1. ACSDA SEMINAR
“Central Securities Depositories, Settlement Systems and Central
Counterparties as Relevant Entities in the Securities Markets”
Corporate Actions Processing The Globalisation Challenge CSD8 Results “International trends and requirements to improve efficiency for information, cash and securities flows as a result of corporate actions “
Prepared by: Jorge H. Jaramillo Ossa – Breakout Session leaders
DECEVAL - COLOMBIA - CEO
October 27th/2005

2. Corporate Events
“They take place whenever changes are made to the capital structure or financial position of an issuer of a security that affect any of the securities it has issued
Compulsory
Voluntary
Compulsory
With Options
The most common types
Cash dividend: 26.9%
Income Distributions:16.4%
Partial Call redemption: 14.6%
Full call : 12.5%
Meeting: 7.1%
Fuente: Corporate Action Processing - What are the risks ? Oxera Report

3. Stylised process of the corporate action chain (based on the UK model)
ISSUER
Service-level agreement
REGISTRAR
Registers as
shareholder
Appointed by issuer
CUSTODIAN’S
to maintain register
NOMINEE
Name on register
Registers as shareholders (via nominee);
notifies changes in ownership to registrar
CSD
BROKER/DEALER
Ownership
Where shares are
Account
Execution of trades
ultimately held
where necessary
Service-level agreement
Account
Service-level agreement ?
CUSTODIAN
(or operational relationship if both appointed by investor)
FUND MANAGER ?
Appointed by investor
Appointed by investor ?
INVESTOR
Service-level agreement
Mandate/service-level agreement

4. Stylised illustration of main information and instruction flows between participants in the corporate action chain
ISSUER
Originator of
CA. Event
Information
Instruction
Information
CUSTODIAN´S
NOMINEE
REGISTRAR
Instruction
Sends information on to
Registered shareholders
Misma Firma
CSDs
BROKER/
DEALER
Information
FUND MANAGER
CUSTODIAN
Processes Information
And Instructions
Makes decision on CA
Processes Information
And Instructions
Instruction
Information
INVESTOR
Instruction (If not delegated to fund manager)
Fuente: Corporate Action Processing - What are the risks ? Oxera Report

5. US Corporate Action flow for Tender/Merger
Source: DTCC/Global Corporate Action Validation Service

6. Corporate Action – ACSDA – FIAB – Model Information Flow
Notifies corporate actions and asks for instructions* [Ta] (4)
Local Issuer
Foreign
Broker
Notifies corporate actions and asks for instructions* [Ta] (3)
Notifies corporate action [Ta] (1)
Local CSD
Confirms voluntary corporate action processing [Ta, Tr] (7)*
Instructs voluntary corporate action [Ta, Tr] (5)*
Notifies corporate actions and asks for instructions [Ta] (2)
Foreign CSD
Instructs voluntary corporate actions [Ta, Tr] (6)*
Confirms voluntary corporate action processing [Ts] (8)*
Ta – notification date
Tr – record date
Ts – payment date
* In case of voluntary corporate actions.

7. Corporate Action in Cash – ACSDA – FIAB model Payment Flow for Dividends and Interests
Credits financial resources (5)**
Local Issuer
Foreign
Broker
Credits financial resources (4)**
Foreign Broker
Credits financial resources (1)*
Local CSD
Foreign
CSD
Informs cash dividend/interests payment (2b)
Bank
Instructs FOREX transaction (2a)*
Effects FOREX transaction (3)
* Local Currency
** Foreign Currency
Settlement date

8. Corporate Action in Cash ACSDA- FIAB - model Payment Flow for Subscriptions
Foreign Broker
Credits financial resources (1)**
Local Issuer
Credits financial resources (5)*
Foreign CSD
Credits financial resources (2)**
Local CSD
Informs subscription payment (3b)
Effects FOREX transaction (4)
Instructs FOREX transaction (3a)
Bank
* Local Currency
** Foreign Currency
Settlement date

9. Corporate Action in Stocks – ACSDA-FIAB model Securities Flow
Credits securities (5)
Local Issuer
Foreign
Broker
Credits securities (4)
Credits securities (1)
Local CSD
Foreign
CSD
Informs credit of securities (3)
Foreign
CSD
Credits securities (2a) I1 I2
Sub-account credit of securities (2b)
Settlement date

10. Corporate Action – Voting Rights Information Flow ACSDA –FIAB model
Notifies General Meeting (3b)
Local Issuer
Foreign Broker
Notifies General Meeting (3a)
Foreign Broker
Delivers statement of holdings (7)
Notifies General Meeting (1)
Local CSD
Asks for statement of holdings (4)
Notifies General Meeting (2)
Foreign CSD
Asks for statement of holdings (5)
Blocks securities and issues statement of holdings (6)

11. Example taken from the Oxera Report - -DTCC Potencial risk and Loss Valuation
France Telecom : Rights issue. Latest date of acceptance 4/4/2003
19x20 shares. Offer Price: EU $ per share.
Fuente: Corporate Action Processing - What are the risks ? Oxera Report

12. Corporate Action Processing Key Factors for the Diagnosis
"FORCES AGAINST US"
Intensive
manual
labor
Multiple
information
flows
Layers
Expensive
Multiple
languages
Important
losses /
Reputational
risk
Regulations
time zones/
Continents
Cross
borders
trades
Investor
protection
Multiple
information
sources
Increasing
volumes
and values on
custody
"HOW CAN WE AVOID TO COLLAPSE ? "

13. The parties seeking to obtain the cure
Issuers
Industry
Groups
Regulators
Fund
Managers
Exchanges
Custodians
Investment
CSDs
Broker/
Dealers
Agents
Investor
Rights

14. Some principal CA Shock Factors : Over a million in a year
Compulsory Cash Distributions
Cash Dividends
Interest payments
Capital repayments
Redemptions
Partial Redemptions
Compulsory Stock distributions
Bonus issues (capitalisations)
Conversions
Consolidation / reverse splits
Enfranchisement
Open offers ( Entlitlements)
Pari Passu
Rights issue
Subdivisions - split
Optional Stock Distributions
Subscriptions
Optional conversions
Optional redemptions
Other Corporate Action events
Compulsory call payments
Enhance scrip dividends
Optional call payments
Mergers
Schemes of arrangement
Scrip dividends
Takeovers
Resale ( With Suscription)
Demergers / division / fission / spin - off
Other payments
Early redemptions
Close offers
Redemption of the share minority
Source : ECSDA - Cross border Corporate Action and events processing - Report from WG5 - No. 2002

15. The CA Disease : Multiple risk sources
Lack of
Uniformity
Capacity
Planning
Information
consistency
Delay
Payments
Replacement
cost
Cross Border
and Foreign
Exchange
Sub-optimal
trading
Decisions
Multiple
Layers
Lack of
Standards
and Securities
identification
Inaccurate
misinterpreted
data
Failure
to Process
voluntary C.A.
Greater
events
Complexity
New and
Complex
Instrument
types
Communication
errors
up-down
Who is Liable ?
Means of
Communications
Paper-base
Use of
Certificates

16. The Specialists’ opinion:
“Automate and standardize asset servicing processes, including corporate action, tax relief arrangement and restrictions on foreign ownership”(1)
Principles
Timely, complete and accurate CA announcements
Manageable Information flows
Investor decisions must be protected
Protection of the beneficial owner
Automation
(1) G30 Global Clearing and Settlement : A plan of Action 2003

17. The doctors’ prescription : Not only one medicine
Automating
information
flows
Standardization
Changes in
Laws and
Regulations
Development of
Best Practices
STP
processing
New Industry
arrangements
Globally
Risk and Cost Reduction
Investor Protection
Efficiency

18. Corporate Events : CSD analysis
Automation
and
Standardization
Risks in
Processing
Process
That should be
automated
CSDs
Role
Business
Opportunities
For CSDs
Value
Propositions
From
CSD8 topics

19. Corporate action processing: Risks Factors
Announcements
Payments
Proxy Voting
Diverse media
Free format
Different languages
Large number of corporate action events
Late, lack and lost information in the flow from the issuer to the beneficial owner
Degree of Complexity
Cross border activities
High Volumes
CSD credit exposure.
Principal risk can arise from advance payments either to participants and issuers
CSD errors or omissions transferring payment from issuer to wrong beneficial owners
Not many CSDs are involved in proxy voting instruction processing
Mostly paper based process
Possibility of delay or lost in the mail
Lack of centralization
Multiple languages

20. Corporate actions processing : Risks Factors How to mitigate them …….
Payments
Proxy Voting
Announcements
Centralized and standardized channel of communication
Standardized format for information contents
Regulators should participate more actively
Issuers should be obligated to notify immediately the CSD holding the issue in standard format and automate means.
CSDs should be obligated to make this information available in timely fashion and automated manner to, at minimum, all participants that have position in the issue
In order to avoid human errors by having the data touched as few times as possible
Corporate rights and standardization of formats should facilitate STP, leading to risk and cost reduction
CSDs and other participants should NEVER pay without first receiving the money!
Paying agents should provide clear, standardized and timely payment instructions
Finality and irrevocability of payment should be legally enforceable
Electronic and internet based system
Integration with depository system

21. The Announcement process is the core one
What are the most important processes that should be automated and/or standardized in the corporate action operational flows?
The Announcement process is the core one
to be standardized and automated
Issuers should be forced to deliver Standardized Information (Security, Type of event, Record date, Pay Date, etc), and Guarantee the Information.
In order to Improve speed, accuracy, access to relevant parties (trades, etc), permit full STP (no re-keying),
Implementation Alternatives: Changes in Laws and regulations, CSDs funding issuers, Ratings

22. CSDs roles in Corporate Actions Oportunidades de Negocio
Entitlement Processing
Improve Books/Records
Automation
Commoditization
Cost and Risk Mitigation
Oportunidades de Negocio
Services that Disinter mediate Custodian Functions (downward and upward flow)
Non-eligible Announcements
Deriving Commercial Value in Data Distribution
Expanded Asset Servicing (Tax Reclaim, Interpretation)

23. CSDs roles in Corporate Actions Reduction in some Level of Liability
CSDs interposing themselves between Issuers and Market Participants and/or Investors to deliver Timely, accurate and automated data
Lower Cost
Higher Efficiencies
Reliability
Reduction in some Level of Liability

24. How can CSDs work together to create a value proposition for the market?
Leverage Existing Industry Groups
Find them and interpose ourselves to ensure our markets’ interests are protected.
Pursue At Sourcing Initiatives
Continue to Drive with Automation
The Value Proposition may be to Issuers and Investors but may not be to the Custodians.
Corporate Actions are a Core Competency
Opportunities Exist for market Efficiencies and commercial Value
CSDs can be a Central Repository for the Unique Local Market Practices and Sourcing
Find and Leverage “Standards Bodies”
Put Ourselves in a Position to Implement Standards
True STP Starts with the Issuer