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EU-wide obligations for custodians?

Manifest responds to the European Commission consultation on potential legislation covering the processing of rights flowing from securities by “securities accounts providers” (largely, custodians).

Ever prior to the Shareholder’s Rights Directive publication 2007, Manifest has highlighted that the role of intermediaries in the chain is just as important, if not more so, in enabling shareholders to exercise their voting rights. Now we have a formal opportunity to highlight the issues in the form of a consultation. We build on many of the points we identified in our original submission two years ago (which continue to persist) in our report on the practical barriers to cross-border voting.

For many years, Manifest has been at the forefront of advocating investor choice about their voting process, a “Best Execution” principle for voting. It is a model which we have been successfully employing for over 12 years. The pre-amble to section 2 of the consultation introduces the notion that “the jurisdiction of the issuer must ensure that a cross-border investor can exercise rights enshrined in his securities, either directly or through assistance by the chain of account providers, so as to be in a comparable situation to investors holding identical securities in a  purely domestic context”. This is an excellent starting position.

Manifest is proposing that there should be three broad requirements for account intermediaries in the voting process:

  1. An obligation to ensure that clients’ voting instructions be passed from the client to the issuer, either via the intermediary, an agent of the intermediary or an agent appointed by the client;
  2. Eliminate complexities for investors needing to register their shares in order to to vote; and
  3. Uninstructed shares must not be voted, and that account providers should be required to prove so.

These provisions are aimed at addressing various problems that currently exist including (in no particular order) over-voting, share blocking, custodians directing the voting platform used for the instruction of their clients instructions, unnecessary ‘padding’ of voting deadlines caused by multiple intermediaries in the ‘chain’, shares being voted in error, and a host of other impediments and administrative inconveniences caused by the current role of account providers.

This is just the first stage in the legislative process and there is a long way to go before this may be transposed. But the financial crisis has underlined to investors the importance of keeping control of their processes, even when they are outsourced. These proposals are a vital step to achieving this. Watch this space…


EU Consultation in Full >>

EUROSIF Position Paper on Shareholder Rights >>

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