Click to edit Master title style James Langlois, Lewis Nicholson - - PowerPoint PPT Presentation
SFTR Corporate Actions Working Group #7 International Securities Lending Click to edit Master title style James Langlois, Lewis Nicholson Association Click to edit Master subtitle style 30 Sep 2019 1 SFTR Corporate Actions: Approach for
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James Langlois, Lewis Nicholson
30 Sep 2019
1- Review of SFTR Corporate Actions Working Group 2- Best Practice discussion: ✓ UTIs for CA bookings ✓ Omni Bookings ✓ Booking Dates 3- Next Steps
1- Define Corporate Actions Universe (Q2 2019)
2- Stratify the CAs into Clusters by their effects on SFTs & booking models (Q2
2019)
3- Agree an SFTR related Best Practice for each CA Cluster (Q3 2019)
4- Connect the SFTR CA WG’s output with the wider industry discussion (Q4 2019)
Workshops, Surveys, Direct Member Firm Meetings Reaching out for Industry-wide best practice acceptance SFTR Report Testing, Developing Solutions not defined in 2019, Support for SFTR GO LIVE
Membership & Responsibilities Objectives & Scope Methodology & Plan Baselining Information
JUL 19 OCT 19 JAN 20 APR 20 APR 19
1-2-1s
Working Group Packs Best Practice PowerPoint
Best Practice Draft Document
Best Practice Proposal Doc European Standards SFTR CA Universe ECB Harmonisation Internal ISLA Approval ISLA Member Firm Approval Global Standards European Industry Review Global Review Industry Adoption
(lender) required to report their side of the SFT to an approved TR on trade date +1 (T+1).
participants in their reports to the TRs. This value will be used by the TRs to match separately received reports from each counterpart to an SFT.
allocation to a principal as an individually reportable transaction.
with whom the collateral was exchanged and the master agreement under which it was agreed.
SFTR Report:
ETRM/ NEWT ETRM ETRM/ MODI NEWT
NULL NULL
CA Cluster/ Issue
Return and New Trade Full Return Full or Partial Return Addition Sec on Loan Economic outside SFT Non-Economic or Information UTIs for New CA Bookings
Y N N Y N N
Omni Bookings
Y Y Y Y Y N
Booking Dates
Y Y Y Y Y N
UTIs for CA bookings Omni Bookings Booking Dates
LENDER BORROWER FUND A
FUND B FUND X
Issue:
Best Practice: ✓ SFT’s Corporate Actions must now be reported to the TR at the beneficial owner or LEI Level ✓ Where allocations are not known: block booking can be used temporarily or no report sent until clarified. ✓ However, all efforts should be made to book and report accurately on time.
1,000 1,000 1,000 3,000
TR
Agency Lending Disclosure
1,000 1,000 1,000 1,000 1,000 1,000
Platform Vendors
The flow diagram below shows the existing (pre-SFTR) model for booking SFTs. The next page shows the SFTR model.
LENDER BORROWER
FUND A
FUND B FUND C
1,000 2,000 1,000 8,000 Agency Lending Disclosure
10,000
FUND R FUND S
3,000 1,000
FUND Y
2,000 2,000 Agency Lending Disclosure
8,000 LEI 1 LEI 2 LEI 3 2,000 Agent 1 Agent 2
Bulk Booking
LENDER BORROWER
FUND A
FUND B FUND C
1,000 2,000 1,000 8,000 Agency Lending Disclosure
FUND R FUND S
3,000 1,000
FUND Y
2,000 2,000 Agency Lending Disclosure
4,000 4,000 2,000 LEI 1 LEI 2 LEI 3 Agent 1 Agent 2
Platform Vendors
TR
2,000 4,000 4,000 4,000 4,000 2,000 Bulk Booking
Issue:
Repository. Best Practice: ✓ The same practices applied to the creation of a UTI on the parent SFT trade, are to be applied to the corporate action. ✓ If a firm has created the UTI for the parent, they will be responsible for the UTI on the new corporate action effected trade. ✓ SUGGEST: The CA’s NEWT is enriched by the same process as the parent trade so there is not a bifurcated approach.
ISO Code ISO Name ISO Description
ATTI Attachment
The combination of different security types to create a unit. Units are usually comprised of warrants and bond or warrants and equity. Securities may be combined at the request of the security holder or based on market convention.CONV1 Conversion
Conversion of securities ( generally convertible bonds or preferred shares) into another form of securities ( usually common shares) at a pre-stated price/ ratio. (initiated by the issuer)CONV2 Conversion Option
Conversion of securities ( generally convertible bonds or preferred shares) into another form of securities ( usually common shares) at a pre-stated price/ ratio. (initiated by the investor)DETI Detachment
Separation of components that comprise a security, for example, usually units comprised of warrants and bond or warrants and equity. Units may be broken up at the request of the security holder or based on market convention.EXOF1 Exchange
Always initiated by the issuer. Exchange of holdings for other securities and/or cash. The exchange can be either mandatory or voluntary involving the exchange of outstanding securities for different securities and/orEXOF2 Exchange (Voluntary)
Always initiated by the issuer. Exchange of holdings for other securities and/or cash. The exchange can be either mandatory or voluntary involving the exchange of outstanding securities for different securities and/orEXRI Call On Intermediate Securities
Call or exercise on nil paid securities or intermediate securities resulting from an intermediate securities distribution (RHDI). This code is used for the second event, when an intermediate securities' issue (rights/coupons) is composed of two events, the first event being the distribution of intermediate securities.EXWA Warrant Exercise
Option offered to holders to buy (call warrant) or to sell (put warrant) a specific amount of stock, cash, or commodity, at a predetermined price, during a predetermined period of time (which usually corresponds to the life of the issue).MRGR Merger
Exchange of outstanding securities, initiated by the issuer which may include options, as the result of two or more companies combining assets, ie an external third party company. Cash payment may accompany equityNOOF Non Official Offer
Offers that are not supervised or regulated by an official entity and being offered by a party, for example a broker, usually at a discount price, for example broker offer, mini-tender, mini odd lot offer or third partyPARI Pari Passu
Occurs when securities with different characteristics, for example, shares with different entitlements to dividend or voting rights, become identical in all respects, for example, pari-passu or assimilation. May be scheduled in advance, for example, shares resulting from a bonus may become fungible after a pre-set periodISO Code ISO Name ISO Description
SPLF Stock Split Increase in a corporation's number of outstanding equities without any change in the shareholder's equity or the aggregate market value at the time of the split. Equity price and nominal value are reduced accordingly. SPLR Reverse Stock Split Decrease in a company's number of outstanding equities without any change in the shareholder's equity or the aggregate market value at the time of the split. Equity price and nominal value are increased accordingly. BONU Bonus Issue Bonus, scrip or capitalisation issue. Security holders receive additional assets free of payment from the issuer, in proportion to their holding. COOP Company Option A Company Option may be granted by the company, allowing the holder to take up shares at some future date(s) at a pre arranged price in the company. A company may not grant options which enable the holder to take up unissued shares at a time which is five or more years from the date of the grant. Option holders are not members of a company. They are contingent creditors of a company and hence may, in some instances, be entitled to vote on and be bound by a scheme of arrangement between the creditors and the company. As many options have multiple exercise periods a company option will either lapse or carry on to the next expiry date. DRIP Dividend Reinvestment Dividend payment where holders can keep cash or have the cash reinvested in the market by the issuer into additional shares in the issuing company. To be distinguished from DVOP as the company invests the dividend in the market rather than creating new share capital in exchange for the dividend. DVOP2 Dividend Option Distribution of a dividend to shareholders with a choice of benefit to receive. Shareholders may choose to receive shares or
investing the dividend in the market. DVSC Scrip Dividend Dividend or interest paid in the form of scrip - the company creates new share capital in exchange for the dividend. DVSE Stock Dividend Dividend paid to shareholders in the form of equities of the issuing corporation. LIQU Liquidation Dividend Distribution of cash, assets or both. Debt may be paid in order of priority based on preferred claims to assets specified by the security. PINK PayInKind Interest payment, in any kind except cash, distributed to holders of an interest bearing asset. PRIO Priority Issue Form of open or public offer where, due to a limited amount of securities available, priority is given to existing shareholders. RHDI Intermediate Securities Distribution The distribution of intermediate securities that gives the holder the right to take part in a future event. RHTS Rights Issue Offer to holders of a security to subscribe for additional securities via the distribution of an intermediate security. Both processes are included in the same event. *please see RHDI and EXRI SOFF Spin Off Spin off. A distribution of subsidiary stock to the shareholders of the parent company without a surrender of shares. Spin off represents a form of divestiture resulting in an independent company. Eg. demerger, distribution, unbundling.
Additional Security on Loan CA on a security which is lent against collateral. LENDER BORROWER Collateral A-Shares Corporate Action Effect Y-Shares Effects on the SFTR reports:
followed for all of the activities relating to the processing of these Corporate Actions
template
the daily COLU (Collateral Update) report.
LENDER BORROWER Collateral A-Shares Corporate Action Effect Y-Shares Effects on the SFTR reports:
for all of the activities relating to the processing of these Corporate Actions
Full closing out of an SFT to be reported via an ETRM (Termination / Early Term) Partial close out of an SFT to be reported via a MODI (Modification) A new SFT to be booked (in addition to the existing trade) which is reported under a NEWT template
COLU (Collateral Update) report Return & New Trade – Cluster:
transaction under the GMSLA.
lender is unable to.
most cases it will be the entity that is mostly a lender in the relationship (or its agent) who creates the UTI.
beneficial owner is a Non-Financial Counterparty or an entity that does not have a reporting obligation.
transactions executed under alternative documentation including, but not restricted to the GMRA.
What should the receiving counterparty do when the generating counterparty does not generate/share the UTI by the reporting deadline?
(1) Not report and wait for the UTI from the generating counterparty or (2) Report the trade with no UTI or; (3) Generate their own UTI and report.
For option 3, what should the receiving counterparty do when the generating counterparty subsequently generates/shares the UTI? (a) Nothing, the generating counterparty should use the UTI that has been generated/shared by the receiving counterparty, as the generating counterparty did not generate/share the UTI by the reporting deadline or; (b) The receiving counterparty should send an error for the reports they have sent with their own UTIs and send new reports with the UTIs that the generating counterparty provided.
Note from ISDA UTI March 2015: https://www.isda.org/a/goEDE/2015-mar-20-uti-best-practice-v11-0-clean.pdf
5.2.3 Paper Trades
There is no central execution and no Middleware for confirmation matching; trades will be paper confirmed. If the other Party receives the agreed UTI before the reporting deadline, then they should also include the UTI on their Confirmation. However, if the other Party has not received an agreed UTI before the reporting deadline, they may submit their own trade reference, but not report a UTI until a UTI is agreed, at which time they should update and report with the agreed, final UTI.
SFTR Corporate Actions: UTI key IssuesSharing UTIs between bilateral counterparties if the trade is not executed via a trading platform and a contract compare platform is not used. What is the approach? (HSBC JIRA UP-5) Sharing UTIs for corporate action bookings. The original trade may be executed via a MTF and therefore the UTI is received by both parties from the MTF, however the corporate action booking will not come from the MTF, it will be booked separately by each party to the trade. (HSBC JIRA UP-5) UTI generation for non EU Trades. Do Non EU Lenders provide a UTI? (HSBC JIRA UP-1) When a counterparty sends an error report for a UTI but the other counterparty is still reporting the UTI. (HSBC JIRA UP-5)d
Issue:
Date, with the Trade and Settlement dates inline with the Pay Date of the event.
dates will cause report
Best Practice:
✓ Booking methodology to be agreed by discussion in following Working Groups. ✓ SUGGEST– Regardless of internal booking practices and decoupled from the legal opinion of when does a loan become a loan: one constant is that the Pay-date for all in-scope event types, for all markets, is the settlement date of the loan or SFT. ✓ The trade date determination becomes convoluted as it is variable dependant on the event type and/or market traded and can be either attributed to either the Record or Pay-Date. ✓ IF a firm usually books on EX or Record Date a forward-dated trade could be booked at this time for Trade and Settlement date on the Pay Date.
Announce ment by Issuer Ex Date Record Date Payment Date Market Timings for Cash Distributions (Economic outside of trade), Securities Distributions (Additional Trade), Mandatory Reorganisations (Full Return and New):
Settlement cycle minus 1 business day Typically 1 business day
Announce ment by Issuer Ex Date Record Date Payment Date
Settlement cycle minus 1 business day Typically 1 business day
Market Timings for Distributions with Options (Additional Trade):
Start of Election Period Guaranteed Participation Date Market Deadline Buyer Protection Deadline Payment Date
Settlement cycle
Typically 1 business day
Announcement by Issuer Start of Election Period Buyer Protection Deadline Guaranteed Participation Date Payment Date
Market Deadline
Settlement cycle minus 1 business day
Typically 1 business day
Mandatory Reorganisations with Options, Voluntary Reorganisations:
Example of differences between counterparties: Announce ment by Issuer Ex Date Record Date Payment Date
BORROWER LENDER
Trade date Trade date Settlement Settlement