The Depository Trust & Clearing Corporation (DTCC) has enhanced its settlement link with CDS Clearing and Depository Services to offer new corporate action services including dividend, redemption and reorganisation services. Patrick Kirby, DTCC managing director for Asset Services, explains to Reference Data Review that the expansion of the services in this area is a result of customer demand.
The Canadian-Link Services, which went into operation in 2005, supports the processing and settlement of transactions in Canadian dollars at the Depository Trust Company (DTC), a DTCC subsidiary. “DTCC launched the Canadian-Link Services to better serve our customers who, at the time, had to maintain split inventories in Canadian and US securities,” explains Kirby. “The service allowed them to concentrate all US and Canadian security positions in their account at the DTC.”
The decision to expand Canadian-Link services was taken in response to customers who said they wanted DTC to offer additional corporate actions services, he says. Under the original program, DTC customers could clear and settle Canadian dollars at DTC, but they had to turn to CDS or other custodians for corporate actions.
“They were looking for ‘one stop’ shopping and wanted to do it at DTC. The expansion enables DTC customers to receive and make payments on all corporate actions events for eligible Canadian issues – approximately 1,000 are now eligible – including tender offers and rights issues in Canadian dollars or a mix of US and Canadian dollars,” continues Kirby.
The DTCC started the development process for the new services at the end of last year and put the new systems into place in July. “We were able to leverage existing systems and adapt them for the Canadian-Link,” he says.
Kirby believes that the new services significantly expand the Canadian-Link Services programme by offering DTC customers new processing capabilities for income, redemption and corporate action payments. For interest and dividend payments, DTC customers also can take advantage of DTC’s Elective Dividend Service (EDS).
With EDS, DTC customers will be able to obtain ‘at-source’ tax relief for Canadian issues, which allows them to pay the lower tax rate at the time of a dividend payment, rather than a higher or maximum rate. This allows investors to eliminate the expensive and time consuming processing associated with cross border hard copy tax reclamation, claims Kirby. “It also limits the interfaces and the repositioning they will have to do, streamlining cross border trading and making clearance and settlement and corporate actions processing more efficient.”
He is confident that the take up of the new services will be strong due to its foundation in customer requests. “Our customers came to us with the request for additional corporate action services, and we developed them based on customer feedback. We won’t have to encourage these customers to get on board,” he says.
Over the next few months the DTCC will be working on creating some additional automation such as cash settlement reporting on the link, adds Kirby.