Announcement

Changes to the handling of corporate actions requiring payment of exercise price

Custody | Settlement

Reference

Code
C20020
Service level
CEU OneClearstream
Last Updated
12.05.2020

Clearstream Banking AG1 informs customers of the changes to the handling of corporate actions requiring payment of exercise price that become effective

18 May 2020

Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on the European Central Securities Depositories Regulation (CSDR), introduces several measures to prevent and address the unsecured exposures. To facilitate the implementation of the credit prudential requirements set out in the CSDR, CBF will adapt and introduce changes to the handling of the corporate actions requiring payment of exercise price as described below.

For corporate action events requiring payment of exercise price, and in line with German law, customers who have given their instruction to exercise should ensure their account is sufficiently provisioned on the payment date to settle the Payment Free of Delivery (PFoD) generated on their account by CBF.

Impacted corporate action events include, but are not limited to, priority issue, warrant exercise and exercise of rights and related to the securities migrated under the OneClearstream service.

The unsuccessful cash provisioning of the account on the payment date will lead to:

  • A retention of the securities proceeds by CBF and other actions (as described below);
  • Any costs incurred by CBF caused by a customer who failed their payment obligation will be recharged to the customer.

Customers are, and remain, liable for such payment or payment default in these circumstances.

Customers failing to fund their account on the payment date will automatically be granted a grace period by CBF to provide the required funds. The grace period will be activated on the payment date and will end either on the payment date and within two business days or on the securities proceeds distribution date, whichever occurs later. The credit of securities proceeds to the customer’s account will be dependent on the settlement of the PFoD instruction during this grace period.

If the customer fails to fund their account by the end of the grace period, starting from the next business day, CBF will reject the corporate action instruction of the customer, the PFoD instruction will be cancelled and the proceeds will be sold on the market2. The resulting cash difference (a difference between the amount due to be paid by the customer and the market price of proceeds), if any, will be booked to the customer’s account through Clearstream Banking S.A. (CBL) via cash instruction with an appropriate narrative to ease the cash reconciliation. No credit of securities proceeds will follow.

To facilitate proper handling of the impacted corporate action events by customers, the following enhancements will be implemented to the current reporting: 

  • The MT564 Corporate Action Notification will include a narrative ADTX reminding customers of a timely cash provisioning of the account on the payment date “By submitting your instruction, you commit to timely fund your account as required per corporate action terms to support the debit of the exercise amount in order to receive the proceeds”.
  • If there is insufficient cash provisioning of the account on the payment date, customers will receive an MT567 Corporate Action Instruction Status Advice with a status IPRC//PEND and a new reason code PEND//MONY, as well as standard settlement reporting.
  • Failed PFoD instructions will be recycled during the grace period until the account is successfully provisioned or until the instruction is cancelled at the end of the grace period by CBF as explained above. If the settlement is successful, customers will receive an MT567 Corporate Action Instruction Status Advice with a status IPRC//PACK followed by an MT566 Corporate Action Confirmation for debit of cash and credit of securities proceeds. If there is a cancellation, customers will receive an MT567 Corporate Action Instruction Status Advice with a status IPRC//REJT and a new reason code REJT//NARR “Rejected due to failed cash provisioning, distribution of resulting proceeds will not take place”.

There will be no other changes to the processing and reporting of these corporate action events and instructions.  

Further information

For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.

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1. This Announcement is published by Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.

2. If the customer failed to fund their account on the payment date, it is important to understand that CBF will be debited by the market and will receive the securities proceeds as the corporate action instruction submitted by CBF on behalf of the customer would be exercised by the issuer/agent. If during the grace period, the customer account is duly funded, the customer will receive the securities proceeds against debit of its cash account. However, if at the end of the grace period the customer account is still not duly funded, the securities would still belong to CBF who will sell them on the market on a best effort basis, and the customer agrees and undertakes to indemnify CBF for the cash difference.