NSD is leading a programme to reform corporate actions in Russia—what is your aim?
The National Securities Depository (NSD) of Russia initiated a programme of corporate actions reform in the Russian market with the support of the regulator, issuers, registrars and clients. The reform is aimed at implementing new technologies and international standards on the basis of the electronic document interchange. Market participants will be able to mitigate risks and reduce costs associated with corporate actions by eliminating the use of traditional paper documents, using electronic technologies and involving recordkeeping institutions. The reform provides for complex changes related to the legal base and technologies of the corporate actions processing.
Why now?
After we established NSD in the Russian market and harmonised interaction between the central securities depository (CSD) and registrars, the question of optimisation of procedures between issuers and investors came up. Existing procedures in the Russian market in the field of corporate actions have given rise to a range of inefficiencies and costs when measured against international standards.
Implementation of international standards for corporate action execution will help to reduce market participants’ risks and expenses, as well as provide foreign investors, which were granted direct access to the Russian stock market this year, with comfortable operational conditions.
How will these reforms affect the financial market in Russia?
The key goals of the corporate actions reform are to allow shareholders to enjoy equal rights regardless of their geographical location and to maximise the effects of liberalising the Russian stock market. This could be ensured by introducing an e-voting process in the Russian securities market, as well as by processing corporate actions in a centralised manner, through a settlement infrastructure organisation, and by abolishing paperwork.
More broadly, corporate actions reform will help to increase the quality of corporate governance in the Russian market, as the reform is aimed at creating conditions for full-scale execution of shareholders’ rights. Also, we believe that implementation of e-proxy voting and automation of corporate actions will raise the investment attractiveness of Russian assets.
What will this programme involve and over how much time? What is the value in automating it, and when will this be complete?
After the amended legislation came into force on 2 August, issuers of public companies have to provide e-proxy voting opportunities at shareholder meetings. Shareholders will still be able to vote traditionally, in person. Only clients of depositories can use the e-proxy voting service.
A full-scale project launch is planned for the beginning of 2016. During 2014 and 2015, project activities have been concentrated on the development of necessary technologies and preparation for the introduction of an automated corporate actions processing system, based on the best international practices and securities market participants’ requirements.
A priority, in accordance with international standards, is to avoid all paper communication and provide market participants with an opportunity to receive information on corporate actions as well as to execute corporate actions in internationally adopted formats.
To facilitate timely communication of accurate corporate actions data, NSD will serve as a ‘golden source’ of information for each corporate event, thereby minimising the need for sub-custodians or other intermediaries to collate information on corporate actions from multiple sources and to reconcile any discrepancies in information that may be found across these sources.
We expect that in 2015 and 2016, when new legislative changes come into effect, they will enable market players to participate via their depositories in all voluntary events in the Russian market. Depositories will also be entitled to participate in all voluntary events without power of attorney, and all corporate action information including meeting notification will be disseminated through NSD and custody chain. The completion of the automation of an e-proxy voting procedure is planned for May 2015.
What does NSD want to move to ISO 20022 and 15022? Will you complete this by the end of the year?
The key format that NSD strives to use in its interactions with market participants is ISO 20022. This format corresponds at most to the needs of the settlement system. ISO 15022 use is mostly based on its popularity among international market participants.
From 5 November, NSD began informing clients about upcoming meetings of shareholders using ISO 15022 messages. By the end of the year, NSD will also send messages about shareholder meetings in accordance with ISO 20022. NSD was already sending information about corporate actions associated with both Russian and foreign issuers’ bonds.
From May 2015, NSD plans to implement the e-proxy technology on the basis of both of the ISO 20022 and 15022 formats.
What do NSD clients need to know about how their corporate actions will be processed while technologies are being updated and improved?
As of now, NSD provides market participants with an opportunity to use e-proxy voting services for all items on the general meeting’s agenda. Currently, the NSD’s customers may vote using the interim e-proxy voting solution in formats developed by NSD and agreed by market participants. From April 2015, current interim solutions will be replaced with the new one, which will provide NSD clients with the full range of services and will comply with international standards.
During 2015 and 2016, NSD will implement technologies that will allow market participants to take part in corporate actions using electronic document interchange, with messages in standardised ISO formats. Issuers will be able to initiate corporate actions by sending respective messages to the CSD.
There is also a plan to launch an electronic voting platform, which will allow investors to participate in shareholder meetings and execute their voting rights remotely by using electronic communication. We believe it is an important component of the market-wide corporate actions reform and is a safe, equal and efficient way for beneficial owners to directly participate in corporate governance.
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