KELER Announces Changes in Line with the New Civil Code

UniCredit Bank Hungary Zrt.
Summary: 
KELER announced new processes in line with the new Civil Code with respect to (i) management of new securities types, (ii) restrictions on the transfer of equity series, (iii) conversion of dematerialized shares into physical shares and (iv) management of dematerialized securities that cannot be identified by account managers.
Tue, 06/05/2014

Dear Client,

On 15 March 2014, Act V of the Civil Code came into effect. In order to comply with the new specifications, some of the procedures and processes of KELER were amended.

The new processes (as listed below) will come into effect after KELER’S revised General Business Rules have been approved by the National Bank of Hungary. This is expected to take place at the beginning of May 2014.

The following changes  will remain valid until KELER’s new account management system is implemented. After the launch of the new system, KELER will provide further information.

1. Management of new securities types

The new Civil Code has introduced new securities types. KELER applies prudent rules in respect to the securities it accepts as collateral, cover, or those intended to be listed in regulated markets, etc.

At the same time, KELER would like to support an increase in securities turnover by opening the possibility for market innovation, i.e. introduction of new investment instruments, which are considered as securities, on the capital markets. Thus, in the future, KELER will differentiate securities on the basis of how controlled the circumstances of the issuance of the given securities are:

  •  Securities type A: dematerialized securities described in the Capital Market Act (e.g. equities, bonds, etc.).
  •  Securities type B: dematerialized securities which are the underlying product, or combination of underlying products, of any security defined as type A whose issuer is a regulated market participant.
  •  Securities type C: all other dematerialized securities issued in line with the applicable provisions of the Civil Code that do not belong to the securities of type A and B.

2. Restriction on the transfer of equity series

KELER provides information on the transfer restriction of equity series, as determined by the issuer, only if the dematerialized securities were originated by KELER. The exact details of the restriction can be found in the articles of association of the given issuer, or via the KID system.

3. Conversion of dematerialized shares into physical shares

Should issuers wish to convert dematerialized equity series into physical equity series, they are required to apply for a new ISIN code for the physical equity series. Following this, issuers will need to commission a printing house authorized for printing securities to produce the physical shares. KELER will cancel the dematerialized equity series from the central securities accounts on the value date defined by the issuer, who, in turn, is required to declare to KELER, no later than the value date of the conversion, that all appropriate measures have been taken to produce the new physical shares in a value that is identical with the total value of the dematerialized shares.

If the issuer entrusts KELER to safekeep the entire amount of the physical shares, then these are considered to be received by KELER when (i) the dematerialized shares are cancelled from the central securities accounts and (ii) the physical shares are delivered to KELER and are credited on the securities accounts. In case of conversion, the legal successor shares will be credited on that securities account, from which the legal predecessor’s shares were cancelled.

The technical rules of cancellation of dematerialized shares can be found in the Clearing House announcement on management of dematerialized securities.

4. Management of dematerialized securities that cannot be identified by account managers (custodians)

If, in the course of the origination or over-issuance of the dematerialized securities, the issuer initiated a credit of securities to a securities account of a custodian who cannot identify the entitled investor, then the securities account holder (custodian) can transfer the securities back to the dedicated securities account of the issuer held for this purpose within KELER. In order to transfer back these securities, the issuer needs to have an active securities account or agreement with KELER dedicated for this purpose.

Impact on investors: The above changes mainly impact clients of KELER, i.e. custodians and issuers. In order to be compliant with the new Civil Code, KELER has amended its General Business Rules. These will come into effect after approval of the National Bank of Hungary and will remain valid until the implementation of KELER’s new account management system.

Related Newsflashes: Introduction of New Civil Code