SFTR Corporate Actions Working Group #4 27 th June 2019 James - - PowerPoint PPT Presentation

SFTR Corporate Actions Working Group #4

27th June 2019 James Langlois

SFTR Corporate Actions Q2 2019 Meetings

2 Date Name Agenda 23/04/2019 1# Corporate Actions WG General discussion and identification of SFTR CA issues 16/05/2019 13# SteerCo. SFTR CA Update 23/05/2019 2# Corporate Actions WG Determine Corporate Actions Universe (closed session) 30/05/2019 14# SteerCo. SFTR CA Update 05/06/2019 3# Corporate Actions WG Agree Corporate Actions Clusters and Booking Activities 10/06/2019 15# SteerCo. SFTR CA Update 27/06/2019 4# Corporate Actions WG Finalise Corporate Actions Clusters and Booking Activities 02/07/2019 17# SteerCo. SFTR CA Update 10/07/19 5# Corporate Actions WG Determine Best practice for CA Clusters

SFTR Corporate Actions: Overall Plan & Scope

3

1- Define Corporate Actions Universe (Q2 2019)

• Form a distinct list of all CAs
• Align with the ISO 15022 (SWIFT) and 20022 (STP) standards
• Determine attributes and effects of each CA on SFTs

2- Stratify the CAs into Clusters by their effects on SFTs & booking models (Q2 2019)

• Review groups of CAs which can be processed similarly
• Confirm CAs which have no material effect on SFTs
• Confirm booking models for clusters
• Define the SFTR reports each Cluster of CAs affects

3- Agree an SFTR related Best Practice for each CA Cluster (Q2 2019)

• Reach agreement on specific booking models which enable SFTR compliant reporting
• Determine universal procedures for processing and communicating CAs on SFTs

4- Connect the SFTR CA WG’s output with the wider industry discussion (Q3 2019)

• Contribute to the Securities Lending industry’s general policy (outside of SFTR)

4

SFTR Corporate Actions: Working Group #3 - REVIEW

Stratify the CAs into Clusters by their effects on SFTs & booking models

• Review groups of CAs which can be processed similarly
• Review CA Clusters as proposed in SFTR CA WG 2
• Discuss impact of CA types in the CA Cluster to the SFT
• Review Booking Activities
• Discussed CAs which have no material effect on SFTs
• Information Only/ Non-Economic CAs
• Cash/ Economics outside of the SFT
• Discussed CAs which cause direct downstream effects on SFTR reports and must therefore

be aligned by best practice:

Cluster # CAs Additional Securities on Loan 14 Full Return 4 Partial Return 2 Full or Partial Return 4 Return and New Trade 14 38

5

SFTR Corporate Actions: Approach for this Working Group

1- Progress Update 2- Present Results of the Firm Questionnaire 3- Examination of the Cash/ Economics Outside of the SFT Cluster 4- Review differences between Firm Response for:

• Cash Movements
• SFT Bookings
• Scope Justification
• EQ/FI

5- Open Discussion (time allowing) 6- Next Steps

6

SFTR CA Firm Questionnaire Response - Results

1- Response was received from 13 member Firms, as presented in the accompanying .xlx file, which has been anonymised. 2- Number of corporate actions agreed (signed off) across all firms vs open issues to discuss, by CA Cluster (expounded on later slides): 3- Firm’s submission for booking processes for SFT amends was varied and revealed many differences – collection of data must be improved (expounded on later slides).

Cluster Y N Non-Economic or Information 22 3 Economic outside of the trade 6 8 Additional Securities on Loan 1 13 Full or Partial Return 1 3 Full Return 1 3 Partial Return

• 2

Return and New Trade 8 6 Total 39 38

7

SFTR CA Firm Questionnaire Response - Results

All of the following Non-Economic or Information Only CAs have been agreed across all (13) responders:

ISO Code ISO Name ISO Distinction (reviewed)

Cash Movement (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI ACCU Accumulation Information N N Non-Economic or Information Y Y ACTV Active Trading Status Information N N Non-Economic or Information Y Y BMET Bond Holder Meeting Information N N Non-Economic or Information N Y BRUP Bankruptcy Information N N Non-Economic or Information Y Y CERT Non USTEFRAD Certification Information N N Non-Economic or Information N Y CLSA Class Action Proposed Settlement Information N N Non-Economic or Information Y Y CMET Court Meeting Information N N Non-Economic or Information Y Y CREV Credit Event Information N N Non-Economic or Information Y Y DLST Trading Status Delisted Information N N Non-Economic or Information Y Y DSCL Disclosure Information N N Non-Economic or Information Y Y EXTM Maturity Extension Information N N Non-Economic or Information N Y MEET General Meeting Information N N Non-Economic or Information Y Y MTNG Securities Holders Meeting Information N N Non-Economic or Information Y Y OMET Ordinary General Meeting Information N N Non-Economic or Information Y Y REDO Redenomination Information N N Non-Economic or Information y y REMK Remarketing Agreement Information N N Non-Economic or Information Y Y SMAL Smallest Negotiable Unit Information N N Non-Economic or Information Y Y SUSP Trading Status Suspended Information N N Non-Economic or Information Y Y TNDP Tax On Non-Distributed Proceeds Information N N Non-Economic or Information Y Y TREC Tax Reclaim Information N N Non-Economic or Information Y Y WTRC Withholding Tax Relief Certification Information N N Non-Economic or Information Y Y XMET Extraordinary or Special General Meeting Information N N Non-Economic or Information Y Y

8

SFTR CA Firm Questionnaire Response - Results

All of the following CAs for Economic Outside of the Trade, Full Return, Full or Partial Return, Additional Securities on Loan, Return and New Trade, have been agreed across all (13) responders:

ISO Code ISO Name ISO Distinction (reviewed)

Cash Movement (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI CAPD Capital Distribution Mandatory Cash Distribution Y N Economic outside of the trade Y Y CAPG Capital Gains Distribution Mandatory Cash Distribution Y N Economic outside of the trade Y Y DECR Decrease In Value Mandatory Cash Distribution Y N Economic outside of the trade Y Y DVCA Cash Dividend Mandatory Cash Distribution Y N Economic outside of the trade Y N INTR Interest Payment Mandatory Cash Distribution Y N Economic outside of the trade Y Y PRII Interest Payment With Principal Mandatory Cash Distribution Y N Economic outside of the trade Y Y WRTH Worthless Mandatory Reorganisation N Y Full Return Y Y TEND2 Takeover for shares Mandatory Reorganisation Y Y Full or Partial Return Y Y PRIO Priority Issue Voluntary Reorganisation Y Y Additional Securities on Loan Y Y CONV1 Conversion Mandatory Reorganisation N Y Return and New Trade Y Y PARI Pari Passu Mandatory Reorganisation N Y Return and New Trade Y Y SPLF Stock Split Mandatory Reorganisation N Y Return and New Trade Y Y SPLR Reverse Stock Split Mandatory Reorganisation N Y Return and New Trade Y Y EXWA Warrant Exercise Mandatory Reorganisation with Options Y Y Return and New Trade Y Y MRGR Merger Mandatory Reorganisation with Options Y Y Return and New Trade Y Y CONV2 Conversion Option Voluntary Reorganisation N Y Return and New Trade Y Y EXOF2 Exchange (Voluntary) Voluntary Reorganisation Y Y Return and New Trade Y Y

9

SFTR CA Firm Questionnaire Response - Results

Feedback pertaining to the booking methodologies and timings:

• Trade date of SFT booking
• Settlement date of SFT booking
• New SFT Booking Type: 1- New separate trade in addition 2- Modification to existing booking 3- Something else

This feedback was of varied quality across the firm response and varied greatly – see sample below:

ISO Code Firm No. Firm Entirely Agreed? Firm's Comments Non-Cash Collateral Trade Date (Ex/ Pay/ Other) Non-Cash Collateral Settlement Date (Ex/ Pay/ Other) Cash Collateral Trade Date (Ex/ Pay/ Other) Cash Collateral Settlement Date (Ex/ Pay/ Other)

New SFT booking: 1 - New separate trade in addition 2 - Modi to the existing booking 3 - Something else

DFLT 1 Y

• Pay Date

Pay Date Pay Date Pay Date N/A DFLT 2 Y

• N/A

pay pay pay 2 DFLT 3 Y

• N/A

pay pay pay 2 DFLT 4 Y

LOANS WILL BE CLOSED OUT WHEN SHARES ARE REMOVED BY OUR

• 2

DFLT 5 Y

• Pay

Pay Pay Pay N/A DFLT 6 Y

• N/A

DFLT 7 Y

• PAY

PAY PAY PAY N/A DFLT 8 Y

• Debit date announced by

market Debit date announced by market Debit date announced by market Debit date announced by market

N/A DFLT 9 Y

• Other

Other Other Other N/A DFLT 10 N

We have never come across these events in the past

• N/A

N/A N/A DFLT 11 Y

• EX Date

Pay Date EX Date Pay Date

• DFLT

12 Y

No Additional Comments

Value Date Value Date

• N/A

DFLT 13 N

Why Is cash movement 'N'? / Lending positions closed upon confirmation of no future payments

• Full Return

10

Examination of the Cash/ Economics Outside of the SFT Cluster

The movement of cash outside of an SFT (not Cash Collateral) which is the result of a Corporate Action, such as a dividend, should not affect the pricing of the SFT and should therefore not impact the Valuation (VALU) reports sent by the firms. The “Cash Movement (Y/N)” field in the SFTR CA Firm Questionnaire (and CA Universe) does not relate to Cash Collateral Movements as these are a BAU effect of adjusting SFT securities quantities. LENDER BORROWER Collateral Securities DVCA - Cash Dividend:

ADR Dividend Auction Rate Dividend Basket Dividend Dividend Arrears Dividend Omitted Dividend Rescinded Fund Distribution Limited Partnership Distribution Special Cash Dividend Unit Investment Trust Payment Return of Capital

On Ex-Date the value of securities drops in direct proportion with the size of the cash dividend. As the value of the borrowed securities drops, cash collateral is returned.

LENDER BORROWER Collateral Securities

On Pay Date the dividend is payed to the Borrower. The dividend cash is then passed back to the lender.

Dividend on the borrowed security:

11

Examination of the Cash/ Economics Outside of the SFT Cluster

LENDER BORROWER Collateral Securities

On Ex-Date the value of securities drops in direct proportion with the size of the cash dividend. As the value of the collateral securities drops, more collateral must be provided to the lender.

LENDER BORROWER Collateral Securities

On Pay Date the dividend is payed to the Lender. The dividend cash is then passed back to the borrower.

Dividend on Non-Cash Collateral security:

12

Corporate Actions with open issues to discuss, by CA Cluster:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? CHAN Change

Information regarding a change further described in the corporate action details.

Information N N Non-Economic or Information Y Y

Wouldn't a name and security identifier change cause a SFTR update need? In certain instances a CHAN announces a change

• f ISIN too, which means then return and new

trade If change of ISIN, new separate trade for new stock Not accepted - CHAN meaages are always the information preceding the official instruction to change an ISIN.

CONS Consent

Procedure that aims to obtain consent of holder to a proposal by the issuer or a third party without convening a meeting. For example, consent to change the terms of a bond.

Information Y N Economic outside of the trade Y Y

I think Consent with fee would fall under Economic outside of the trade as there would be a cash payment made on the back of this Consent with fee requires us to collect fee cash from the borrower. Accepted - change applied, disagreements?

OTHR Other Event

Other event, use only when no other event type applies, for example, a new event type.

Information N N Non-Economic or Information Y Y

we still very occasionally see actual events sent under this. Not accepted - OTHR meaages are always the information preceding the official instruction which will be sent as another Corporate Action instruction.

PLAC Place Of Incorpora tion

Changes in the state of incorporation for US companies and changes in the place of incorporation for foreign

• companies. Where shares need to be

registered following the incorporation change, the holder(s) may have to elect the registrar.

Information N N Non-Economic or Information Y Y

Proceeds equal those of an exchange Not accepted - Static Data change to the existing Security rather than a change of Security - if a new replacement security were issued, this would be instructed on another Corporate Action Code

The following Non-Economic or Information Only CAs differ in the Firm Questionnaire response as below:

13

Corporate Actions with open issues to discuss, by CA Cluster:

The following Economic outside of the trade CAs differ in the Firm Questionnaire response as below (1 of 3). These two CAs (below) were classed as “Information” only by ISO, however we agreed in the previous WG that cash movements (outside of the SFT) resulted from the booking of these Corporate Actions:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? CAPI Capitalisation

Increase of the current principal of a debt instrument without increasing the nominal value. It normally arises from the incorporation of due but unpaid interest into the principal. This is commonly done by increasing the pool factor value.

Information Y N Economic

• utside of the

trade Y Y

I don’t see why there would be a cash movement Discussion

INCR Increase In Value

Increase in the face value of a single

• security. The number of circulating

securities remains unchanged.

Information Y N Economic

• utside of the

trade Y Y

I don’t see why there would be a cash movement No cash payment involved, purely information Discussion

14

Corporate Actions with open issues to discuss, by CA Cluster:

The following Economic outside of the trade CAs differ in the Firm Questionnaire response as below (2 of 3):

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? DRCA

Cash Distribution From NonEligible Securities Sale Distribution to shareholders of cash resulting from the selling of non- eligible securities, for example, in the frame of a depositary receipt program.

Mandatory Cash Distribution Y N Economic

• utside of the

trade Y Y

Holder's uneligible stock gets sold against cash Discussion

PPMT Instalment Call

Instalment towards the purchase of equity capital, subject to an agreement between an issuer and a purchaser.

Mandatory Cash Distribution Y N Economic

• utside of the

trade Y Y

A client that wishes to particpate in the Second Call, would be receiveing the credit of resultant shares in the temporary ISIN and moved back once funded/paid. Holder pays to get extra shares, elective event Discussion

SHPR Shares Premium Dividend

This corporate event pays shareholders an amount in cash issued from the shares premium

• reserve. It is similar to a dividend…

Mandatory Cash Distribution Y N Economic

• utside of the

trade Y N

Not on fixed income Accepted - change applied, disagreements?

15

Corporate Actions with open issues to discuss, by CA Cluster:

The following Economic outside of the trade CAs differ in the Firm Questionnaire response as below (3 of 3):

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? PRED

Partial Redemption With Pool Factor Reduction Securities are redeemed in part before their scheduled final maturity date without reduction of the nominal value of the securities. This is commonly done by pool factor red

Mandatory Reorganisation Y N Economic

• utside of the

trade Y Y

Shares will adjust accordingly given the nominal amortization Discussion

DVOP1 Dividend Option

Distribution of a dividend to shareholders with a choice of benefit to receive. Shareholders may choose to receive shares or cash. To be distinguished from DRIP as the company creates new share capital in exchange for the dividend rather than investing the dividend in the market.

Mandatory Reorganisation with Options Y N Economic

• utside of the

trade Y Y

If there are coupons issued, then at pay date the coupons are debited even if the election is cash so there would be a full return. For any DVOP with no coupons, this would be out of scope for SFTR If the Dividend Option is processed European style with subscription rights it follows Rights Distribution rules with an election Accepted - Add an additional CA line by splitting this CA into DVOP; CASH; EUROPEAN/ NON-EURO

16

Corporate Actions with open issues to discuss, by CA Cluster:

The following Full Return CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? DFLT Bond Default

Failure by the company to perform

• bligations defined as default events

under the bond agreement and that have not been remedied.

Mandatory Reorganisation N Y Full Return N Y

Why Is cash movement 'N'? / Lending positions closed upon confirmation of no future payments Not Accepted - Cash movement is a return of collateral - so directly relating to the return of securities - not a separate payment.

MCAL Full Call

Redemption of an entire issue

• utstanding of securities, eg, bonds,

preferred equity, funds, by the issuer

• r its agent, for example, asset

manager,before final maturity.

Mandatory Reorganisation Y Y Full Return Y Y

If collateral is non-cash or in a different currency than the security, broker pays us the proceeds through wire, i.e. not via reduction of collateral. The full collateral is returned upon receipt of the funds. Why Is cash movement 'N'? / Lending positions closed and cash netting agreed bilaterally to clear trade and redemption cash Accepeted - Discuss: is cash settled outside of the SFT?

REDM Final Maturity

Final maturity of a security. The redemption of an entire issue

• utstanding of securities, for

example, bonds, preferred equity, funds, by the issuer or its agent, for example, asset manager, at final maturity.

Mandatory Reorganisation Y Y Full Return Y Y

If collateral is non-cash or in a different currency than the security, broker pays us the proceeds through wire, i.e. not via reduction of collateral. The full collateral is returned upon receipt of the funds. Why Is cash movement 'N'? / Lending positions closed and cash netting agreed bilaterally to clear trade and redemption cash Maturity proceeds (in cash) would be claimed and the lender would reflect on loan, and retain collateral, until cash proceeds received from the borrower. (note this would be for a non-cash collateral model) Accepeted - Discuss: is cash settled outside of the SFT?

17

Corporate Actions with open issues to discuss, by CA Cluster:

The following Partial Return or Full or Partial Return CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? PCAL

Partial Redemption Without Pool Factor Reduction Securities are redeemed in part before their scheduled final maturity date with reduction of the nominal value of the securities. The outstanding amount of securities will be reduced

• proportionally. It is done without any pool factor
• reduction. The redemption is reflected in a debit of

the face amount (FAMT).

Mandatory Reorganisation Y Y Partial Return Y Y

We have seen instances in North America where this is a full return Discussion - Amend Cluster to Full or Partial Return

PDEF Prefunding

Also called partial defeasance. Issuer has money set aside to redeem a portion of an issue and the indenture states that the securities could be called earlier than the stated maturity.

Mandatory Reorganisation Y Y Partial Return Y Y

We have seen instances in North America where this is a full return Discussion - Amend Cluster to Full or Partial Return

DRAW Drawing

Securities are redeemed in part before the scheduled final maturity date. It is done without any pool factor reduction. The redemption is reflected in a debit of the face amount (FAMT).

Mandatory Reorganisation Y Y Full or Partial Return Y Y

There will be a cash payment on this Why Is cash movement 'N'? Can have a cash movement similar to 'Partical Call Redem' Accepted - change applied, disagreements?

TEND1 Tender

Offer made to holders by a third party, requesting them to sell (tender) or exchange their securities. When a tender reaches the squeeze out stage, it will be mandatory.

Mandatory Reorganisation N Y Full or Partial Return Y Y

Why Is cash movement 'N'? Lending positions fully/partially closed and cash netting agreed bilaterally to clear trade and Tender cash Tender proceeds (in cash) would be claimed and the lender would reflect on loan, and retain collateral, until cash proceeds received from the borrower. (note this would be for a non-cash collateral model) Accepted - change applied, disagreements?

BPUT Buy Back

Early redemption of a security at the election of the holder subject to the terms and condition of the issue with no reduction in nominal value.

Voluntary Reorganisation Y Y Full or Partial Return Y Y

There will be a cash payment on this Buy back should be for cash Cash proceeds are paid by broker, not via reduction of collateral Accepted - change applied, disagreements?

18

Corporate Actions with open issues to discuss, by CA Cluster:

The following Additional Securities on Loan (Mandatory Re-Org) CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? BONU Bonus Issue

Bonus, scrip or capitalisation issue. Security holders receive additional assets free of payment from the issuer, in proportion to their holding.

Mandatory Reorganisation Y Y Additional Securities on Loan Y N

sometimes cash in lieu is paid Accepted - change applied, disagreements?

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.

Mandatory Reorganisation Y Y Additional Securities on Loan Y Y

As discussed in the previous WG, there will likely be various cash distributions and at the final distribution, the full position will be closed vs cash payment Not accepted - the closing of the full position will be instructed under a different Corporate Action code.

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.

Mandatory Reorganisation Y Y Additional Securities on Loan Y Y

sometimes cash in lieu is paid Accepted - Cash movement added - Discussion?

19

Corporate Actions with open issues to discuss, by CA Cluster:

The following Additional Securities on Loan (Mandatory Re-Org with Options) CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? 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.

Mandatory Reorganisation with Options Y Y Additional Securities on Loan Y N

No FI event Accepted - FI removed

DVOP2 Dividend Option

Distribution of a dividend to shareholders with a choice of benefit to receive. Shareholders may choose to receive shares or cash. To be distinguished from DRIP as the company creates new share capital in exchange for the dividend rather than investing the dividend in the market.

Mandatory Reorganisation with Options Y Y Additional Securities on Loan Y N

No FI event Accepted - FI removed

DVSC Scrip Dividend

Dividend or interest paid in the form of scrip - the company creates new share capital in exchange for the dividend.

Mandatory Reorganisation with Options N Y Additional Securities on Loan Y Y

Sometimes cash in lieu is paid Scrips act like a DVOP, there is the option for shares or cash Depending on processing methodology and market, securities are booked as cash market delivery and not as loan. Discussion - Split the CA into two lines?

20

Corporate Actions with open issues to discuss, by CA Cluster:

The following Additional Securities on Loan (Mandatory Securities Distribution) CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? 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.

Mandatory Securities Distribution N Y Additional Securities on Loan Y Y

Return and new trade Discussion - Should thid be moved to the Cluster: Return and New Trade

DVSE Stock Dividend Dividend paid to shareholders in the form of

equities of the issuing corporation.

Mandatory Securities Distribution Y Y Additional Securities on Loan Y N

not on fixed income, sometimes cash in lieu is paid Accepted - FI removed

PINK PayInKind

Interest payment, in any kind except cash, distributed to holders of an interest bearing asset.

Mandatory Securities Distribution N Y Additional Securities on Loan N Y

No cash movement for this event type, per description Accepted - Cash movement removed - Discussion?

RHDI Intermediate Securities Distribution

The distribution of intermediate securities that gives the holder the right to take part in a future event.

Mandatory Securities Distribution N Y Additional Securities on Loan Y N

not on fixed income Accepted - FI removed

21

Corporate Actions with open issues to discuss, by CA Cluster:

The following Additional Securities on Loan (Mandatory Securities Distribution) CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description

• 1. Mand Cash Distribution
• 2. Mand Securities Distribution
• 3. Mand Reorganisation
• 4. Mand Reorg w/ Options
• 5. Voluntary Reorganisation
• 6. Information

Cash Movement (Y/N) SFT Booking (Y/N) Scope Justification EQ FI All Firms Entirely Agreed? Consolidated Commentary Change? 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.

Voluntary Reorganisation Y Y Additional Securities on Loan Y Y

N

cash is to be paid Accepted - Cash movement removed - Discussion? NOOF Non Official Offer

Offers that are not supervised or regulated by an

• fficial 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 party offer.

Voluntary Reorganisation Y Y Additional Securities on Loan Y y

N

I believe this to be like a TEND, I'm not sure if this would earn a new security entitlement Discussion - Should this be in Cluster: Full Return as opposed to a Additional Securitties? ODLT Odd Lot Sale Purchase by Issuer

Sale or purchase of odd-lots to/from the issuing company, initiated either by the holder of the security

• r through an offer made by the issuer. Initiated by

Issuer

Voluntary Reorganisation Y Y Additional Securities on Loan Y Y

N

I believe this to be like a TEND, I'm not sure if this would earn a new security entitlement Odd Lot Sale is typically a take down of anything tendered by client For odd lot sales, the stock is sold against cash Discussion - Should this be in Cluster: Full Return as opposed to a Additional Securitties?

22

Corporate Actions with open issues to discuss, by CA Cluster:

The following Return and New Trade (Mandatory Re-Org) CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? 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.

Mandatory Reorganisation N Y Return and New Trade Y Y

at times elective Not Accepted - The reorganisation is Mandatory but there may be an option to break up unitsat the request

• f the security holder

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/or cash. For example "exchange

• ffer", "capital reorganisation" or "funds

separation".

Mandatory Reorganisation Y Y Return and New Trade Y Y

Cash proceeds are paid by broker, not via reduction of collateral cash movement to Y as cash as an exchange can be an option Accepted - change applied, disagreements?

23

Corporate Actions with open issues to discuss, by CA Cluster:

The following Return and New Trade (Mandatory Re-Org with Options) CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? EXRI 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.

Mandatory Reorganisation with Options Y Y Return and New Trade Y Y

I see there would be cash (sub costs) paid to the borrower on this offer Accepted - change applied, disagreements?

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

Mandatory Reorganisation with Options Y Y Return and New Trade Y Y

Don't see any cash movement on these distributions The rights issue will result in additional securities on loan. The Rights Exercise event will have options. Discussion

24

Corporate Actions with open issues to discuss, by CA Cluster:

The following Return and New Trade (Voluntary Re-Org) CAs differ in the Firm Questionnaire response as below:

ISO Code ISO Name ISO Description ISO Distinction (Reviewed)

Cash Move (Y/N)

SFT Booking (Y/N) Scope Justification

EQ FI Consolidated Commentary Change? BIDS Repurchase Offer

Repurchase offer/Issuer Bid/Reverse Rights. Offer to existing holders by the issuing company to repurchase its own securities. The objective of the

• ffer is to reduce the number of outstanding

securities.

Voluntary Reorganisation N Y Return and New Trade Y Y

I see this as being a full return with cash movement The repurchase offer would typically be for cash. Full or Partial return is likely. REPURCHASE OF SHARES CAN INVOLVE A CASH PROCEED. LOANS WOULD BE CLOSED OUT UPON RECEIPT FROM BORROWER AND COLLATERAL RETURNED I believe this to be like a TEND, I'm not sure if this would earn a new security entitlement Discussion

DTCH Dutch Auction

An action by a party wishing to acquire a security. Holders of the security are invited to make an offer to sell, within a specific price range. The acquiring party will buy from the holder with lowest offer.

Voluntary Reorganisation N Y Return and New Trade Y Y

I see this as being a full return with cash movement The Dutch Auction would typically be for cash. Full or Partial return is likely. REPURCHASE OF SHARES CAN INVOLVE A CASH PROCEED. LOANS WOULD BE CLOSED OUT UPON RECEIPT FROM BORROWER AND COLLATERAL RETURNED I believe this to be like a TEND, I'm not sure if this would earn a new security entitlement Discussion

25

Open Discussion Time

This section to be written up after the Working Group, depending on the content discussed (time allowing).

26

SFTR Corporate Actions: Next Steps

• ISLA SFTR team to circulate Draft Minutes for Firm review
• Firms to respond by end Fri 5th July, with changes or additions, to:

james.langlois@isla.co.uk OR sftr@isla.co.uk

• ISLA to develop and circulate new booking process data gathering to firms for

review ahead of next SFTR CA Working Group

• ISLA to hold closed door mini working groups to test above methodology before

dissemination to wider firm Working Group.