Practice Notes for Equity Corporate Actions
The way in which corporate actions are processed and disseminated by Strate has been highly commended by settlement authorities in several first world countries. The corporate actions mechanisms are integral to Strate's prime objective of drastically reducing settlement risk. Familiarity with the various aspects of such mechanisms is crucial for all market players.
All company announcements relating to listed companies are published on SENS (Stock Exchange News Service). Once the message is received from SENS, or any other system that the JSE may use for this function, Strate creates the event in its system and distributes it to all the Central Securities Depository Participants (CSD Participants), which are then responsible for notifying all clients who hold the securities in question. Among the clients to whom the message from the CSD Participant is dispatched are the brokers, fund managers, global custodian’s etc. Brokers are responsible for informing their clients of corporate actions, such information being based on material received from their CSD Participants may choose to notify all their clients, irrespective of whether or not they hold the shares in question. All the pertinent information relative to the event becomes irrevocable on LDT - 5 (last day to trade minus five). A final message is dispatched by Strate as earlier indicated.
The investor's CSD Participant or broker is responsible for advising the investor of all events that:
||Affect his holdings;
||Result in him receiving cash or shares; or
||For which he needs to instruct his agent as to what action should be taken for all optional events.
Final Date/Last Date to Trade - 5
This is the date on which the event and its details become irrevocable -- that is, no further changes to any of the pertinent details can be made by the issuer. No dematerialisation/remateliasation orders are accepted by Strate between this date and Record Date. All demat/remat orders that are outstanding as at this date must be finalised before end of day (EOD) on last date to trade (LDT). The transfer secretaries/issuers prepare the payments or entitlements for those investors holding their shares in certificated form on this date after taking into account any unprocessed dematerialisation or rematerialisation orders. The certificated investors’ positions may not change from this date. In exceptional cases (withdrawal of an underwriter or any other circumstance that would make the event impossible to execute), the listings department of the JSE may sanction the cancellation of an event provided it takes place on or before RD.
Last Date to Trade (LDT)
This is the last date on which to trade in order to qualify for or participate in the event. All on-market trades done from LDT + 1 exclude entitlements. As at this date, the investor can ascertain what his projected holdings will be on RD and decide what election he needs to make. Any demat/remat orders received by LDT - 5 must be finalised by LDT. No further changes to the dematerialised holdings in the company can take place after this date. This enables the issuer or transfer secretary to pre-plan the position on which the entitlement will be based. Should any investor be prevented from transferring all or part of his certificated holdings during this period, and the transfer prevents the entitled holder from receiving the entitlement, the claim or payment must be arranged between the deliverer and the receiver. Such instances are rare, as normal off-market trades are obliged to be executed through Strate in dematerialised form.
Ex-date/Last Date to Trade +1 (LDT + 1)
All on-market trades from this date exclude the right to receive entitlements. This date will normally be the first business date after LDT (LDT + 1). For investors (private and institutional) and fund managers, from LDT + 1, all concluded trades exclude the right to participate in the event. Share entitlements may be traded from this date. As the investor will be in a position to calculate his holdings on RD (record date), he is able to plan his election instructions for RD - 2.
Last Date to Elect (LDE)
This is the date by which the CSD Participants must have received the election instructions from all their clients, including brokers, fund managers, global custodians, etc. At this stage, the CSD Participants reconcile the holdings on which the clients have elected with the projected holdings in their books for each client, aggregate these across all their clients linked to a specific SCA (safe custody account), and provide Strate with their election instruction by SCA. The brokers would have undertaken the same process across all their clients to come up with their aggregated election per the SCA they maintain with their appointed CSD Participant. If any investor has not provided his broker or CSD Participant with his election instruction by this date, the CSD Participant or broker applies the default option, communicated in the notice of event, to the defaulter’s holdings as defined in the agreement that exists between them. For investors (private, institutional and foreign, including global custodians) and fund managers, this is the final date for providing the CSD Participant or broker with election instructions for those events that provide an option or call for an election that must be made by RD - 2. To facilitate this, the details of the event, such as dates and ratios or cash per share, are finalised two full weeks before RD. These details cannot thereafter be changed. Because on-market trades are settled on a rolling T + 5 basis, and the shares trade excluding entitlements from RD - 4, the position on which the entitlement will be based is effectively fixed and known by end of day on RD - 5. For brokers, this is the final date for receiving clients’ election instructions for those events calling for a response CSD Participants and Brokers apply the default option to those clients that have failed to furnish election instructions. To facilitate election on RD - 2, the details of the event, such as dates and ratios or cash per share, are finalised two full weeks before RD.