E-proxy voting for general meetings

M Krasnova NSDSergey Bernevega NSDISS Magazine talks to Maria Krasnova, Deputy Chairman of the Executive Board, and Sergey Bernevega, Managing Director on e-proxy voting.

ISS: How does this work?

NSD: Simply put, e-proxy voting is conducted in two stages. At the first stage, an issuer sends its agent, or registrar, a notification of an upcoming meeting of securities holders using electronic channels, including key dates and issues to be considered at the meeting. The issuer sends materials for the meetings with the notification, and also provides instructions to create and send an electronic ballot for those issues to be put to a vote. NSD sends this electronic message to its clients, while materials for the meeting are uploaded to a protected server, and the link to the server is added to the notification.

At the second stage, once the notification of the meeting has been received, depositories collect information from their clients both on their intentions regarding inclusion in the list of persons entitled to take part in the meeting and the voting procedure, which will have been established in an agreement earlier. The depositories then transfer this information to a registrar, so in order to vote at the meeting, securities holders just have to inform the depository of their intention. The depository transfers the information to a superior record keeping institution, for instance, to the CSD, which in turn passes the notification to a registrar.

 

ISS: What are the benefits of e-proxy voting? Does a shareholder’s representative need to submit a power of attorney?

NSD: E-proxy voting lets investors from around the world exercise rights on their securities remotely, using electronic technologies. Securities holders do not have to personally attend a shareholder meeting, they can receive all documents and inform a custodian or a depository of their opinions and votes. There is no need to prepare a power of attorney or other documents for a shareholder representative—the right to take part is determined by an entity that keeps record on securities rights. E-proxy voting assumes the use of international standards and electronic channels of interaction. It significantly facilitates investors’ participation in shareholder meetings conducted by Russian issuers.

 

ISS: When will investors be able to use the service?

NSD: Many participants in the Russian market have already implemented the service, or are working on implementing it. For instance, in 2015, 79 issuers, including major players such as Sberbank and Gazprom, conducted their meetings using e-proxy voting through NSD. If an investor’s custodian or depository supports the e-proxy voting technology, they will already be able to use all the advantages of the service.

However, starting 1 July 2016, Russian issuers will have to provide an opportunity to take part in shareholder meetings via e-proxy voting.

 

ISS: How much does it cost?

NSD: The fee charged by NSD for participating in a shareholder meeting is US$2[1] per voting instruction on items on the agenda (for each security). The cost of participation in a shareholder meeting using the e-voting service includes the NSD fee and the fee charged by the final depository. Taking into consideration that previously foreign investors were required to issue a power of attorney for their representative and to reimburse expenses for personal attendance at the meeting, e-proxy voting should be more convenient and less expensive for investors. The fee for participating in corporate actions related to securities and cash transfers (for instance, securities buyback) is less than US$8[2] per instruction.

 

ISS: Can I be sure that my vote is received and registered by the issuer?

NSD: NSD uses straight-through-processing (STP) in the e-proxy voting, and receives an instruction to vote from a depository, which has formed it on the basis of an instruction received from an investor. NSD then transfers that to the issuer in electronic form, and at the same time sends a report back to the depository confirming each stage of the document’s transfer. Therefore, the depository can inform its client, the investor, on the status of the instruction sent, and the investor can be sure that his or her decision is sent to the issuer on time.

 

ISS: On which issuers’ shares is e-proxy voting available?

NSD: There are limitations until 1 July 2016. Currently, the e-proxy voting service should be used only by joint stock companies that have opened a CSD account. Clients should contact their custodians or depositories to clarify whether they provide an opportunity of e-voting at shareholder meetings of particular Russian issuers. From 1 July 2016, all Russian joint stock companies with securities held in nominee accounts will be required to support e-proxy voting technology.

 

ISS: How will NSD disclose information in view of e-proxy voting?

NSD: The new legislation that will come into effect in July 2016 will introduce a new procedure for disclosing information on corporate actions. Now the issuers in whose registries NSD has opened CSD nominee accounts are obliged to submit information about corporate actions with all required materials on the actions to NSD. This means that information from NSD will prevail over information published by other sources.

If investors do not wish to take part in a corporate action, they may not submit information about themselves, meaning that information about those investors will not be put in a list of those entitled to take part in shareholder meetings.

 

ISS: Which channels and formats are used for transmission of voting instructions?

NSD:E-proxy voting by NSD uses the ISO 20022 format for interactions with clients and registrars. NSD also converts messages in the ISO 15022 format used by many custodians and depositories. Voting instructions can be transmitted simultaneously via several electronic channels, including SWIFT and other special online services.

 

Corporate actions reform on the Russian market

ISS: What has led up to Russia’s corporation action reform plans?

NSD: Corporate action processing and voting systems in Russia involved significant paper-based workflow. Documents had to be translated, notarised and then mailed directly to the issuer. That was costly and time-consuming.  The changes we are introducing are designed to reduce direct and indirect costs, mitigate risks, grow the investor base and simplify processes for getting access to corporate information, regardless of the location of the issuer or the asset holder.  We wanted to improve the reliability, quality and speed of communication. We also wanted to create the conditions that would encourage foreign investors to enter the local market rather than rely on depositary receipts.

 

ISS: What are specific enhancements to come in frames of the reform?

NSD: There are four stages to the reform as a whole.  The first stage was completed in October 2015 when the entire market switched to a new e-proxy voting system. The same technology will be used starting from July 1st 2016 to ensure that securities owners are able electronically to exercise other rights attached to securities.  CSD will become the center of official corporate actions information that receives information directly from the issuers in a standardized structured form and then distributes it automatically across the infrastructure and on its web-site.  Information distributed by CSD will be seen as golden copy and therefore will prevail over any other sources.

July 2016 will signal the completion of the second phase of the reform.  Even though it might be the biggest and most challenging part of it, it is not the end.  The third stage will be the launch of an ‘e-voting’ service that will allow asset owners to vote online personally and remotely on a special website. We plan to launch this service by the beginning of 2017 so it will be live for the season of general meetings in 2017.

The fourth stage will probably be less noticeable, but it is extremely important from my point of view. It includes the services aimed at full automation of all corporate actions and related processes not covered in the first three phases.

We see that fourth stage lasting until the end of 2018. As a result all the obsolete  legacy technologies will be eliminated. Processes and practices in the corporate actions area will become ISO based and will be brought in line with modern standards.

 

ISS: When you designed the reform programme, did you get input from both domestic and international customers?

NSD: From the beginning our aim was to create a modern safe and reliable environment for both local and international investors.  At an early stage of our project we decided that our technologies should be based on widely recognised international standards and principles.

We have conducted a series of consultations with our international counterparts to ensure that what we are doing is in line with their expectations and I am glad to say that so far we’ve had positive feedback from our international clientele.

[1] At the official exchange rate of the Bank of Russia as of 16 January 2016.

 

[2] At the official exchange rate of the Bank of Russia as of 16 January 2016.