Corporate Action glossary

An attachment is a combination of different security types which represent an unit. Units are usually comprised of warrants and bonds or warrants and equities. Securities may be combined at the request of the security holder or based on market convention.

Bankruptcy is a legal status of a company being unable to pay creditors. Bankruptcy usually involves a formal court ruling and securities may become valueless.

A bond is an unsecured general debt obligation in the form of a security usually with a fixed interest rate or no interest (zero-coupon bond). With few exceptions (such as perpetual bonds), these instruments have a fixed maturity, e.g. bond issues, medium-term notes.

A bond default is a failure by the company to perform obligations defined as default events under the bond agreement and that have not been remedied.

A bonus issue is also known as capitalization issue. In a bonus issue the issuer distributes additional assets and free of payment to security holders, in proportion to their holding.

A call of intermediate securities is an exercise on nil paid securities or intermediate securities resulting from an intermediate securities distribution.

A capital distribution is an event in which shareholders receive an amount in cash issued from the Capital account. No reduction of the face value of a single share (or the share has no par value) takes place. The number of circulating shares remains unchanged.

A capital gain distribution is a distribution of profits resulting from the sale of company assets.

A capitalization is an increase of the current principal of a debt instrument without increasing the nominal value. It usually arises from the incorporation of due but unpaid interest into the principal. This is usually done by increasing the pool factor value.

See "Bonus issue".

A cash dividend is a distribution of cash to shareholders in proportion to their equity holding. It can be distinguished between ordinary dividends and extraordinary dividends. Ordinary dividends are recurring and regular. Extraordinary dividends are one-time distributions as the result of unanticipated profits or a nonrecurring increase of revenue.

Participation in the corporate action is mandatory and further instructions from the account owner are required, unless a default option has been specified. (Examples of choosable corporate actions: optional dividend, dividend reinvestment, merger, conversion, etc.)

A class action is a situation where interested parties seek restitution for financial loss. The opportunity to join a class action proceeding The security holder can be offered and the security holder would need to respond by submitting an instruction.

A company option may be granted by the company, allowing the holder to take up shares at some future date(s) at a pre-arranged price in the company. A company may not grant options which enable the holder to take up unissued shares at a time which is five or more years from the date of the grant. Option holders are contingent creditors of a company and not members of a company. In some instances option holders may be entitled to vote on and be bound by a scheme of arrangement between the creditors and the company. As many options have multiple exercise periods a company option will either carry on to the next expiry date or lapse.

A consent is a procedure that aims to obtain consent of holder to a proposal by the issuer or a third party intended to progress an event to the next stage. This procedure is not required to be connected to the organisation of a formal meeting. (Example: consent to approve a plan of reorganization for a bankruptcy proceeding.)

A conversion represents an exchange of securities (generally convertible bonds or preferred shares) into another form of securities (usually common shares) at a pre-stated price or ratio.

Any event initiated by a public company or municipality that brings material change to a company, or debt instrument and affects its stakeholders. This includes shareholders, both common and preferred, as well as bondholders. These events are generally approved by the company's board of directors; shareholders are permitted to vote on some events.

Corporate actions can either be mandatory, voluntary or choosable.

A court meeting is an announcement of a meeting held at a court.

A credit event represents an occurrence of credit derivative for which the issuer of one or several underlying securities is unable to fulfill his financial obligations (as defined within the terms and conditions).

A decrease in value is a reduction of the face value of a single share or the value of fund assets. The number of circulating shares/units remains unchanged. This corporate action event may include a cash payout to holders.

Option within a corporate action event which will be applied if no instruction is submitted by a shareholder.

A delisting means that a security is no longer able to comply with the listing requirements of a stock exchange and is removed from the official board quotation.

Derivatives are financial instruments whose value is derived from the value of an underlying asset (such as gold, wheat or other commodities) or other financial instruments including bonds or market benchmarks such as interest rates. The main categories of derivatives are futures, options and swaps.

Separation of components that comprise a security, for example, usually units comprised of warrants and bond or warrants and equity. Units may be broken up at the request of the security holder or based on market convention.

A disclosure is a requirement for holders or beneficial owners to disclose their name, location, holdings of any issue and other information to the issuer.

A dividend is a portion of the profits of a company paid to its shareholders either from current earnings or accumulated profits.

A dividend reinvestment represents a dividend payment where holders can keep cash or have the cash reinvested in the market by the issuer into additional shares of the issuing company. A dividend reinvestment has to be distinguished from an optional dividend as the company invests the dividend in the market rather than creating new share capital in exchange for the dividend.

A drawing means that a security (e.g. bond) is redeemed in part before its scheduled final maturity date. Drawing is distinct from partial call since drawn bonds are chosen by lottery and with no reduction of its nominal value.

A dutch auction is an action by a party wishing to acquire a security. Holders of the security are invited by the acquiring party to make an offer to sell, within a specific price range. The acquiring party will buy from the holders with the lowest offers.

An early redemption is the return of an investor's principal in a security (e.g. bonds, preferred equity) by the issuer or its agent (e.g. asset manager) before final maturity.

An exchange implies the exchange of holdings for other securities and/or cash. An exchange can be either mandatory or voluntary involving the exchange of outstanding securities for different securities and/or cash. For example "exchange offer", "capital reorganization" or "funds separation".

The ex-date or ex-dividend date represents the date on or after which a security is traded without a previously declared dividend or distribution. The ex-date represents the date on which the seller of a security, and not the buyer of a security, will be entitled to a recently announced dividend.

An extraordinary general meeting (also: special general meeting) is a shareholders' meeting called by a company to approve a proposed transaction or other matter too important or time-critical to leave to the ordinary annual general meeting.

A final maturity is the redemption of an entire issue outstanding of securities (e.g. bonds, preferred equity, funds) by the issuer or its agent (e.g. asset manager) at final maturity.

Futures are securities representing an agreement between two parties to buy or sell an asset at certain price at a certain time in future.

A general meeting is a meeting of shareholders held for the election of directors and the transaction of other business.
General meetings can either be ordinary or extraordinary.

An increase of value is an increase of the face value/face amount of a single security. The number of circulating securities remains unchanged if an increase in value is performed.

An instalment call is an instalment towards the purchase of equity capital, subject to an agreement between an issuer and a purchaser.

Deadline till a submission of an instruction for a corporate action event with choice can be submitted.

An interest is a remuneration paid on capital that has been borrowed.

An interest payment is a contractual debt payment based on the coupon rate of interest and the principal amount, distributed to holders of an interest bearing asset as for instance bonds, notes, debt obligations.

An interest payment with principal is an event which consists of two components: the decrease of the amortized value of a pool factor security and an interest payment.

Intermediate securities are rights/right securities which are distributed based on an underlying holding (e.g. shares) and which give the holder the right to take part in a future corporate action event as for instance an optional dividend.

An intermediate securities distribution is a payment of intermediate securities or privilege that gives the holder the right to take part in a future event.

An investment fund (also: unit trust (UK), mutual fund (USA)) is an entity in which investors pool their capital for joint investment. The assets are managed by the fund management company for the account of the investors based as a rule on the principle of risk distribution. Depending on the type of investment fund, the assets may be invested in securities, money market instruments or in real estate. Investments can also be made in special fund products and asset allocation funds.

See "Liquidation payment".

A liquidation payment is a distribution of cash, assets or both. A liquidation payment occurs when a company is insolvent, meaning it cannot pay its obligations when they come due. As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims as specified by the security.

Participation in the corporate action event is mandatory. Further instructions from the custody account owner are not required. (Examples of mandatory corporate actions: spin off, reduction of the par value, forward split, bonus issue, etc.)

A maturity extension represents the extension of the maturity date of a bond. As stipulated in a bond's Terms and Conditions, the issuer or the bond-holder may prolong the maturity date of a bond. After extension, the security may differ from original issue (new rate or maturity date). A maturity extension may be subject to bondholder's approval.

A merger is the combination of two companies into one by either closing the old entities into one new entity or by one company absorbing the other. A merger implies the exchange of outstanding securities, initiated by the issuer which may include options. Cash payments may accompany the share exchange of a merger.

Nil paid securities are tradeable securities which did not incur any costs on its original owner. A common example is renounceable cum rights on a stock, which are attached to a stock and are issued to the original owner free of charge. The owner may separate the cum right from the stock and sell it.

An odd lot is a parcel of shares or bonds for trade that is smaller than the standard lot for that particular security.

An odd lot purchase implies the buying of odd-lots to/from the issuing company, initiated either by the holder of the security or through an offer made by the issuer.

An odd lot sale implies the selling of odd-lots to/from the issuing company, initiated either by the holder of the security or through an offer made by the issuer.

An offer is a request by a prospective acquirer to shareholders to sell (tender) or exchange their equities. Following type of offers can be distinguished: tender offer, purchase offer, takeover offer.

Choice within a corporate action event a shareholder can opt for (e.g. tender the shares under the offer, take up the dividend in form of new shares, etc.)

An optional dividend is a distribution of a dividend to shareholders with a choice of benefit to receive. Shareholders may choose to receive shares or cash. An optional dividend has to be distinguished from dividend reinvestment as the company creates new share capital in exchange for the dividend rather than investing the dividend in the market.

Options are securities offering its holder the right but not the obligation to buy or sell an asset in future. Options are of two types: call options and put options. Call options give the call options holder the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Put options give the put options holder the right but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.

An ordinary general meeting is a meeting of a publicly listed company which is required by law to hold once a year during which the management reports to shareholders on the past year's performance and shareholders vote on major issues such as the election of directors, payment of dividends, etc.

A par value is a notional value of a share or bond.

A pari-passu occurs when securities with different characteristics, for example, shares with different entitlements to dividend or voting rights, become identical in all respects. A pari-passu may be scheduled in advance (e.g. shares resulting from a bonus may become fungible after a pre-set period of time or may result from outside events (e.g. merger, reorganization, issue of supplementary tranches, etc.)).

A partial defeasance is an event which occurs when the issuer sets money aside to redeem a portion of an issue and the indenture states that the securities could be called earlier than the stated maturity. (e.g. exchanging one type of collateral for another type as for instance loans where the original immovable tangible was the collateral, but it is replaced by a more conventional collateral (government bond) because the original collateral was risky, unhandy and expensive in use).

A partial redemption with reduction of nominal value implies the partial redemption of securities before their scheduled final maturity date with reduction of the nominal value of these securities. The outstanding amount of securities will be reduced proportionally.

A partial redemption without reduction of nominal value is a redemption in part on securities before their scheduled final maturity date without reduction of the nominal value of these securities. This is commonly done by pool factor reduction.

A payment in kind is an Interest or dividend payment in any kind except cash, distributed to holders of an interest bearing asset (e.g. financial instrument that pays interest or dividends to investors of bonds, notes or preferred stock with additional securities or equity instead of cash.).

A payment date is the date on which a corporate action distribution is scheduled to be paid.

A place of incorporation change implies the changes in the state of incorporation for US companies and changes in the place of incorporation for foreign companies. Where shares need to be registered following the incorporation change, the holder(s) may have to elect the registrar.

The pool factor value represents the amount of the initial principal of the underlying mortgage loans that remain in a mortgage-backed security transaction. The pool factor is used to indicate the remaining principal balance and expressed as a factor of 1.

See "Partial defeasance".

A priority issue is a form of open or public offer where, due to a limited amount of securities available, priority is given to existing shareholders.

See "Tender offer".

A put redemption is an early redemption of a security at the election of the holder and subject to the terms and conditions of the issue with no reduction in nominal value.

The record date represents the cut-off date established by a company in order to determine which shareholders are eligible to receive a dividend or distribution. The determination of a record date is required to ascertain who exactly a company's shareholders are as of that date, as shareholders of an actively traded stock can continually change. The shareholders as of the record date will be entitled to receive the dividend or distribution, declared by the company.

A redenomination is an event by which the unit (currency and/or nominal amount) of a security is restated (e.g. nominal/par value of a security in a national currency is restated in another currency).

A remarketing agreement is a purchase and sale of remarketed preferred equities/bonds through the negotiation of interest rate between the issuers and the holders.

A repurchase offer is an offer to existing shareholders by the issuing company in order to repurchase equity or other securities which are convertible into equity. The objective of the offer is to reduce the number of outstanding equities and securities.

A reverse stock split is a decrease in a company's number of outstanding equities/shares without any change in the shareholder's equity or the aggregate market value at the time of the split. Equity price and nominal value are increased accordingly.

Rights (also: subscription rights) are securities representing the right of existing shareholders in a company to retain an equal percentage ownership by subscribing to new stock issuances at or below market prices. The subscription right is usually enforced by the use of rights offerings, which allow shareholders to exchange rights for shares of common stock at a price generally below what the stock is currently trading for.

A right issue is a distribution of a security or privilege that gives the holder an entitlement or right to take part in a future corporate action event.

A round lot is a number of shares used as a standard unit when buying or selling shares on a stockmarket.

A scrip dividend is a dividend or interest paid in the form of scrip/participation certificate.

A share (also: stock, equity) is a form of security representing a portion of the nominal capital of a company and giving the owner the right to vote at General Meetings and to elect directors as well as the right to information and to exercise control. Shares further entitle the holder to a portion of the company's profits and to a proportional share of any capital increase or liquidation proceeds.

A share premium dividend is a distribution in cash issued from the shares premium reserve and paid to shareholders. It is similar to a dividend but with different tax implications.

SICAV is the abbreviation of Société d´investissement à Capital Variable and represents an open-ended collective investment scheme that derives its value by the number of participating investors. The value of the fund's investments is divided by the number of outstanding shares and an investor can request to have his shares cashed out at any time - even if this comes at the expense of other investors. SICAV is most commonly found in Europe.

A smallest negotiable unit represents the modification of the smallest negotiable unit of shares in order to obtain a new negotiable unit.

See "Extraordinary general meeting".

A spin-off is a distribution of subsidiary stock to the shareholders of the parent company without a surrender of shares. Spin-off represents a form of divestiture usually resulting in an independent company or in an existing company (e.g. demerger, distribution, unbundling).

A stock dividend is a dividend paid to shareholders in the form of equities/shares of the issuing corporation.

A stock split is an Increase in a corporation's number of outstanding equities/shares without any change in the shareholder's equity or the aggregate market value at the time of the split. Equity price and nominal value are reduced accordingly.

A structured product is a pre-packaged investment strategy based on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies and to a lesser extent also derivatives.

Swaps are agreements whereby the two parties undertake to swap payments over a specified period on specified dates and at conditions fixed in advance. A swap contract can either refer to the exchange of interest payments (interest rate swap) or the exchange of interest payments and nominal amounts in different currencies (currency swaps).

A takeover offer is an offer of an acquiring company to the target company's shareholders to buy the target company's shares to gain control of the business. Takeover bids can either be friendly or hostile.

A tax reclaim is an event related to tax reclaim activities.

A tender offer (also: takeover bid) is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at a specified price during a specified time, subject to the tendering of a minimum and maximum number of shares.

A value date is a future date used to determine the value of a product that fluctuates in price. The use of value dates is usually seen in determining the payment of financial products and accounts where there is a possibility for discrepancies due to differences in the timing of valuation. Such financial products include forward currency contracts, option contracts and the interest payable or receivable on personal accounts. The value date is also referred to as "valuta".

See "Value-date".

Participation in the corporate action event is voluntary. If the owner wishes to take part in the event, instructions from the account owner are required. (Examples of voluntary corporate actions: repurchase offer, takeover offer, class action, capital increase, etc.)

A warrant is a security entitling the holder to buy a proportionate amount of stock at a specified price at some specified future date.

A warrant exercise is an option offered to holders to buy (call warrant) or to sell (put warrant) a specific amount of stock, cash, or commodity, at a predetermined price, during a predetermined period of time (which usually corresponds to the life of the warrant issue).

A withholding tax relief certification is a certification process for withholding tax reduction or exemption based on the tax status of the security holder.

Worthless implies the booking out of valueless securities.