The Canadian Depository for Securities (CDS) has announced that it has received regulatory approval to proceed with its due bill processing initiative.  Under this initiative, CDS will introduce system changes to allow for due bill processing for entitlement events such as stock splits, stock dividends, stock distributions and spin-offs.  The changes are designed by CDS to improve the accuracy of the reporting of clients’ holdings at the time of entitlement events.  CDS expects to implement these process changes on February 20, 2012. 

A “due bill” is an agreement that the seller will pay the cash or share entitlement due to the buyer after the settlement of the trade.  Due bill trading will be used when the entitlement value represents 25 percent or more of the value of the listed security.  The application of the due bill process will be determined by the relationship of the ex-date to the record date.  The same will apply for cash dividends and cash distributions.

TMX Group, the operator of Canada's two national stock exchanges (the Toronto Stock Exchange and TSX Venture Exchange), will determine whether due bill processing applies for Canadian-listed securities.  Entitlement events will be created in CDSX (CDS’ entitlement processing platform) based on whether the ex-date is before the record date (i.e. due bills do not apply) or after the record date (i.e. due bills apply).  For inter-listed securities, the TMX will coordinate with the U.S. exchange to determine the ex-date.  

The changes are also designed to further align the Canadian securities industry with its U.S. counterparts, and are part of an industry-wide initiative led by the Investment Industry Association of Canada (IIAC).
 

Communicating entitlement events

Entitlement event details will be announced via our regular notification methods (SWIFT, Workbench or Fax). For events where due bill processing applies, the ex-date will be after the record date and the due bill redemption date will be included. 
 

Questions

For any questions related to the Canadian Due Bill processing initiative, please contact our Corporate Actions & Income Helpdesk at corporateactions_income@cibcmellon.com, 1-866-279-2266 or 416-643-6266.

For additional details on the CDS Due Bills initiative for entitlement programs, please refer to these resources:

• CIBC Mellon’s Due Bills FAQ
• Ontario Securities Commission: amendments to the TMX manual regarding due bills

NOTE:   This bulletin has been prepared based on material prepared by CDS or other third parties.