The past few years the corporate governance file was thoroughly discussed. This discussion tackled the rights and the duties of the issuer and its shareholders with the aim to construe a well-balanced corporate democracy. Up to now, however, little attention was given to the infrastructural manner in which the rights and duties of shareholders have to be exercised. Today’s environment, where securities are predominantly held through multi-tier book-entry systems, poses specific challenges for the efficient and effective processing of these rights and duties.
‘Issuer services’ is a collective term for up- and downstream1 services provided by third parties to support end investors or issuers in exercising their rights attached to securities via-à-vis the issuers or the end investors respectively. Examples of issuer services are:
• shareholder identification services;
• shareholder communication services;
• registration services; and
• information services (ownership statistics).
Issuer services, and shareholder identification in particular, leave a lot to be desired. The present processing of issuer services and shareholder identification arrangements are to a large extent non-standardised and paper-based and consequently defective, inefficient and expensive. This is quite remarkable in view of the fact that the processing of other corporate actions, such as dividend payments, are broadly standardised, commoditised and automated. Reflections of the above observations can be found in the reports on improvements to the securities trading infrastructure issued by the European Commission, Lamfalussy and Giovannini.
In order to tackle the ambiguities and complexities that can arise when the chain of intermediaries has numerous (international) links, the market developed all kinds of initiatives. These initiatives, amongst others, aim at passing information to the end-investors (‘downstream’) and at simplifying granting of powers of attorney or casting votes (‘upstream’). The sheer number of initiatives in the issuer services area, involving different formats, procedures and service providers has resulted in the absence of a market standard.
In order to collect and process the required shareholder information, it is necessary to obtain a minimum degree of standardisation in the request for and delivery of data. This standardisation will ensure that the information will arrive at the right place in a complete, correct, and swift manner, and incur the least possible (administrative) costs. The standardisation will have to be based on common international standards, forming a pre-requisite for effective cross-border processing.
Ideally the role of the service provider, as described above, should be secured by a recognised central provider or institution. The central point will give the other parties in the custody chain (CSD, admitted institutions and other intermediaries) the option to provide the central point with the required information. From the central point, the consolidated information could then be passed on to the listed companies, or their representatives (issuing agents or other commercial service providers). In my next contribution will I focus on the question what characteristics an institutition should have I order to qualify as the ‘central point’.
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