FIRMA National Conference
New Orleans
April 2009
Corporate Actions &
Class Actions
Track III
1:15 p.m. – 2:15 p.m.
Satish Pattegar, CTCP,CIA
April 29, 2009
Why Corporate Actions Are Important

Integral feature of Capital Markets

Takes place whenever changes are made to the capital structure or financial position of an
issuer of a security that affects any of the securities it has issued

Not including fixed interest payments and scheduled maturities, approximately 1 million
Corporate Actions take place every year.

Single Corporate Action may involve hundreds of different market participants.

High Risk because Corporate Action processing is complicated, deadline driven, not
standardized, and to a large extent still manual.
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Market Participants in a Corporate Action

Custodians

Broker/Dealers

Fund Managers

Portfolio Managers

Depositories
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Types Of Corporate Action

Mandatory: No action required by investor or agent (cash dividend, interest payment, etc)

Mandatory with Options: Investors given option to receive in-kind or cash

Voluntary: Investor has to make a decision (subscriptions, takeovers, tenders, etc.)
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Common Corporate Action Events

Dividend Payment

Interest Payment

Redemption

Rights Issue

Take Over

Conversions

Proxy Voting
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Participants In A Corporate Action Chain
Issuer
SLA
Custodian’s Nominee
Regulations
Registrar/Agent
as Shareholder
Shareholder
Account
Depository
Account
Broker/Dealer
Ownership
SLA
Custodian
Investment
Manager
SLA
SLA
Investor
SLA
If the Corporate Action involves Cross-border Security Holdings, the number of
intermediaries and level of complexities is greater
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Risks in Corporate Action Processing

To mitigate the risks of delivering incorrect and untimely information. The securities
industry continue to invest in Corporate Actions information capture and processing
solutions.

Due to lack of global standards, error prone ,manual processes, diverse communication
protocols and increasing volumes, the risks can be significant.
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Primary Risks

Risk of Processing Failures:
-Relevant in Voluntary and Mandatory with options
-Error in the information flow from Issuer to Investor
-Error in the return flow of instructions from investor to issuer

Cost of Late Payment:
-Primary in Cross-Border Securities (cost of interest XXX,
currency, costs, zero sum)
-Cash-flow problems

Risk of Inappropriate Investment Decision
-Failure to correctly understand the Corporate Action can result in a
misevaluation of the Security Causing Transaction Cost Risk and the
-Market Movement Risk

Risk of Ineffective Governance
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Common Errors

Aged Balances

Disputes with Counter Parties and Agent Banks

Calculation Errors

Communication Errors

Manual Processing

Missed Faxed Counterparty Elections

Un-reconciled Entitlement Positions

Lack of Documented Procedure

Late Booked Positions

Exceptions to Standardized Procedure
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Class Actions
“Provides a means whereby large numbers of claimants may have their causes involving
common questions of fact or law adjudicated in a unitary proceeding”
The goal of Class Action Litigation (from the perspective of the judicial system) is to achieve
economics of time, effort, expense and uniformity of judicial decisions without sacrificing
procedural fairness.
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Risks in Class Action Program

Lack of Information

Legal Responsibilities

Proper Identification of Decision Maker

Proper Review of Eligibility

Timely Communication

Notification vs. Filing

Timely Processing of Receipts

Unclaimed Funds

Lack of Automation
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Impact of Financial Crisis

Prompted a surge in Class Action Securities Lawsuits

Primarily confined to businesses in the Financial Services sector

Lawsuits up 37% in 2008

Roughly 2/3 of the Financial Sector were subject of a Class Action Lawsuit by 12/31/2008

Higher premiums for D & O Insurance

Greater litigation risks

Primary Lawsuits Related to:
Auction Rate Securities
 Accounting
 Product and Operational defects

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Trends

Drop in Rule 10b-5 Claims

Section 11 Lawsuits Surged

More NYSE and AMEX listed companies sued than those companies listed on the
NASDAQ

Unknown how the historical relation between stock market volatility and Securities Class
Actions filings will behave in 2009

Disclosed dollar claims continue to increase

Shift from income statement line items to balance sheet components

Source – Cornerstone Research Report
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Q&A
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