Bear in mind that there may be no requirement for a counterparty
to notify the other counterparty about an action or what options there
are for settlement.
Summary
Corporate actions can cause all sorts of problems for operations teams
and can result in financial and, not to mention, reputation loss.
Procedures must be devised and maintained, with operations teams
aware of both the impact and how to deal with an event should it
occur. A ‘checklist’ for corporate actions can prove invaluable.
An example of the ‘checklist’ we can draw up for corporate actions
is as follows:
Event Capture Source of data on the corporate action
Characteristics of Event What are the terms of the event
Exchange policy
Situation in respect of OTC derivative positions
Awareness of Key Timings Deadlines for decisions and changes
and Changes Reconciliation of positions affected
Alterations to contract terms
Start of changed specifications
Updating of systems and static data
Reconciliation of positions after data changes
Information Distribution Notification to traders, fund managers and
clients
Notification of revised positions (where applicable)
Reconciliation that any compliance requirements
related to exchange and clearing house rules,
clients etc have been met
Corporate Action Reconciliation that the event has been dealt
Procedure Manual with in accordance with the procedures set out
For funds, ensuring that the event and the
managers decision (where applicable) has been
recorded and that the corporate action has been
accounted for and reported correctly
Log Maintenance of a log of actions and any errors etc
that might have occurred
Source: thedsc.portfolio.
The above list is only an example, and each organisation would have
its own list relevant to its structure, processing and procedures, but it
154 Clearing and settlement of derivatives
is certainly an important aid to the successful managing of what could
be a difficult process.
It is also important to bear in mind that other kinds of events can
that affect derivatives and therefore that adequate procedures must
be in place for them as well. This will include things like the trading
calendars, expiry dates, holidays, list of deliverable bonds, price/
conversion factors, trigger events for OTC derivatives, etc.
In short, the more data and control we have on and over corporate
actions and other events, the more efficient and risk-managed the
clearing and settlement process will be.
Impact of corporate actions 155
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