By early September 2020, SRD II is scheduled to become effective in EU member states. The Directive, which is an extension of the original SRD introduced in 2007, requires transposition into each EU member state’s national law, so could potentially involve up to 28 variations and interpretations. The national law transposition date was 10 June 2019 and not all member states have transposed the SRD II into national law. Although this remains a concern, the differences each member state may have might be minor, knock-on effects could be greater for any global institution undertaking cross-country and cross-CSD trading and portfolio management. SRD II aims to strengthen the position of shareholders and ensure that decisions are made for the long-term stability of a company. Its requirements impact on intermediaries; proxy advisers; institutional investors; asset managers and issuers.

Germany implemented the relevant SRD II changes into German law through an implementation act (ARUG II), which took effect on 1 January 2020. ARUG II amends the German Stock Corporation Act (AktG) and the rules on director remuneration have been adapted to the two-tier board system in Germany, consisting of the management board and the supervisory board.

Shareholder identification: The directive imposes deadlines for identifying the shareholder for each intermediary. The directive also outlines the information intermediaries are required to disclose. The industry is advocating that Issuers send their discloser notices via the Issuer CSD to ensure the information is disseminated through the holding chain.

Corporate action and general meeting information: The directive also outlines deadlines and the minimum requirements for the flow of information. Again the industry is advocating that the flow of information comes from the Issuer CSD as the ‘golden source’ to ensure the information is disseminated through the holding chain and the deadlines imposed are adhered to.

Source: Deutsche Bank

By introducing the measures outlined the industry will harmonise and standardise the process and allow all parties to adhere to the distinct set of rules that need to be apply.

For shareholder identification there will one process (today there are several) and the Issuer will be able to have a clear reconciliation of the positions held through the chain of intermediaries.

Source: Deutsche Bank

From a corporate action and general meeting information perspective, there is a realistic opportunity to use the Issuer CSD as the ultimate ‘golden source’ and to also mandate the Issuer to disclose all information from the date of the announcement. Here the industry is assisting Issuers by formulating event templates and who the reasonable party is for disclosing the information.

From September 2020 we may finally see major barriers being removed in the post-trade industry.

Since SRD II makes custodians the conduit of real-time information between issuers and investors and fosters more efficient capital markets. By making the issuer CSD as the main source of information that can be transmitted through the holding chain in an STP manner this will potentially mitigate the need to data scrub information and create a truly STP process¹.

To that end we have successfully piloted a solution using distributed ledger technology (DLT)² to enable further automation of custodial services. The solution addresses the transparency requirements within many custodial services. Using the shareholder disclosure concept, the solution improves services in areas such as tax processing and streamlines complex data and reconciliation processes for both the bank and its clients.

Steven Hondelink is Head of Securities Services & Agency Securities Lending EMEA, Deutsche Bank
Mike Collier is Director of Securities Services Market Advocacy, Deutsche Bank

Sources

¹ See https://bit.ly/2PK8b4b at paystand.com
² See Deutsche Bank Media Release at corporates.db.com