Corporate actions: definition and types

What is a corporate action?

A corporate action is an event that occurs in the life of a financial instrument, primarily a share or bond. This can be, for example, the payment of dividends, a capital increase, the exercise of subscription warrants (possibility of temporarily subscribing another financial security at conditions set in advance), etc.

Securities transactions concern shares, bonds and shares (title of ownership of the capital of a mutual or cooperative company). By definition, they apply to positions held on the date the position is calculated. It is the issuers of securities who initiate company shares.

It is a centralizer (intermediary that aggregates the data of a transaction) which has the task of acting as an interface between the issuer and the intermediaries, whether it is the exchange of securities and cash or the information necessary to process the securities transaction.

There are generally two types of corporate actions: simple corporate actions and complex corporate actions.

  • The Simple OSTs are those linked to the life of a share or bond (dividend payment, etc.), except in special cases (optional dividends, etc.). These corporate transactions are carried out automatically without the bearer being consulted. In this case, the notice of corporate action informs the holder of the date of the transaction and the amounts involved, but has no power to intervene.
  • The OST complexes they are linked to the securities and to the life of the listed company: takeover bids, exchange or withdrawal offers and capital increases. In this case, the bearer is prompted and must provide a specific response. This is the case, for example, of a shareholder who can choose between paying the dividend in cash or in the form of a payment in new shares.

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How to respond to a business action?

The process of withdrawing your choice can be done by email, on the broker’s website or by phone. In most cases it is possible to respond to a corporate action directly on the customer’s account opened with an intermediary in the “securities transactions” section. Simply select the relevant business action, then enter its instructions online. Where applicable, the bearer may also accompany his response with a cash payment.

Two types of instructions are possible:

  • With a mandatory corporate choice transaction, the shareholder can choose between several options, for example choosing whether he prefers to pay his dividend in shares or in cash. If the bearer does not respond within a certain period, it applies a default option, such as paying the dividend in cash.
  • With a OST by choice, the bearer has the choice of participating or not in an operation that often affects the life of the company he owns: capital increase, public sale, etc. The shareholder’s participation is conditioned by the response he gives to OST’s opinion. A specific transaction notice corresponds to each securities transaction.

What are the different types of OST?

There are different categories of corporate actions, depending on whether they designate events intrinsically linked to the life of a security (simple corporate actions) or more complex situations.

OST without choice of carrier

These are mainly mandatory corporate actions. They are executed on the bearer’s securities account when the latter holds securities, whether they are shares or bonds. These include the payment of dividends or the detachment of the coupon (bond).

Corporate actions with choice

They are activated once the requested bearer has expressed his consent or specified the conditions for carrying out the transaction, and include the assignment of free shares. They allow former shareholders to receive additional shares if they so wish: operations to increase the nominal value of securities or shares; and the issue of new shares through which shareholders can acquire new securities less than their face value. Shareholders can accept or decline to follow these OSTs. Company shares with choice can also concern the economic life of the company in which the bearer holds securities. This is the case with public offerings. Prior to each transaction, the bearer receives a corporate action notice announcing and explaining the transaction (nature, start date, end date, etc.).

This type of OST has four main formats:

  • Takeover bids (takeover bids) in which a third party publicly undertakes to purchase the shares of a company at a predetermined price, generally higher than the last stock market price. The shareholder can take his shares to the buyer or keep them.
  • OPE (Public Exchange Offer) which allows the predator to acquire all or part of the securities of a target company in exchange for their own securities.
  • The OPR (Public Withdrawal Offer) which translates into repurchasing 100% of the shares of a company present on the financial markets to take total control. This procedure protects minority shareholders.
  • The OPV (Public Offer of Sale) which allows a company to list its shares on the Paris market. Buyers have a period to decide whether or not to participate in this OST.

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