Securities administration - International (LuxCSD)
Income collection
The most common income events in the International market are interest payments (straight or floating), final redemptions, call options (early redemptions), partial redemptions (with or without face value reduction), capitalizations, dividends, capital gains.
Income events with options are considered by LuxCSD as corporate action events.
Record datea | Ex-date | Basis for entitlement | Standard interest calculation rule | |
Debt instruments: | ||||
Global bearer | Payment date - 1 | Settled position on record date | ISMA rule 251 | |
Global registered | Payment date - 1 | Settled position on record date | ISMA rule 251 | |
Physical, bearer | Payment date - 1 | Settled position on record date | ISMA rule 251 | |
Physical, registered | Payment date - 15 | Settled position on record date | ISMA rule 251 | |
Equities and equity-linked instruments: | ||||
ELNs and Warrants | Payment date - 1 | Settled position on record date | Not applicable | |
Equities and Depository Receipts | Payment date - 1 | Record date - 1 | Settled position on record date | |
Investment Funds | Not defined | Not defined | Settled position on record date | Not applicable |
a. Exceptions may apply, depending on the terms and conditions of the security.
Corporate actions
Most common corporate events
Most common corporate events in the International market:
Certification TEFRA D
According to the TEFRA D rules (relating to the U.S. Securities and Exchange Act of 1933 regulations on U.S. securities sold abroad), no U.S. citizen, or anybody who has been resident in the U.S.A. for longer than 183 days, may buy a TEFRA D security in the first 40 calendar days after the date of issue.
In order to obtain payment on an interest coupon or to obtain definitive Certificates upon exchange of the temporary Global Note, investors must deliver the appropriate certification by the latest at the certification date, which is usually fixed to 40 days after the Closing Date.- Conversion
Convertible bonds effectively represent a cash value that can be exchanged (converted) into underlying shares, which are usually but not exclusively shares issued by the original bond issuer. The underlying shares can be received and (assuming market eligibility) credited to a LuxCSD account. Alternatively, delivery can be arranged to an external subcustodian for the account of the holder of the bond that is subject to the conversion. - Consent solicitation
A consent solicitation is often required if an issuer wants to change the terms of an already issued bond, for example, to increase the minimum denomination. Normally, the required quorum level is determined in the terms of the issue. However, the issuer may derogate the determined quorum level and require consent from 100% of the bondholders. When consent is achieved, the bondholders are notified and any core data changes are made in the LuxCSD system.
- Default
A default occurs when an issuer fails to make payment of interest, maturity or put option proceeds on the dates determined in the terms of the issue. There are two types of Default:- Technical Default: the issuer has not paid on due date but pays within the “grace period”, normally payment date +30 calendar days;
- De Facto Default: the issuer fails to pay even when the “grace period” has ended.
With De Facto defaults, the issuer may subsequently repay all overdue sums over a period of time and, once the payments are in order, the issue is no longer detailed as being “in default”. Sometimes, a default can lead to a debt restructure (see Exchange Offer, below) or to a complete liquidation of the issuer as a result of bankruptcy or insolvency proceedings. In the case of insolvency, the recovery of unpaid funds can take many years and, since bondholders own the debt of the company and not the capital, recovery rates are generally considered low.
- Exchange Offer
Exchange Offers are unpredictable events, that is, they are not foreseen in the terms and conditions of the issue. Consequently, they can occur at any time during the life of the issue and may result from a debt restructuring. LuxCSD will notify holders, collate instructions and pass these to the agent. Upon receipt of the new proceeds, LuxCSD will distribute these to the holders in exchange for the old bonds, which will be cancelled in proportion to the acceptance level of the participating holders. - Exchange Option
Exchange Options, unlike Exchange Offers, are foreseen in the terms and conditions of the issue. Similar in process to an Exchange Offer, an Exchange Option may allow an international debt security issued under Regulation S to be exchanged, on a 1:1 basis, for a bond issued in the U.S. domestic market under Rule 144a. Another example could be when the overall U.S. restrictions are lifted on Eurobonds, after the relevant papers have been filed with the SEC in the U.S.A., and holders of the Reg S or 144a tranches of a Eurobond issue may exchange them, on a 1:1 basis, for a new and completely unrestricted note, with the same terms as the original but without the U.S. Securities Laws’ restrictive covenants - Put Option
Put Options can be exercised on bonds that contain respective clauses that allow the holder to request the issuer to redeem their bonds, normally on a specific coupon payment date and at a fixed rate. For bonds that are subject to Net Asset Value calculations, the rate payable may only be known after the Put instructions are collated by the paying agent. Bonds may be “put” during specific periods during the life or as frequently as monthly (which is known as an Open Put Option). - Reverse Convertible Note (RCN) or Equity-Linked Note (ELN) Maturity
RCN or ELN Maturities are determined by the issuer, based on predetermined criteria within the terms and conditions of the issue.
When the fixing date (normally close of business two business days prior to maturity date) is reached, the issuer sends a notice to advise whether the note will be redeemed for cash or for an underlying (which could be a bond, an amount of equities or even commodities, such as gold bullion). - Warrant Expiration/Exercise
There are different warrant types: U.S. or European style.
Warrants may expire in or out of the money, with positive or negative results for the warrant holders.
Warrants may be exercised during their life, depending on the type, with the payment of exercise costs, to receive an underlying item of value or securities (shares, bonds, commodities).
Events on international equities and investment funds include, but are not limited to, bonuses, capital distributions, choice dividends, exchanges, issue data changes, liquidations, mergers, reorganisations, purchase offers, repurchase offers, stock dividends, stock splits, reverse splits, subscription offers, tender offers.
Organisation of AGM/EGMs
Almost all meetings are EGMs, although AGMs may exceptionally occur. Each meeting event is notified via a meeting notification. When the meeting is notified via LuxCSD, the bondholders have a number of ways in which to participate in the meeting and voting.
- Bondholders may vote by proxy, in which case the votes are sent to LuxCSD, who in turn passes the information to the issuer’s agent no later than 48 hours before the meeting.
- If and when offered, bondholders may attend meetings in person in which case, to be allowed entry to the meeting, they are generally required to send to the issuer’s agent their contact details and a proof of identity, for example, Driving Licence, Passport or Identity Card of each attendee.
Instructions from bondholders will result in the blocking of the voted position from settlement until the results of the meeting are announced.