This month, I've been reviewing the key industry topics of 2015 on the Knowledge Exchange. Our final post focuses on potential changes to settlement and dividends.
Read the first post on dematerialisation
Read the second post on changes to governance practices
Extension to the settlement day
In December 2014 Euroclear UK & Ireland (EUI) issued a consultation to assess the implications of a longer settlement day in the CREST system by way of an extension to the operating hours of CREST. This followed a bilateral consultation between the bank of England and a range of market bodies as well as the publication of a paper on the operating hours of the UK's payment and settlement infrastructure.
Whilst market participants will be the biggest beneficiaries of extended operating hours, issuers would theoretically also benefit from more time to achieve their funding targets when conducting a capital raising. The wider ramifications for the market are currently under review and there will inevitably be a degree of additional operational challenge for registrars in respect of the shortened time period between CREST closing in the evening and opening the next morning.
It is looking highly likely that this change will be implemented during the course of the year. The deadline for responses to the Euroclear UK & Ireland (EUI) consultation is 13 February 2015 and Computershare will be looking to respond following the conclusion of our impact analysis work.
Potential changes to dividend payment mechanics
Since the publication of the European Market Standards for Corporate Actions in 2008, there has been an ongoing dialogue about the way in which dividends are paid to shareholders who hold their shares through CREST. There are two main aspects of this discussion which have the potential to impact issuers and their payments to CREST holders over the coming 12-18 months.
-
In recent years we have seen an evident increase in the desire of CREST holders (particularly the large custodians) to receive payments electronically via the CREST system, rather than by cheque or BACS. We already facilitate this payment method for a number of clients and we will be reaching out to issuers to make the facility more widely available during 2015.
-
For companies who offer a currency or SCRIP option when paying dividends, a proposal to issue a separate interim election line for the purposes of those elections may be relevant. The intention of this proposal is to standardise the election process across markets and securities/issuers. CREST holders would receive an entitlement based on their record date balance and would make elections against it in circumstances where they wish to opt to receive anything other than the default option.
What will happen next?
We expect an EUI consultation on this latter development during the first half of 2015 and will keep you informed of developments more generally.