About ECSDA. DG MARKT G4 European Commission. Date 12/07/2005

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1 DG MARKT G4 European Commission TO BE DELIVERED BY Date 12/07/2005 RESPONSE OF THE EUROPEAN CENTRAL SECURITIES DEPOSITORIES ASSOCIATION (ECSDA) TO THE COMMISSION S INTERNAL MARKET DIRECTORATE GENERAL CONSULTATION ON FOSTERING APPROPRIATE REGIME FOR SHAREHOLDERS RIGHTS (SECOND ADDITION MARKT/ ) About ECSDA The (ECSDA) was formed in 1997 to provide a forum for national and international CSDs to exchange views and carry out projects of mutual interest in the field of securities clearing and settlement. Recently, the ECSDA has enhanced its role from the mainly technical implementation of links between CSDs. ECSDA s general objective now is to offer solutions and to provide advice at international level on technical, economic, financial, legal and regulatory matters in order to reduce risk and increase efficiency in custody, pre-settlement and settlement arrangements for securities and related payments across Europe for the benefit of issuers, investors and market participants. This is achieved by promoting: processing flows which ensure the highest efficiency with a low risk profile; a level playing field with the highest standards for entities providing custody, presettlement and settlement services; common standards to reduce or remove barriers to cross border settlement; the exchange of information on legal, tax, regulatory frameworks and market practices to foster the process of harmonisation across Europe, and international co-operation. Page 1

2 Four ECSDA working groups (viz., Public Policy, Harmonisation, Settlement links, Audit and Compliance) are dedicated to projects designed to deliver this ambitious role. The ECSDA currently has 19 members, including CSDs and ICSDs, and maintains close and active links with other international associations of CSDs around the world. Further details of the work of the ECSDA can be found at Any questions or comments on this response should be directed to ECSDA Chairman, Mr. Joël Mérère, 1. General Remarks ECSDA welcomes the publication of the Commission s second consultation on the subject and notes the excellent progress made since the first report. As mentioned in our previous response (and repeated here for completeness) in many respects we believe voting is one of a number of different corporate events the processing of which ECSDA has sought to standardise in accordance with the two Giovannini reports issued in 2001 and In fact, ECSDA is now working on the removal of Barrier 3 highlighted in the second Giovannini report, relating to corporate actions, together with the European Banking Federation and this work includes corporate governance. ESCDA s first report in this area was published on June Furthermore, ECSDA has published a report addressing corporate events including voting in cross-border links between two CSDs in November We encourage the Commission to take the report into consideration when developing the issue of shareholder rights further. The report is available on the ECSDA website using the following link: ( 2002%5B1%5D.pdf) While we agree that legal provisions affecting corporate actions processing should be harmonised, we think this is not sufficient to guarantee cost reduction. The important point is harmonisation of practices, (a role that ECSDA is currently undertaking on behalf of the Giovannini Group). ECSDA is currently working on standardisation of, inter alia, the following items: Obligation for issuers to inform the primary CSD of the details of a corporate event including meetings which would include a web link to further information; Such announcement should be made in an electronic and standardised format; Obligation for the CSD to make such details available to participants and other CSDs within a specified time limit. Page 2

3 2. On terminology The consultation document seems to use some new terms and definitions that we believe we have not encountered before or that are not consistent with vocabulary adopted by other parts of the Commission. Consistency of the terminology would facilitate the market and make it easier for operators to position themselves towards the planned regulation. It shall be noted that DG MARKT Financial Markets Infrastructure (G1) is just now setting up a working group to address definitions in connection with the project concerning a possible directive on Clearing and Settlement in Europe. 3. Specific comments II.1. Scope ECSDA believes the proposals as they stand could lead to a certain amount of ambiguity. The paper defines listed companies as companies that are formed under the legislation of a Member State and whose securities are admitted to trading on a regulated market in one or more Member States within the meaning of Council Directive 2004/39/EC. Using this definition does this mean that a US company listed on, for example, Euronext falls outside the regime? Equally, if there were a Finish company only listed outside the EU would it need to follow the rules or not? We propose that any company listed on a regulated market in one or more Member States within the meaning of Council Directive 2004/39/EC should have to follow any rules in this area. II.2. The ultimate investor or ultimate accountholder ECSDA does not agree that contrary to the views expressed that granting ultimate investors at EU level a legal enforceable right to direct how votes attached to shares credited to their accounts are cast, is a pre-requisite to facilitating cross-border voting. As such, ECSDA agrees with the views expressed. II.3. Stock Lending and Depository Receipts 3.1 Stock Lending ECSDA agrees with these standards at the macro level. However, ECSDA would like to understand the second point in more detail. In particular ECSDA suggests that the process of informing the person or its representatives prior to entering any agreement could be a global contract followed by correct reporting of stock movements rather than any reporting per loan prior to the loan taking place. This is because such a mechanism would add cost to the process without any benefit. We do, however, strongly agree that a global permission must be obtained and that intermediaries must report loans to the party that made the securities available for lending. It should be noted that already today such legal Page 3

4 agreements and reporting mechanics are well established between professional market participants 3.2 Depository Receipts One concern ECSDA has in this area is that there is not always a 1 to 1 relationship between depository receipts and the underlying share. Consequently, whilst agreeing with the standard we would question how, practically, it can be implemented in all cases. A second question we have in this area is that whilst the section mentions depository receipts we would ask whether other types of securities such as index linked securities or covered warrants are included in the process. We would suggest they should be. Perhaps this could be clarified in the scope section. II.4. Pre General Meeting Communications Notice periods for convening a meeting ECSDA does not have any issues with the proposed minimum standards. Content of the notice As mentioned in our first response ECSDA has completed some work on corporate governance in the past and identified many key fields necessary for the announcement of a meeting. ECSDA strongly believes this should be electronic and formatted as much as is practical, particularly in an immobilised / dematerialised Europe. At least in the communication flow between the various intermediaries in the safekeeping chain such standards would create efficiencies. We would be delighted to work with the Commission to help in this area if it was appropriate to do so. We support the need for an indication of where the full, unabridged text of the resolutions and douments can be found. Information relevant to the General Meeting We do not fully understand why in case of the Annual General Meeting the periods for convening the meeting and for sending information out are different (21 and 15 days) while in case of any other General Meeting the periods are harmonised (10 days). We believe a single harmonised period is especially important given the rights described in section section 6.3 to add resolutions. Dissemination, and language, of the meeting notice and materials ECSDA agrees with the minimum standard. Specific section on the issuer s website dedicated to the General Meeting ECSDA believes that more work in relation to the dissemination of meeting information is needed and that electronic and formatted data is paramount. In an immobilised Page 4

5 dematerialised Europe we believe that the mechanisms for issuers to disseminate information needs to be addressed for all announcements of corporate actions and meetings to their shareholders. As the proposed standards by the European Banking Federation and ECSDA in this area suggest, this is an area where CSDs may need to be involved and we would be delighted to work with the Commission to debate the issue further. This issue is particularly important in a cross border context. II.5. Admissions to the general meeting share blocking ECSDA agrees with the proposed standards but would like to note that the timing of record date (or its legal equivalent) varies markedly between countries. 3 examples are that it is 21 days before the meeting in Denmark, 10 days in Finland and 5 days maximum in Sweden. ECSDA believes the best solution to try and balance the need for market reconciliation with the need of issuers is between 10 or 15 business days between record date and the meeting. II.6. Shareholders rights in relation to the general meeting 6.1 Electronic participation in the General Meetings 6.2 Right to ask questions 6.3 Rights to add items to the agenda and table resolutions We agree with the standards proposed in these areas Voting - Voting by correspondence We agree with the proposal to remove existing barriers regarding voting electronically. Although we accept that this cannot happen overnight we believe that a target for implementation should be set. A second point is that electronic proxy appointment is already a reality and cost effective. Consequently, we would question why costs in this area should be prohibitive given they are not so for proxy voting. - Proxy voting In response to the 6 points made in your paper: 1. Every shareholder should have the right to appoint any other natural or legal person as a proxy to attend any general meeting on his behalf. In the cross border context and in the context of efficiency we believe it is important for shareholders to be able to cast votes without attending the meeting, making the role of a proxy vital. 2. For the same reasons as above we believe that no constraints should be imposed other than provisions relating to the legal capacity of the persons involved. 3. For reasons of cost efficiency, fairness, audit trails, increased participation and operational risk we strongly assert that the appointment of proxies by electronic Page 5

6 means must be available. We would ask the commission to investigate countries where this is already available to see the benefits that have been gained. 4. Again, for fairness issues we agree that the proxies should enjoy the same right to speak as other shareholders. 5. ECSDA is concerned about this proposal and sees no real reason why it has been suggested and sees significant cost issues associated with it. If an issuer agent is considered as an independent third party than the proposal is reasonable but if the party has no relationship with the issuer other than one of charging the issuer we do not understand what is to be gained. We would envisage that the right of audit by regulators or shareholders in certain (to be agreed) circumstances would be sufficient. 6. We agree with this point. We believe that a standard set of data to be sent to an issuer or its agent in the case of proxy would be beneficial. We believe the future is electronic so that defining the data elements of a proxy appointment and instruction is more important than defining a paper form. ECSDA would be delighted to help with such an exercise but would also note that ISO messages are being defined for voting at the moment which may be a good basis for a standard. II.7. Position of intermediaries in the cross-border voting process We do not have any major concerns regarding the definition of an intermediary but would ask that any such definition will be used throughout the Commission. In relation to an intermediary marking accounts as to whether they are held on behalf of clients or themselves we would ask whether this is proposed just for registered shares, as suggested, or all securities? Secondly, we would question how you envisage such a solution being implemented, as it could be quite costly. ECSDA agrees with the rest of the proposals in section 7 and in particular in the need for an account mechanism, such as the use of nominees that allows all for effective cross border voting. II.8. Communications following the general meeting ECSDA agrees with the proposal but would add that simply adding the results to the issuer s website would not be enough, and suggests that the results are made by the same electronic announcement message as the original meeting announcement. Page 6