DEPOSITARY RECEIPT
INDUSTRY BRIEFING
ON RUSSIAN FEDERAL
LAW NO. 415-FZ
PRESENTED TO: SIFMA
MONTHLY MEETING
October 10, 2013
AGENDA
I.
II.
Depositary Receipts – Represented by BNY Mellon
a)
Overview of Russian Federal Law No. 415-FZ
b)
Impact of New Regulation
c)
Response of Depositary Receipts Industry
Banks and Brokers – Represented by SIFMA Corporate Actions Section
III. Proxy Service Providers – Represented by Broadridge
IV. Next Steps – BNY Mellon Depositary Receipts
V.
Questions
VI. Contacts
VII. Appendix
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I.
Depositary Receipts
Michael O’Brien
Vice President, Senior Corporate Governance Analyst
BNY Mellon Depositary Receipts
OVERVIEW OF RUSSIAN FEDERAL LAW NO. 415-FZ
•
Adopted by the Russian Federation on December 7, 2011, enacted on January 1, 2012.
•
Law will require disclosure of beneficial owner information in order to receive dividends
and for votes to be accepted. Law took effect on January 1, 2013, but the practical
implementation of the law is delayed until likely the third quarter 2013 with the deadline
of November 6.
•
Dividend component of the law will cease on January 1, 2014. Thus, the period of
compliance for this law will be relatively short.
•
Voting aspect of the law will remain in effect indefinitely.
•
Law requires the disclosure of the following information for votes to be accepted as valid:

Beneficial owner name

Address

Share/DR position

Country of Residence (for individuals) or Country of Incorporation (for
companies)
•
No exceptions made for Objecting Beneficial Owners (OBOs). OBOs will also need to
disclose to validly cast their proxy.
•
Information on Federal Law No. 415-FZ: http://www.adrbnymellon.com/files/PB36636.pdf
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IMPACT OF NEW REGULATION
•
Vote participation

Potential reduction in voter turnout due to:

Philosophical objections - beneficial owners may object to release of information, particularly
amongst OBO holders

Logistical considerations - “hiccups” involved in implementing new process may lead to
diminished voting returns.
According to the BNY Mellon 2013 Russian Proxy Season Study, average DR vote participation was 38%
of the outstanding. Some issuers may have quorum issues.
•
Operational

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Production and Delivery of Beneficial Owner List

Required Format

Infrastructure Considerations
RESPONSE OF THE DEPOSITARY RECEIPTS INDUSTRY
•
Convened industry group to:

Achieve consensus on the interpretation of new legislation

Guidance from FSFM (Russian regulator)

Agreement on party required to be disclosed under different scenarios – voting authority key
determinant


Assembled all parties in proxy voting chain (depositaries, banks/brokers, foreign
depositories, voting distribution and tabulation agents, proxy advisory firms) to gain
insight into hurdles facing each section of chain.

Brainstorming

Promote education of financial industry and investors on the new regulation.
•
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Voting agents are not acceptable
Solutions to New Requirements Resulting from Regulation

Beneficial owners, advisors and proxy advisory groups will be alerted to beneficial
owner disclosure requirement through language on VIF or prominent separate notice

Agreement with banks/brokers on procedures to receive disclosure on OBO account
holders

Engagement with proxy advisory firms to alert clients of disclosure requirements
RESPONSE OF THE DEPOSITARY RECEIPTS INDUSTRY
•
7
Depositaries advised issuers to avoid paying dividend during end of year period when
the disclosure requirement is applicable
II.
Banks/Brokers
SIFMA Corporate Actions Section of the Operations and Technology Society
Lawrence Conover
Vice President
National Financial Services LLC, a Fidelity Investment Company
Steven P. Dapcic
Director
Pershing LLC, a BNY Mellon Company
Veronica O’Neill
Vice President
Bank of America Merrill Lynch
BROKERS PERSPECTIVE
•
Two (2) Disclosure Requirements mandated by the Russian Federation:
 Proxy voting - Beneficial owner disclosure will be required to the depositories
in order for your client to have their vote transmitted and accepted into the
market at a proxy meeting. This information includes the beneficial owner
name, address, and country of residence. This is effective for meetings with
a record date of November 6, 2013 and forward.
 Receipt of Dividend Payments – the law also requires the mandatory
disclosure of beneficial owner information in order to receive any declared
dividend payments. This requirement is also effective November 6, 2013, but
amendments to the law will cease this requirement on January 1, 2014. The
practical implication of this disclosure period is less than 2 months. The
Depository banks have been working with the Russian Issuers to avoid any
dividend payments during this period.
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BROKERS PERSPECTIVE
•
Beneficial Owner Disclosure- Country of Residence

•
Beneficial Owner Information Disclosed- Regulation permits disclosure of
Advisor’s beneficial information but not 3rd Party Voting Agent


10
Country of Residence- Service Providers will derive country of residence from the
mailing file received from each broker. For U.S. addresses, state and zip code will be
interpreted to determine U.S.A. for country of residence and Foreign addresses include
country of residence in the mailing file.
Four (4) scenarios:
1.
End Client – Mail to End Client – Disclose End Client
2.
End Client – Advisor relationship – Mail to Advisor – Disclose Advisor
3.
End Client – Advisor relationship – 3rd Party Voting Agent relationship – Mail to 3rd
Party Voting Agent relationship – Disclose Advisor
4.
End Client – 3rd Party Voting Agent relationship – Mail to 3rd Party Voting Agent
relationship – Disclose End Client
Issue- Each Firm needs to analyze how data is provided to Service Providers to ensure
the right level of disclosure. Firms may have different ways of interacting and
consolidating/re-directing material with their Service provider; the data for the right level
of disclosure might not be sent to the Service Provider.
BROKERS PERSPECTIVE
•
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Communication

Review if beneficial owner disclosure through VIF, prominent separate notice and proxy
advisory firms is sufficient. (See Appendix)

Firms should strongly consider separate internal communication of this regulation to their
clients.

SIFMA Corporate Actions Board- Discussed in July and September Meetings.

SIFMA Corporate Actions Proxy Working Group- Monthly Meetings.

Email Notification sent on September 19th to SIFMA Corporate Actions Membership.

Today’s Webinar discussing the new Russian Federation Regulation.
III. Proxy Service Providers
Chip Pasfield
V.P. Client Service, Broadridge Financial Solutions
PROXY DISTRIBUTION & TABULATION AGENTS
•
Job set-up and record date notice remain the same.
•
Authorization to disclose shareholder name is requested.
•
Voting is reported as it is today.
•
File containing name, address, and number of shares is released at the end of the
solicitation.
•
The file will be separated, based on address, into domestic and foreign accounts.
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IV. Next Steps
Robert Martello
Managing Director, Global Custody and DR Operations
BNY Mellon Depositary Receipts
NEXT STEPS
• Banks and Brokers to clean up data files to proxy service
providers
• Depositaries to meet with voting agents to ensure they notify
clients of beneficial owners requirements
• Depositaries to continue to meet with SIFMA and other entities
involved in the proxy chain to ensure a successful
implementation of solutions to comply with new requirements
• Finalizing non-DTC proxy process with Euroclear, Clearstream,
Broadridge International, and ISS
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V. Questions / Comments
VI. CONTACTS
ROBERT MARTELLO
PAUL F MARTIN
MANAGING DIRECTOR, GLOBAL CUSTODY AND DR OPERATIONS
EXECUTIVE DIRECTOR, DEPOSITARY RECEIPTS CLIENT SOLUTIONS
BNY MELLON DEPOSITARY RECEIPTS
J.P. MORGAN
PHONE: 212-815-5117
PHONE: 212-552-3735
EMAIL: ROBERT.MARTELLO@BNYMELLON.COM
EMAIL: PAUL.F.MARTIN@JPMORGAN.COM
MICHAEL O’BRIEN
VICE PRESIDENT, SENIOR CORPORATE GOVERNANCE ANALYST
BNY MELLON DEPOSITARY RECEIPTS
LAWRENCE CONOVER
VICE PRESIDENT
NATIONAL FINANCIAL SERVICES LLC, A FIDELITY INVESTMENT COMPANY
PHONE: 212-815-6007
EMAIL: MICHAEL.O'BRIEN@BNYMELLON.COM
PHONE: 201-915-8405
EMAIL: LAWRENCE.CONOVER@FMR.COM
MARK GHERZO
VICE PRESIDENT
STEVEN P. DAPCIC
CITI , GLOBAL STRUCTURING DEPT.
DIRECTOR
PHONE: 212-816-6657
PERSHING LLC, A BNY MELLON COMPANY
EMAIL: MARK.GHERZO@CITI.COM
PHONE: 201-413-3853
EMAIL: SDAPCIC@PERSHING.COM
BEVERLY GEORGE
VICE PRESIDENT, GLOBAL EQUITY SERVICES
VERONICA O’NEILL
TRUST AND SECURITIES SERVICES
VICE PRESIDENT
DEUTSCHE BANK TRUST COMPANY AMERICAS
BANK OF AMERICA MERRILL LYNCH
PHONE: 212 250-1504
PHONE: 1-855-259-3431, OPTION 2, THEN 3
EMAIL: BEVERLY.A.GEORGE-NY@DB.COM
EMAIL: RONNIE.O’NEILL@BAML.COM
CHIP PASFIELD
V.P. CLIENT SERVICE, BROADRIDGE FINANCIAL SOLUTIONS
PHONE: 631-254-7533
EMAIL: CHARLES.PASFIELD@BROADRIDGE.COM
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VII. APPENDIX
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