HDD & HDR: "Last season"


Since their definition in 2009 and their revision in 2012, the implementation of the European Market Standards for Corporate Actions Processing has been a long road full of obstacles for the entire securities industry in Europe.

The aim is to remove “Giovannini Barrier 3”, which was renamed “Barrier 1: Fragmented corporate actions and general meeting processes” by the EPTF (European Post Trade Forum).

To complete this long journey, France took action very early on as part of a coordinated market organisation able to bring aboard all the players in their various roles (issuer agent, issuer, custodian account keeper, clearing house, regulated market, central depositary, and even market authorities).

The necessary market developments and the associated projects have taken the form of successive acronyms and numbering, giving the appearance of a hit series announcing a new season every year. First there was HDD: “Harmonisation of Dates of Distribution”. This first episode was a forerunner in 2009 with the implementation of date sequencing consistent with the standards for distributions (dividends, coupons). Above all, it opened up the field to a much longer next instalment called HDR: “Harmonisation of Dates of Reorganisation”. It was divided into various episodes of delivery with names such as Custody Service Enhancement - CSE 4, 5, 6, and 7, numbered like a hit series. The last episode in January 2019 started up the functional arrangements for smoother, automated processing of optional dividends, offering investors the option of receiving additional stock when they are entitled to fractional shares.

The 2019 corporate actions season was also the first to have almost all corporate actions, including the most complex, processed at the height of the season. Three points emerged from this:

  • The first is that no significant incidents have been noted due to the use of these new functionalities.
  • The second is that this expected shift to processing according to “European standards” has been greatly appreciated by custodians, particularly non-resident custodians.
  • The third is that the slightest corporate action having undergone this standard processing is very quickly denounced by the same custodians.

This is a side effect of success: the standard processing is so smooth that the slightest operation that comes out of it is immediately detected. It must be acknowledged that some issuers have opted to continue to use the old way of processing either out of habit or out of fear of dealing with the initial problems of using the new functionalities. The effect has actually been the opposite, as they have immediately stood out as bad eggs failing to comply with the European standards whereas they had previously blended into the masses.

This final episode of the long series of efforts produced by the French market is devoting its attention to complying with the European Market Standards for Corporate Actions Processing. However, it has signalled another instalment. The scope covered by this automated processing will not be complete until early 2020 with its extension to "ONGO events", i.e. specific “on going” events offering to holders different windows of time to exercise specific rights over several years.

At the very time when the final outcome of this long epic of the implementation of the European Market Standards for Corporate Actions Processing is approaching in France, the acts implementing the Shareholder Rights Directive, greatly inspired by these standards, will require an additional episode of adaptation to stronger constraints in terms of information transmission deadlines. This final episode will transform the automation of corporate actions processing and therefore the strict application of European standards in this area into a pressing need. It is expected for September 2020… at the latest.