FIRMA National Conference New Orleans April 2009 Corporate Actions & Class Actions Track III 1:15 p.m. – 2:15 p.m. Satish Pattegar, CTCP,CIA April 29, 2009

2 Why Corporate Actions Are Important  Integral feature of Capital Markets  Takes place whenever changes are made to the capital structure or financial position of an issuer of a security that affects any of the securities it has issued  Not including fixed interest payments and scheduled maturities, approximately 1 million Corporate Actions take place every year.  Single Corporate Action may involve hundreds of different market participants.  High Risk because Corporate Action processing is complicated, deadline driven, not standardized, and to a large extent still manual.

3 Market Participants in a Corporate Action  Custodians  Broker/Dealers  Fund Managers  Portfolio Managers  Depositories

4 Types Of Corporate Action  Mandatory: No action required by investor or agent (cash dividend, interest payment, etc)  Mandatory with Options: Investors given option to receive in-kind or cash  Voluntary: Investor has to make a decision (subscriptions, takeovers, tenders, etc.)

5 Common Corporate Action Events  Dividend Payment  Interest Payment  Redemption  Rights Issue  Take Over  Conversions  Proxy Voting

6 Participants In A Corporate Action Chain Issuer Registrar/Agent Custodian’s Nominee Depository Custodian Investor Investment Manager Broker/Dealer SLA Regulations as Shareholder Shareholder Account Owne r ship SLA If the Corporate Action involves Cross-border Security Holdings, the number of intermediaries and level of complexities is greater

7 Risks in Corporate Action Processing  To mitigate the risks of delivering incorrect and untimely information. The securities industry continue to invest in Corporate Actions information capture and processing solutions.  Due to lack of global standards, error prone,manual processes, diverse communication protocols and increasing volumes, the risks can be significant.

8 Primary Risks  Risk of Processing Failures: -Relevant in Voluntary and Mandatory with options -Error in the information flow from Issuer to Investor -Error in the return flow of instructions from investor to issuer  Cost of Late Payment: -Primary in Cross-Border Securities (cost of interest XXX, currency, costs, zero sum) currency, costs, zero sum) -Cash-flow problems  Risk of Inappropriate Investment Decision -Failure to correctly understand the Corporate Action can result in a misevaluation of the Security Causing Transaction Cost Risk and the misevaluation of the Security Causing Transaction Cost Risk and the -Market Movement Risk  Risk of Ineffective Governance

9 Common Errors  Aged Balances  Disputes with Counter Parties and Agent Banks  Calculation Errors  Communication Errors  Manual Processing  Missed Faxed Counterparty Elections  Un-reconciled Entitlement Positions  Lack of Documented Procedure  Late Booked Positions  Exceptions to Standardized Procedure

10 Class Actions “Provides a means whereby large numbers of claimants may have their causes involving common questions of fact or law adjudicated in a unitary proceeding” The goal of Class Action Litigation (from the perspective of the judicial system) is to achieve economics of time, effort, expense and uniformity of judicial decisions without sacrificing procedural fairness.

11 Risks in Class Action Program  Lack of Information  Legal Responsibilities  Proper Identification of Decision Maker  Proper Review of Eligibility  Timely Communication  Notification vs. Filing  Timely Processing of Receipts  Unclaimed Funds  Lack of Automation

12 Impact of Financial Crisis  Prompted a surge in Class Action Securities Lawsuits  Primarily confined to businesses in the Financial Services sector  Lawsuits up 37% in 2008  Roughly 2/3 of the Financial Sector were subject of a Class Action Lawsuit by 12/31/2008  Higher premiums for D & O Insurance  Greater litigation risks  Primary Lawsuits Related to:  Auction Rate Securities  Accounting  Product and Operational defects

13 Trends  Drop in Rule 10b-5 Claims  Section 11 Lawsuits Surged  More NYSE and AMEX listed companies sued than those companies listed on the NASDAQ  Unknown how the historical relation between stock market volatility and Securities Class Actions filings will behave in 2009  Disclosed dollar claims continue to increase  Shift from income statement line items to balance sheet components  Source – Cornerstone Research Report

14 Q & A