The corporate action process on the Slovene market will change radically. By Vanda Močnik Kohek, Senior Relationship Manager, GSS Slovenia
Under T2S and the implementation of CAJWG/CASG standards, the corporate action process on the Slovene securities market will undergo deep-rooted changes.
Slovenia will join T2S in the 4th wave on 6 February 2017. T2S for its part will have no impact on the current securities account structure. Currently, our clients can open segregated securities accounts or omnibus (fiduciary) ones.
With settlements, there won’t be many changes either because the Slovene CSD-KDD will not implement most of the functionalities offered by T2S. Volumes on the market are too low to justify additional investments.
New settlement procedure
Settlement on the Ljubljana Stock Exchange, however, will come along with new features. Both securities and cash will settle gross. Moreover, the true DVP/RVP settlement will ultimately be introduced, while currently valid settlement deadlines will stay almost the same.
Only the deadline for settlement of trades executed on the Ljubljana Stock Exchange will be shortened by one hour – from 11:00 a.m. to 10:00 a.m. The market tolerance limit and recycling period have already been in line with T2S standards for a few years.
Corporate actions redefined
The current process of corporate actions execution will be subject to radical modifications along with the implementation of CAJWG/CASG standards. The main innovations are:
- A cascade or Christmas tree system will be introduced together with T2S. The role of KDD, which is now involved only in corporate actions with securities movements, will significantly increase. It will become a central point of the corporate action process since all information flows and entitlements will be executed in a chain from issuer via the KDD, KDD members, any further intermediaries to final beneficiaries.
- Implementation of standard important days for corporate actions, especially an ex-date and a pay date, one day after a record day, present a significant change to the current process, where only settled positions on the record date are entitled to corporate actions. Dividends are now paid 30 to 60 days after a general meeting.
- Due to the introduction of the ex-date, corporate actions on flow, transformations, market claims and buyer protection, will be new to the Slovene market. The KDD will detect pending instructions eligible for instructing transformations and market claims at the end of the record date and during the rest of the detection period (i.e. 20 days after the record date). KDD members will be informed of these instructions via KDD GUI or WebServices.
An absolutely new process
The introduction of all novelties will be a great challenge for the KDD and its issuers and settlement members. There is no doubt that the KDD and its most active members and the biggest issuers will be well prepared. New rules and detailed regulations have already been prepared. The Working Group for Corporate Actions at the T2S National Users Group has begun to solve the most critical issues as a starting point for the preparation of market guidelines regarding the execution of corporate actions, focusing on the corporate actions on flow.
There are some concerns related to the currently valid tax procedure. How will clients or intermediaries, be able to provide data for tax relief at source before the pay date if it happens to be one day after the record date? There are also some worries as to how smaller issuers will follow the new regulations although the KDD has held several workshops to keep issuers in the loop.
We hope that the market will follow corporate action standards, different from the too common practice observed on the Slovene market with shortcuts for local participants, providing a quick solution but harmful for the market in the long run and not in line with international standards.
Vanda Močnik Kohek
Senior Relationship Manager