Corporate Action Survey

June 2014

Research Objectives

The Risk Management Association has surveyed financial institutions to determine the range of practices and standards currently used for corporate actions. In addition to providing benchmark data on current practice, the survey illuminates industry and regulatory trends the respondents think are likely to affect corporate actions over the next few years.

The survey also includes sections for comments to describe what issues the respondents' see as other issues within corporate actions and the near term future issues that will affect securities lending operations and technology.

Executive Summary

The survey was circulated to members of ISLA, RMA, and PASLA as a direct response to member concerns that there is no standard practice to the recording and collateralizing of corporate action entitlements issued when stock is on loan. Eighty-five (85) firms responded globally of which 54 were based in the U.K. or U.S.A. 58 described themselves as borrowers and 41 as lenders. The remaining respondents were either custody banks or beneficial owners, and there is no obvious pattern of responses specific to any single respondent category.

The results show:

  • 54 (63.5%) respondents said they had a dedicated corporate actions team responsible for recording and managing entitlements, while a further 15 respondents said their settlement teams took responsibility, and 14 said it was their front office who managed the process.
  • 57 said entitlements were recorded on SL systems on payment date, 18 on Ex-date and 13 on Record Date +1.
  • The majority of respondents said pre Ex-date collateral is maintained by asset price manipulation (33) or ad hoc collateral movements (20). Interestingly, 13 respondents said collateral was not maintained at all.
  • 52 respondents (61%) said non-traded entitlements are reflected on lending systems.
  • 58 said that no markets differ and 50 that there are no events that don't follow their standard process.

In conclusion, it is clear that while there are currently differing practices in the market, there is sufficient consensus for a standard approach to be adopted across the industry. This will benefit existing and new market entrants by providing clear guidance on the management of entitlements and ensure collateralization is managed appropriately.

As a result of this process it is recommended that the three trade associations work together in developing and then establishing a best practice process for the recording and collateralizing of corporate action events.

Deliverables

The final report was issued in June 2014, to survey participants only. We received 85 responses from a total of 52 financial institutions based in the Americas, Australia, Asia, Europe, and Africa. It visibly describes the most prevalent methods, tools, and decision processes used to determine leading practices. To purchase the complete survey, please contact Rosemarie Casler, 215-446-4081 or rcasler@rmahq.org. The cost of the report is $495 for an RMA member and $750 for a non-member.

Institutions interested in participating in future market risk studies should contact Paul Guinan, Manager, Market Risk and Securities Lending at 215-446-4003 or at pguinan@rmahq.org or Fran Garritt, Director, Market Risk and Securities Lending at 215-446-4122 or at fgarritt@rmahq.org.

Participating Institutions

ABN Amro Securities (USA) LLC

Credit Suisse

Ned bank

AXA IM

Deutsche Bank

Nomura

Banca Imi

eSecLending

Nordea Bank AB

Banco Santander SA

Frost Bank

Northern Trust Co.

Bank of China International Limited

Goldman Sachs

NYS Teachers' Retirement System

Barclays

HSBC Bank plc

Prudential Investment Mangement

Brown Brothers Harriman

ING

RBC

BlackRock

Interactive Brokers

Scotiabank

Bank of Montreal

Jefferies LLC

SEB AG

BNP Paribas

JPMorgan

Societe Generale

BNY Mellon

Keybank

State Street Corporation

Charles Schwab &Co., Inc.

Korea Securities Finance

Sumitomo Trust & Banking Co. (USA)

CIBC Mellon

Maquarie Bank

UBS

Citadel Securities

MetLife

Unicredit Bank AG

Citi

Mitsubishi UFJ Morgan Stanley Securities

US Bank NA

Clearstream Banking

Mizuho Securities

Vanguard

Commerzbank

Morgan Stanley

Wells Fargo

Cowen Equity Finance LP

Natixis Japan Securities