Securities lending explained

Corporate events

Corporate events (CEs), are events initiated by public companies that change the status of the securities issued by said company.

A corporate event is typically agreed upon by a company’s board of directors and then authorised by the company’s shareholders. Common examples of corporate events include stock splits, dividends, and mergers and acquisitions.

There are three categories of corporate events:

  1. Mandatory corporate event (MCE): These affect all shareholders. An example of a mandatory corporate event is a cash dividend.
  2. Voluntary corporate event (VCE): As the name suggests, a VCE is an event where the shareholders elect to participate. An example of a voluntary corporate event is a tender offer.
  3. Mandatory with choice corporate event: This type of corporate event is similar to a mandatory corporate event in that it affects all shareholders. However, in this case, shareholders are given a chance to choose from several options. An example of a mandatory with choice corporate event is a cash or stock dividend option. Here, one of the options is chosen by default, in case the shareholder does not make an election.

Whilst your security is on loan, you forgo your right to vote (at Company meetings – AGMs/EGMs), however you still retain the right to elect on any relevant corporate events. Similarly, you still retain the right to receive all dividend entitlements on securities that are lent. Dividend payments on loaned securities are known as manufactured payments (or substitute payments in the US). Withholding tax liabilities on manufactured dividends (substitute payments) should be discussed with an independent tax advisor. Sharegain is committed to ensuring complete transparency for its clients and this includes transparency regarding corporate events. From your Sharegain dashboard, you will receive notifications about corporate events whilst your securities are on loan, thus allowing you to recall your securities should you so wish.

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