usage • Publishing announcements same day • Working with Issuers/Agents for Investor benefit • Processing of all Corporate Actions in the Market Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  14. While mapping the Corporate Action landscape, we asked the ACSDA members to identify the key issues faced today Deadlines and Communication cited most frequently Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  15. ACSDA members were asked about existing rules which may or may not reduce risk – should markets have specific rules? Roughly a 50/50 split where Record Date rules are applied Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  16. What can you do to help? • Support local initiatives that address efficiency and risk management • Drive ACSDA to be the key organization in National Market Practice Groups • Work together to provide timely and accurate Corporate Action Information • The Global Securities Industry requires support from ALL markets Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  17. Appendix – UK Rights Issue (for slide 5) Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  18. Appendix – Netherlands Stock Optional Dividend (for slide 6) Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  19. Appendix – US Tender Offer Announcement Flow (for slide 7) Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  20. Appendix – GCA VS Overview (for slide 9) Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  21. Appendix – GCA VS Overview (for slide 9) Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

  22. Appendix – Standards Organization Overview (for slide 11) Global US The Standard Bodies International Standards Organization American National Standards Institute TC68 Technical Committee Banking and Related Services Accredited Standards Committee X9 Financial Industry Standards SC4 – Securities TC68 Secretariat US Technical Advisory Group ISO15022 ISO20022 X9D – Securities Processing Registration Management Chair: Euroclear Registration Management Chair: US - ASC X9 The Market Representatives ISO15022 SWIFT Maintenance Group SWIFT National Group ISO Standards (secretary SWIFT) Registration Authority SWIFT SWIFT Harmonization Grp Global Market Practice Group National Market Practice Group ISO20022 ISITC TC68 Registration Management Group Securities Standards Evaluation Group X9D – Securities Processing Global Corporate Actions - ACSDA Leadership Forum Oct 9th 2007

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