Entitlement Compensation Rules - U.S.A.

04.09.2017

Note: Non-U.S. currency payments are always compensated by the DTC in USD and not in the payment currency; Clearstream Banking follows this market practice.

Bonds

Market compensation basis:Requested Settlement Date
Automatic Compensation Managed by Local CSD:No
Restriction on custody events/transaction types:No restriction
Service offered by CBL:Adjustment is made based on information received from depository.

Equities

Market compensation basis:Trade Date
Automatic Compensation Managed by Local CSD:Yes - see below
Restriction on custody events/transaction types:
Automatic compensatation applies to cash dividends and only for against payment transactions.
Service offered by CBL:Adjustment is performed based on information received from depository.

Definitions and examples

Ex-Date and Record Date

The issuing company announces a Record Date. This is the date on which holders registered on the books of the registrar are considered entitled to the dividend distribution. In accordance with standards set by the stock exchanges and the over-the-counter (OTC) market, the Ex-Date is established. This is normally one business day before the Record Date. A purchaser with a Trade Date before the Ex-Date will be eligible for the previously announced dividend. A purchaser with a Trade Date on/after the Ex-Date will not be eligible to receive the previously announced dividend. Therefore, for a customer's trade in line with market practice (T+2) that settles on contractual Settlement Date, the dividend payment received on Payment Date will match the customer's position on the Record Date.

For delayed settlements, a due bill is delivered with the securities as proof of entitlement to claim the dividend distribution on Payment Date. Dividend claims are market practice and are processed through the paying agent. In addition, the DTC Fail Tracking System will track any against payment security movements where the contractual Settlement Date is before the Record Date and attach the distribution entitlement to the security.

If the Record Date has passed and the payable date has not yet been reached, the securities and the due bill will be received at the same time, but the due bill may not be redeemed until the payable date. Therefore, in this instance, on Payment Date, the customer will be credited in line with his traded position on the Record Date.

If, on the day of receipt of the securities, the Payment Date has passed, it is at this time that the customer will receive the dividend proceeds from the redemption of the due bill. There is no time limit within which the DTC must track a cash dividend on an against payment trade.

Free of payment trades are not tracked by the DTC, as the DTC views such movements as transfers. Any claims for dividends on free of payment movements must be initiated by the customer.

If a customer trades outside of market practice (T+2), for example, DVP T+1, and, in doing so, is trading to still receive the dividend, then any claims must be initiated by the customer.

See the examples attached at the bottom of the page:

Example A: Mandatory dividend with an against payment trade
Example B: Mandatory dividend with a free of payment trade

Interim period

Another important market practice in the U.S.A. for dividends is the dividend announced with an interim period, which refers to a period with an end date that can fall after the Record Date and even after the Payment Date. This is referred to as the Settlement Date and, on these events, replaces the function of the Record Date. When this occurs, the Ex-Date is established and normally falls one business day before the interim period end date. A purchaser with a Trade Date before the Ex-Date will be eligible for the previously announced dividend. A purchaser with a Trade Date on/after the Ex-Date will not be eligible to receive the previously announced dividend. If the interim period end date is before the Payment Date and the customer's trade settles in line with market practice (T+2), the dividend payment receive on Payment Date will match the customer's position on interim period end date.

If the Ex-Date and interim period end date is after the Payment Date, then, on the Payment Date, the customer will be paid on his settled position as at Payment Date -1. At the end of the interim period, the customer's position will be amended to take into account any trades in line with the Ex-Date.

Free of payment trades are not tracked by the DTC, as the DTC views such movements as transfers. Any claims for dividends on free of payment movements must be initiated by the customer.

If a customer trades outside of market practice (T+2), for example, DVP T+1, and, in doing so, is trading to still receive the dividend, then any claims must be initiated by the customer.

See the examples attached at the bottom of the page:

Example C: Mandatory dividend with an interim period, which has an ex date and end date, after record date and before pay date
Example D: Mandatory dividend with an interim period, which has an ex date and end date after record date and payment date