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Corporate Actions

Corporate Actions. 8 th AMEDA Meeting South Africa, 23-24 October 2008. Agenda CSD Service Diversification Corporate Actions Features A CSD Activity – Pros & Cons Challenges Corporate Action Risk Analysis (TM Methodology) Asset Servicing Risk Ratings for AMEDA CSDs.

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Corporate Actions

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  1. Corporate Actions 8th AMEDA Meeting South Africa, 23-24 October 2008

  2. Agenda • CSD Service Diversification • Corporate Actions Features • A CSD Activity – Pros & Cons • Challenges • Corporate Action Risk Analysis (TM Methodology) • Asset Servicing Risk Ratings for AMEDA CSDs

  3. Service Diversification For CSDs Why should CSDs diversify from core services? - Stabilise or increase revenue - React to Market Demands (Utility approach) - Disintermediate custodians (Competitive approach) Obstacles to diversification? - Ownership and Governance - Competition with owners/participants discouraged - Abuse of ‘de-facto’ monopoly - Lack of expertise and/or commercial ideology

  4. Corporate Action Features Types Mandatory – easy to automate, static conditions, no investor input required Voluntary – difficult to automate, variable conditions, investor input required Securities – natural for CSD to service Cash – natural for banks to service Stages Information – receipt, validation, enhancement, distribution, monitoring Calculation – shareholder identification, entitlement calculation, tax Execution – instruction receipt & management, securities settlement, income payment

  5. Corporate Actions Issues Should Asset Servicing be centralised in the CSD? Pros Efficiency Standardisation Revenue stream Regulation Disclosure …………. Cons Risks Monopoly Servicing Lack of expertise No banking facilities Competition …………..

  6. Corporate Actions Challenges • - Direct links to Issuers & Participants • - Straight Through Processing • Uniform messaging (e.g. ISO 15022/20022) • Proactive and customer focussed attitude • Banking licence(?) • Legal amendments

  7. Corporate Actions

  8. Risk Analysis of Corporate Actions

  9. Corporate Actions Asset Servicing Risk -The risk that a participant may incur a loss arising from missed or inaccurate information provided by the depository, or from incorrectly executed instructions, in respect of corporate actions and proxy voting. This risk arises when a participant places reliance on the information a depository provides or when the participant instructs the depository to carry out an economic transaction on its behalf. If the depository fails either to provide the information or to carry out the instruction correctly then the participant may suffer a loss for which the depository may not accept liability. The depository may provide these services on a commercial basis, without statutory immunity, or it may provide the service as part of its statutory role, possibly with some level of protection from liability. This risk is likely to become much higher when international securities are included in the service.

  10. Corporate Actions Asset Servicing Risk Criteria • Receipt of Corporate Action information. • - Requires a reliable ‘official’ source • - Multiple information sources allow for verification/’data scrubbing’ • Distribution of Corporate Action information • - Requires timely, accurate, efficient and comprehensive event notification • Receipt of Corporate Action Instructions • - Requires pro-active client servicing • - Multiple and efficient electronic means of receiving information • - Straight Through Processing • Processing of Corporate Action Instructions • - Requires timely, accurate and comprehensive event processing • Proxy Voting

  11. Corporate Actions Asset Servicing Risk Criteria • Clear statement of liability • - Investors need to be aware of the liability assumed by CSD and custodian in the event of an error • - Manual processing of asset servicing operations more common • - Likelihood of error is higher for Asset servicing • - Potential losses can be high • Managing corporate actions effectively is perhaps the biggest potential risk exposure

  12. Comparative Chart Average Americas - TM Proprietary Rating Average Eastern Europe – TM Proprietary Avge West Euro – TM Proprietary Avge Asia Pac – TM Proprietary Average Africa – TM Proprietary Avge Mid East – TM Proprietary Asset ServiceRating CSD Corporate Actions Asset Servicing Risk Rating Asset Service Criteria AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Info Collection Info Dissemination Receipt of Instructions Execution of Instructions Proxy Voting AS1 AS2 AS4 AS3 AS4 AS3 AS2 CSD AS5 AS5 AS1 Less important Important Critical

  13. AMEDA Asset Servicing Rating Market Comparisons Rating Rating AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Absolute Rating - Highest Rating Public CSD TM Rating of 14 CSDs in AMEDA (Note 6 CSDs unrated for ASR) Average Rating - Highest Rated Regions Gap between top and bottom rated AMEDA countries Average Rating – Africa/Mid East

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