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BEMIG : Consultation on Market Standards for General Meetings

Executive summary

Overall comments:

The BE MIG proposal for process 1 (notification of a GM only) is subject to legal and compliance approval. This has not been done by BE MIG, although it is a pre-condition for implementation.

According to BE MIG, the market standards go far beyond the Shareholder Rights Directive, but BE MIG does not consider this to be a problem in itself. However, the combination between this and some existing legal obstacles and the high cost of implementation of the standards raises doubts within BE MIG about the feasibility of the implementation of the standards and their being taken into account.

The standards should be considered only from the point of view of ‘managing with less paper’ and they must not lead to a bulk of paper.

Information must be put at the disposal of the shareholder, who will decide by himself whether or not to participate, without the obligation to motivate his decision. The issuer’s website could be a key element in the spreading of the information that is needed.

Translation of information could induce responsibilities and risk. The FI can assume these risks only within the framework of an agreement with the issuer or the end shareholder.

Under Belgian law, physical securities will subsist until end 2013. BE MIG considers that physical securities are not under the scope of these standards.

Under the given circumstances, the banking industry positively supports the standards discussion, and wants to take an active participation in it,but has also other top priorities to consider.

BEMIG proposals on Market Standards for General Meetings (for All Clients)

Standards

Process 1

Process 2

Process 3

Basic service (Non Paper) / Contractual Service
  • For all clients shareholders
/
  • Contractual agreement

  • Notification only
/
  • Process 1, 2 and 3

  • Record date and entitlement

  • Electronic only
/
  • Notification of attendance

  • Refer to
/
  • Opt in for clients

  • No translation
/
  • Service as defined in the standards

  • Entitlement by last FI
  • Voting possible with cost for client
/
  • At cost of end shareholder (notification, voting,..)

No discrimination amongst shareholders

Application depends on elimination of legal barriers and on application of standards throughout the chain of custody.

1.About BEMIG

BEMIG consists of fivedifferent bodies :

  • The issuers, represented by the Association belge des Sociétés cotées ASBL;
  • The CSD, Euroclear;
  • The Stock Exchange, NYSE Euronext;
  • The CCP, LCH Clearnet;
  • The financial intermediaries, represented by Febelfin.

In reply to this consultation, BEMIG couldgive an answer consisting of several parts, where consensus should be the main target. If a consensus cannot be reached, BEMIG will listeach of the different opinions. Participation to BEMIG does not prevent bodies from reporting through their own EU channel (respectively, European Issuers and Business Europe, FESE, EACH, ECSDA and EBF-FBE).

  1. About the consultation paper

The consultation paper consists of two parts :

  • Explanatory note,
  • Standards.

The explanatory note (EN)deals with a number of general issues such as the scope and opt-out. The standards are more a kind of “plumbing”, in that they give a description of information flows.

The high level objective of the Standards is to enable a streamlined flow of information from the issuer to the shareholder and back. BEMIG believes that at a high level EN should set out the basic and current context and the objectives to be achieved. For the moment, the EN gives an analysis which is partly inaccurate and which can be disputed. From our reading of the EN, BEMIG deducts that the chain of intermediaries plays only a negative role in the dissemination of the information, which can be discussed.Opt out andcosts aspects seem to be out of the scope of the consultation and considered as granted.

2.1.Comments on the explanatory note

a)Objective

In the current environment, which is more domestic, the issuer does not know its shareholders except for shares registered in the register under the name of the end-shareholder. Communication between issuer and shareholder is based by the intermediary on an opt-in solution where the shareholder decide or not to receive the information. For cross-border issues, a chain of intermediaries is justified for legal barriers, but also for cost and efficiency reasons. To-day, in a cross-border environment, issuers intend to know better their shareholders and to better communicate with them. They are of opinion that the chain of intermediaries could prevent such a direct communication[1].Even if the barriers could be removed, investors will continue to use intermediaries as they offer a cost effective solution to the problem of maintaining relationships with large number of domestic and international issuers. The financial intermediaries take note of the new approach of the issuers and are ready to discuss this new framework with them. A part of this work has already been achieved within the Transparency Directive. They notice also that the cost aspect was removed from the Shareholder Rights Directive (SRD)[2] as no consensus could be reached on that subject. They consider that this issue should be openly discussed with the issuers. From the discussion, a draft picture with a clear description of each entity responsibilities could be drawn.

b)Ultimate goal

BEMIG agrees on the ultimate goal.

c)Scope of application

  • BEMIG confirms the scope as the one mentioned in the SRD (share, established in EU, listed on a regulated market) but is ready to broaden this scope according to the point g) of the explanatory note to shares held with a (I)CSD operating in Europe and in the respect of Standard 1.3.
  • As stated in the SRD (Art.7), BEMIG confirms that shares registered in the issuer register under the name of the endshareholder are out of the scope of the standards.

d)Opt-out of the communication with the (End) Shareholder

  • BEMIG considers the opt-out as one of the key issues of this proposed consultation, but is not part of the Standards, but decided in the EN. Opt out should be addressed and consulted in the Standards. It is one of the most relevant factor of costs for the intermediaries.
  • General principles on cost/pricing.
  • Even a “basic service” as described in de Standards, has a cost which could not be charged to the (End) Shareholder. As the standards provide for communication by default, who bears the cost of the“basic service” should be determined together with the Issuers.
  • An alternative solution could be an opt-in system, where the shareholder expressly chooses for receiving the information on GM via its custodian. The cost of this opt-in would be paid by the shareholder.
  1. BEMIG proposals
  • Process 1 Notification of a GM only
  • Issuer CSD  FI :
  • Communication : as proposed in the Standards on GM, with minor adaptations(see point 4: Specific remarks)
  • Content : as proposed in the standards on GM,with minor adaptations (see text)
  • No translation
  • FI End shareholder: “Basic service“description for the (end) shareholder
  • Costs: to be determined together with the issuers.
  • Communication: @ only or best appropriate way choosen by the intermediary.
  • For all clients shareholders
  • Basic content: : refers to standard 1.11)
  • No translation
  • Two major Belgian retail banks confirm that more than two third of the clients which are also end shareholders can be reached by electronic means or equivalent. This ratio is increasing by an average 10% per year and can even reach 100% for banks specialized in e-trading. BEMIG considers that, on a basis of an electronic communication, informing the shareholder of the existence of a GM and referring him to the web site of the issuer, a basic service could be proposed to the issuer.
  • The information on the issuer website should enable the shareholders to remit its vote to the FI who will transmit this throughout the chain in a standard ISO message. This will be conditioned by the efficiency of the chain and by potential legal restrictions on the issuer side.
  • Belgian Issuers could agree on this basic service instead of the opt-out solution.
  • The “basic service” description should be part of the standards.
  • Process 2 and 3
  • These processes should be part of the commercial agreement between shareholder and FI.
  • At cost.
  • Paid by the issuer or the shareholder.
  1. Specific remarks
  • Process 1
  • Standard 1.7.

a)The Participant receiving the Meeting Notice from the (I)CSD, should communicate it to its clients that have a holding or pending acquisition in the concerned security. The Participant should also communicate it to not yet informed clients who would later acquire an entitled holding.

BEMIG notices that for notification it is not required to cover pending acquisition.

b)The Participant should communicate the Meeting Notice without undue delay from receiving it or from recording the new acquisition, and at the latest

i) within 1 business day to Intermediaries

BEMIG considers this as step by step .

ii) within 2 business days to (End) Shareholders.[3]

BEMIG notices that this timing can only be respected if the notification is in respect of standard 1.2, 1.3, 1.4, and 1.6

  • With the proposal of a basic service, BEMIG can lift its remarks on Standard 1.11 as this will be part of the contractual service.
  • Process 2
  • Standard 2.1.

“There should be no blocking of shares prior to a given General Meeting in order to ensure that a Shareholder may participate in and vote at that General Meeting.”

BEMIG does not agree with the reason of the blockage, because this blockage will prevent continuous liquidity and trading.

  • Standard 2.2.

BEMIG has real concerns on the implied complexity of “settled positions as reflected in the books of the ICSDs” for the retail. This complexity must be further discussed for example:

a)Is the Record Date definition for a GM consistent with the one of Corporate Actions, which is not the SRD definition?

The SRD (Article 7.2) stipulates that the ‘shares shall be determined with respect to the shares held by that shareholder on a specified date prior to the general meeting (the record date)’. The Standard 2.2 does not conflict with the SRD definition, although we agree that the practicalities across the chain of intermediaries should be discussed.

b)Should the Shareholder considerthe Record Date or the cum/ex date, given the settlement cycle.

‘It remains to be investigated how the right to participate in the meeting can be determined based on the Record Date in the books of the Intermediaries’.

c)Should Market claims be introduced for late settlement? But some participants are against market claim process for voting eligibility since there is no entitlement distribution.

d)Reconciliation of the position which is not a costless operation.

e)Longer delay for the all process requesting an extension of the deadlines established in standard 2.3., 3.1. , 3.2.. Market deadline should be at least 5 business days after record date.

All this will lead to major adaptations for retail bankers at high costs.

In Belgium there is a blockage of shares, due to physical shares, but this has to be adapted with the implementation of the SRD.This issue should be considered in depth with all related parties before coming to a final agreement.Retail and wholesale could have to be considered on a different approach.

  • Standard 2.6
    Same remarks as for standard 2.2.
  • Standard 2.7
    The last intermediarycannot contact the issuer. In the BE MIG opinion, the process can only function cost-efficiently (both for intermediaries and issuers) if we strictly respectthe chain of intermediaries not only for sending information to the end shareholderbut alsoas for sending shareholders participation to the issuer.
    The end shareholder may always choose for not being identified within the chain of intermediaries.
  • Proof of entitlement and standard 2.8.
    The BE MIG agrees with the EBF position.We propose to find a workable solutionwith the issuers instead of imposing a standard and costly proof of entitlement that will burden the effectiveness of the process instead of increasing the participation.
  • Process 3
  • Standard 3.2
    The market deadline that intermediaries will adopt depends on the way that the attendance notification process takes place. It can thus not be imposed in such a straightforward way.
  • Standard 3.3
    The BE MIG does not see how a direct flow would be possible. Itis not realistic to demand from all final intermediaries to set up, on a random basis, communication links with potentially all issuers of the EU.
  • Standard 3.9
    The content of the notification will depend on finding, with the issuers,a workable solution for proof of entitlement and notification of attendance with the issuers. The current proposals in the standards seem not workable to the BE MIG (cfr remark on standard 2.8 ).

BEMIG proposals on Market Standards for General Meetings (for All Clients)

Standards

Process 1

Process 2

Process 3

Basic service (Non Paper) / Contractual Service
  • For all clients shareholders
/
  • Contractual agreement

  • Notification only
/
  • Process 1, 2 and 3

  • Record date and entitlement

  • Electronic only
/
  • Notification of attendance

  • Refer to
/
  • Opt in for clients

  • No translation
/
  • Service as defined in the standards

  • Entitlement by last FI
  • Voting possible with cost for client
/
  • At cost of end shareholder (notification, voting,..)

No discrimination amongst shareholders

Application depends on elimination of legal barriers and on application of standards throughout the chain of custody.

[1]From the EN “As a consequence, the identity of the (End) Shareholder is not known to the Issuer (except for shares registered under the (End) Shareholder’s name) …which prevents direct communication)

[2]

[3]These timelines are maximum timelines, actual timelines should be shorter so as to ensure that the information reaches the (End) Shareholder in a timely manner. The higher the degree of STP, the shorter the communication timelines.