The entitlement to receive income payment for the majority of the foreign securities registered in CDCP is driven by the Trade Date and thus entitled is the investor that bought the security before the Ex-Date, i.e. on the Last Trade Date at the latest (Ex-Date -1, the last possible date for trading the stock with the possibility to receive entitlement).
Until the end of 2016, the entitlement was driven by the date of the transfer, i.e. in case of OTC transactions, the date on which the transactions were matched in CDCP. In that case, the ExDate, or any date later on which the transfer was matched, was considered to be the Trade Date and the transferred securities were not among those selected for compensation, and consequently the income was paid to the seller.
Based on requests from CDCP’s participants, the approach towards the OTC trades was changed.
Selection of transfers for compensation (market claims)
From the OTC instructions entered under the criteria specified below, chosen are those, which due to their entered trade and/or settlement date influence the dividend entitlement. The monitored period is 20 TARGET days (i.e. days when the T2S system is open) from the end of business on the Ex-Date. Market claims are generated using the below described selection criteria.
In case of external OTC transfers (transfers between CDCP and Clearstream, known as well as the Superior Depositary) the following criteria shall be met:
- the Trade Date is before or on Ex-Date - 1
- the PSET field quotes the BIC of the local depositary
In case of Internal OTC transfers (transfers within CDCP) the following criteria shall be met:
- the Trade Date is before or on Ex-Date - 1
- the Trade Date is the same for both sides of the transaction- in case these days are missing, the transaction will not be selected for the dividend entitlement
Selection of transfers for reverse compensation (reverse market claims)
Reverse market claims are generated on the basis of the below described selection criteria.
In case of external OTC transfers, the following criteria shall be met:
- the Trade Date is on or after Ex-Date - 1
- the actual Settlement Date is before or on the Record Date
- the PSET field quotes the BIC of the local depositary
In case of Internal OTC transfers, these are not included in the selection due to the fact that internally, within CDCP, the positions are not calculated on the Record Date, but on the Last Trade Date, when the securities were in the possession of the seller.
Debit Risk
In relation to free of payment transfers that could result in market claims / reverse market claims, the Superior Depository credits/debits the amounts to/from the account of CDCP. In case the amount was already paid out, CDCP as well as CBL have no possibility to debit the account of the participant and will only ask the participant to return the dividend urgently. Despite this practice, a number of cases have already occurred where the dividend was returned in a timeframe of up to several weeks. To avoid this, the instructions for the free of payment will be handled as follows:
- The removal of debit risk in case of a market claim is handled by the following instruction flow:
- deliver free instruction (securities withdrawal) is inserted by the participant into the settlement system in the tracked period (i.e. 20 TARGET days)
- the Trade Date is before the Ex-Date
- SWIFT MT542 is sent to the Superior Depositary with status PREA
- CDCP will ask the respective participant to immediately credit the amount of the dividend to the account of CDCP
- as soon as CDCP receives the claimed amount, the transfer is automatically included in the next settlement cycle
- the transfer is settled
- SWIFT MT530 is sent to the Superior Depositary with status NEWM
- after the settlement of the transfer, the Superior Depositary will debit the amount of the claim sent by the participant from CDCP’s account
or alternatively by the following instruction flow:
- OTC instruction is inserted by the participant into the settlement system in the tracked period (i.e. 20 TARGET days)
- the Trade Date precedes the Ex-Date
- the instruction is detected immediately after being inserted by the participant
- CDCP asks the participant on the debit side to immediately credit the amount of the dividend stemming from the claim to the account of CDCP
- immediately after receiving the amount and the subsequent settlement of the transfer, CDCP will transfer the amount to the participant on the credit side
- The removal of debit risk in case of a reverse market claim is handled by the following instruction flow:
- receive free instruction (securities deposit) is inserted by the participant into the settlement system between the Ex-Date and the Record Date (both inclusive)
- the Trade Date and the Settlement Date is in the period between the Ex-Date and the Record Date (both inclusive)
- SWIFT MT540 is sent to the Superior Depositary with status PREA
- CDCP will ask the participant to immediately credit the amount of the dividend stemming from the claim to the account of CDCP
- as soon as CDCP receives the claimed amount, the transfer will be included in the next settlement cycle
- SWIFT MT530 is sent to the Superior Depositary with status NEWM
- after the settlement of the transfer, the Superior Depositary will debit the amount of the claim sent by the participant from CDCP’s account
The removal of debit risk in case of a reverse market claim with respect to OTC instructions inserted into the settlement system and settled in the period between the Ex-Date and the Record Date (both inclusive) is not relevant as CDCP does not process the underlying transfers.
Impact on investors: With respect to foreign securities registered in the Czech CSD, new dividend entitlement rules for OTC transactions have been implemented with immediate effect and will be applied starting from the first such payment received from now on.