Russia’s National Securities Depositary (NSD) has picked up the pace of reform in the corporate actions space with the launch of new technology that allows users to better manage shareholder meetings and e-proxy voting. The NSD says it now fully complies with international standards providing standardised electronic messaging facilities to issuers, registrars and depositors and with the option of straight through processing (STP) of information at all stages of document circulation.
Reform in the area of shareholder rights, services, corporate actions and compliance technology is part of an overarching strategy by the NSD to integrate seamlessly into the international markets and provide an efficient platform that can be utilised by domestic and international investment firms alike. The move also is designed to help reduce market risk and cost associated with shareholder activities, in this latest instance, corporate actions. The new technology simplifies interactions between securities market participants and guarantees them a high level of protection of their rights, says the NSD. Moreover, the use of ISO international standards makes the organisation of shareholder meetings and the e-proxy voting process more convenient, transparent and understandable for foreign and local investors.
Issuers which have registered accounts at the CSD are now required to offer shareholders the right to utilise e-proxy voting; though shareholders will still be able to vote by sending a paper ballot or by attending a general shareholder meeting in person.
The new interaction formats have been developed in accordance with ISO messaging standards, such as ISO 20022; they are also based on international standards for organizing and conducting shareholder meetings and take into account peculiarities in the Russian securities market. Implementation of ISO 20022 will allow NSD to receive structured information about convened shareholder meetings and documents related to the meetings’ agenda items and results from issuers. The information received will be sent automatically in unchanged form to NSD’s depositors. The new message format will be also used for transmission of electronic documents containing information about securities owners’ votes at shareholder meetings (e-proxy voting).
In addition, the NSD’s depositors that use SWIFT will be able to interact on the basis of ISO 15022 (NSD will be responsible for converting messages into ISO 20022/ISO 15022 formats).
The new technology has been developed with the active participation of securities market participants: issuers, registrars and depositories.
Previous formats
In 2014, legislative efforts were made to introduce an opportunity for securities owners to vote by sending electronic documents via their depositories. Up to this day, the e-proxy voting service allowed the use of internal message formats agreed with market participants. Since the new technology has been rolled out, more than 369 shareholder meetings have been initiated using e-proxy voting via NSD.
In future, market participants will switch to the new technology step by step, in accordance to their technical and regulatory readiness for this switch. After that the exchange of documents in outdated formats will be phased out.
According to Eddie Astanin, chairman of the NSD’s Executive Board, “Corporate actions represent a sphere which needed qualitative changes. All market participants, including foreign investors, agree with this. This sphere’s reform should have a complex effect by improving the market infrastructure, corporate governance quality and the investment attractiveness of Russian assets in general strategically. There are examples of this effect among emerging countries. For instance, in 2011, when e-proxy voting technology was introduced in Turkey, foreign investors’ attendance at shareholder meetings increased more than five-fold.”
The initiative is the latest in a series of sometime complex changes to the legal basis for and technology supporting corporate actions processing. 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.
Access to deep pools of data and transparency of that data is integral to the evolution of an effective corporate actions segment. No surprise then that underpinning the NSD’s latest crop of initiatives is a joint project by NSD and the Interfax information agency, aimed at the collection, verification and distribution of corporate information. The key goal of cooperation of NSD and Interfax in the sphere of corporate information is to create a reference database containing all available data about Russian issuers and their financial instruments and develop a system that assesses the fair value of financial instruments.
The system will integrate official data of the record keeping system of Russia’s central securities depository, information disclosed by issuers via Interfax as an agency authorised to disclose information to the stock market, and up-to-date information about issuers and securities collected by Interfax.
To ensure it meets international standards, a multi-level process of data verification will be used, information will be updated promptly, “the entire database and its components will be integrated directly into the clients’ information systems in a convenient way,” says the NSD in a statement. It is planned to launch the first information product created as part of the project within the month.
Astanin explains that: “The project developed jointly with Interfax in the sphere of corporate information will allow replacing inconsistent and even contradictory data with a unified, reliable and standardized information source. With respect to the price center development, we see that creation of a national benchmark in the sphere of fair value of securities is a very important and widely demanded task for the market. Both projects contribute to a systemic minimization of risks associated with use of incorrect, untimely or incomplete information about Russian issuers and their securities.”
Astanin further explains that, “The series of reforms undertaken by the NSD represents one of the most important transformations in the Russian financial market, along with the creation of the central securities depository itself and the opening of foreign nominee accounts. The reforms have also played an important role in encouraging global players, such as Euroclear and Clearstream, to enter the Russian market. Additionally, the reforms also simplify the means by which foreign investors gain direct and convenient access to the Russian market. The opportunity to execute rights on Russian securities in a safe, centralised way and in an electronic format will benefit both the domestic and international market.”
Additionally, the NSD has also been upgrading its settlement services. At the end of March the CSD announced that it had launched a delivery versus payment service that utilises Bank of Russia’s BESP (real time gross settlement) system. In other words, mirroring in part, Europe’s T2S project, the technology involves settlement in central bank money.
Explains the NSD, the initiative “allows reducing counterparties’ costs associated with settlements due to mitigating an impact of commercial settlement organisations’ (banks’) risks on settlements Russia’s central securities depository, [and] provides credit organisations with an opportunity to conduct settlements on transactions with securities on the basis of DVP model 1 using correspondent accounts opened with the Bank of Russia.
The new service expands a range of settlements available for NSD’s clients and combines the advantages of reliable DVP settlements with flexible cash management”. The new service allows settlements between NSD clients’ accounts opened with the Bank of Russia or between two accounts, one of which is opened with the Bank of Russia and another one – with NSD. “Implementation of the technology of settlement in central bank money is an important step toward development of the market infrastructure, bringing it into compliance with standards including the international ones. Thomas Murray, the international agency assigning ratings to central securities depositories, takes into account an opportunity of settlement in central bank money provided by a CSD to its clients,” explains Maria Ivanova, vice president, business development and client relations, at the NSD.