Wednesday, 18 December 2019
Migration of Participating Securities Bill 2019: Second Stage
The proposed Migration of Participating Securities Bill comprises 16 sections and provides a legislative mechanism to facilitate the migration of Irish issuers from their current central securities depository, CSD, Euroclear UK & Ireland, to an alternative CSD provider. I would first like to provide some background information on the CSD migration project and the reasons for bringing this legislation forward. CSDs are specialist financial institutions that hold securities and facilitate trading between market operators. CSDs are a vital and systemic part of market infrastructure that enable the effective functioning of settlement systems. The Irish market relies upon a CSD based in the United Kingdom called Euroclear UK & Ireland which operates the CREST settlement system. Once the UK becomes a third country, under the relevant European legislation, the central securities depository regulation, CSD-R, Euroclear UK & Ireland may no longer be able to provide its services into Ireland. As a result, Euronext Dublin, formerly the Irish Stock Exchange, announced in October 2018, its intention to transfer the settlement of trades in Irish equities and other exchange traded instruments to Euroclear Bank Belgium. Most European CSDs operate what is known as an intermediated holding model. In order for Irish issuers to migrate to one of these alternative CSDs, the title of the participating securities must be transferred from the current holder to the designated CSD or its nominee.
It is important to note that while the title will be held by the CSD's nominee, the beneficial ownership of the shares is retained by the ultimate investor who remains the owner of those shares and will continue to exercise their voting rights and participate in corporate actions. Since the beginning of the migration project, officials from the Department of Finance, the Department of Business, Enterprise and Innovation and the Central Bank of Ireland have been engaging intensively with stakeholders across the Irish market. One outcome of that engagement was a request from issuers and the Irish legal community for a legislative mechanism to facilitate migration by providing for the transfer of title to the migrating securities by operation of law. This would provide an alternative and simpler means of migration to that of a scheme of arrangement under Part 9 of the Companies Act 2014. In the absence of an alternative legislative mechanism, issuers would instead have to rely upon a scheme of arrangement under Part 9 of the 2014 Act to obtain the approval of the High Court which imposes higher legal and administrative costs on issuers.
On 17 July 2019, the Government approved the general scheme of migration of participating securities Bill to facilitate the migration of Irish issuers. Since that time, the Department of Finance and the Department of Business, Enterprise and Innovation have been working with all interested stakeholders and the offices of the Attorney General and Parliamentary Counsel on the proposed legislation. The legislative mechanism, as provided for in the Migration of Participating Securities Bill 2019, will allow for a more orderly migration of the market from Euroclear UK & Ireland while reducing the legal and administrative burdens. Early enactment will also facilitate the holding of the necessary shareholder votes during the 2020 annual general meeting season while giving the market confidence that an orderly migration can be completed by the deadline.
I will now turn to the Bill itself and some of its key provisions. Section 3 provides for a definition of "migration" and that a reference to "migration" is to be interpreted as the title to those migrating securities becoming and being vested in the nominated central securities depository or a body nominated by that central securities depository with respect to its operation as a central securities depository for the purpose of recording those securities in book-entry form and the settlement of trades in those securities. This section also provides clarification that the provisions of the Companies Act 2014 will continue to apply to those issuers that have migrated and nothing in the Act shall operate to divest security holders of their relevant rights and interests in the participating securities.
Section 4 sets out the conditions that an issuer must satisfy in order to consent to migration of its securities and that migration, as provided for in this section, will have effect notwithstanding the Act of 2014 nor any provisions in the participating issuer's constitution. Section 5 sets out the following: the conditions that must be complied with in order for an issuer to consent to migration including: passing a special resolution specifying the CSD to which the securities will migrate; the name of the member state in which the designated CSD is authorised; if applicable, the nominated body to which the title to the securities will transfer; confirmation that the CSD is authorised in a particular member state; and certain conditions that must be met in order to name a CSD in the special resolution including that the issuer has notified that depository in writing of its intent to migrate to it, that the depository has provided a written statement to the issuer with regard to its obligations under Article 23 of the CSD-R, that the securities have been accepted for admittance by the depository and that if not already in place, the CSD will have obtained authorisation to passport its services into Ireland on and from the date migration will take effect. Section 6 sets out further conditions that an issuer must comply with to consent to migration, in particular the content of the circular that must be issued to the issuer’s members with the notice of the meeting to vote on the special resolution, including an explanation of the proposed migration and its impact on the members; an explanation of the options available to those members who do not wish to have their shares subject to the migration; an explanation of the options available to those members who currently hold their shares in certificated form who wish to have their shares included in the migration; a summary of the relevant laws in the member state in which the CSD is authorised; a list of the documents related to the migration and where they can be accessed or otherwise inspected; and a recommendation from the directors of the issuer on the merits of the proposed migration, including a timetable of key dates in the process and any other information considered relevant to migration. Section 7 provides that an issuer or its officer that defaults in complying with the provisions of sections 5 and 6 shall be guilty of an offence.
Section 10 provides for the necessary filings to be made by an issuer to confirm that it has complied with the requirements of the legislation and is ready to migrate, including a filing with the listing authority and a statement provided by the directors of compliance with the legislation in the form of a sworn affidavit. The listing authority must maintain a list of issuers that have completed their filings and publish the list on its website. An issuer or its officers that defaults in complying with these provisions shall be guilty of an offence.
Section 11 provides for the disapplication of certain provisions of the Companies Act 2014 that are not relevant to a CSD in the conduct of its function. For the purposes of migration, section 94(4) requiring a written instrument of transfer and section 99(2) of the Companies Act 2014 requiring an issuer to issue share certificates to the CSD shall also not apply. This section further disapplies section 18 of the Competition Act 2002 and section 8(3) of the Irish Takeover Panel Act 1997 so that the transfer of title to the CSD for the purposes of migration does not trigger statutory change of control provisions in those pieces of legislation.
Section 12 provides the listing authority with the relevant powers to set by order the live date on which the title to those participating securities will transfer. The listing authority may also set dates past which it will no longer accept further filings and it may vary the dates set in the relevant orders if necessary. Section 14 provides the Minister with the necessary powers to make regulations prescribing anything required by the Bill to be prescribed, which includes a prescribed form for the purposes of section 10, and requires that such regulations be laid before the Oireachtas, whereupon they may be annulled by resolution within 21 days. Section 15 provides that no liability will attach to the listing authority in fulfilling its obligations under section 12 or any other function it may carry out under this Act. Section 16 repeals section 4 of the legislation on 30 March 2021 which is the date set down in the European Commission’s equivalence decision for UK-based securities depositories in the event of a hard Brexit. This will mean that the other provisions of the legislation will remain in effect after 30 March 2021 but it will not be possible for an issuer to avail of this migration mechanism after the cessation date as it would not be able to consent to migration without the provisions of section 4 being in effect. The Minister may extend this date if the Commission extends its equivalence decision to a later date subject to the approval of the Oireachtas.
I commend the Bill to the House.
I thank the Minister of State. It is probably the most technical legislation I have seen in here in my time in the House. I acknowledge the briefing that was done in advance by the Minister of State's officials, Andrew Doyle and Oliver Gilvarry, who were very helpful in meeting me, and I am sure others, in advance of this legislation being brought in. If we wanted to really simplify it, we would say that the UK is leaving the EU and the Irish Stock Exchange, now called Euronext Dublin, was using the UK. It will not be able to do that in the longer term because the UK will not be in the EU so it is moving to Belgium. There is a lot of legislation required to make sure that all works well. It is right and proper that this House and the other House, which has already dealt with it, make sure we are facilitating smooth commerce and transactions in terms of the stock exchange requirements. We are facilitating them through this legislation. It is important legislation. It is not the kind of thing we might put on the front of a leaflet, but at the same time it is most important that we have a working stock exchange that can do its business for the benefit of everybody in this country and ultimately for all those companies involved with the Stock Exchange. I thank the Minister of State and his staff for a comprehensive statement. There is no point in me repeating all that he has just given us. I commend the Bill to the House.
As was said, this is a highly technical Bill which seeks to make a contingency provision for the transfer of the settlement of trades in Irish equities and other securities from CREST in London to Euroclear in Belgium as a result of the uncertainty surrounding Brexit. The CSDs allow the transfer of securities and financial instruments to the electronic book entries in a central register rather than through physical delivery. Ireland has relied on the CSD based in London. The CSD is operated by Euroclear UK & Ireland, which uses a settlement system knows as CREST. I am not going to go into all that is covered in the Bill. It has been covered quite comprehensively. However, it does raise the question as to why we are not like other countries. The Minister of State might address that. Why do we not have the CSD based in the financial services in London rather than in another country? Following the decision to move its settlement to Euroclear Belgium, I understand that a White Paper was published in May to set out a new model for the market. It speaks again to the impact of Brexit and our dependence. It is important for us to have a positive relationship with our neighbours but I think we will increasingly see how we need to be as in charge as we can about all of our affairs, our financial and other affairs, within this State.
I thank the Minister of State and his officials. It was very helpful that they went to the trouble of giving a comprehensive and detailed briefing to assist us to understand the Bill and gave us an opportunity to seek clarification in the run-up to today. It is a highly technical and complex Bill. We are in the hands of professional advisers in the Department of Finance and others. I acknowledge the presence of the Minister of State's staff and thank the Department for facilitating us with the briefing and responses to our queries. I will be supporting the Bill.
In the third paragraph, the Minister of State says it all. The Irish market relies upon a CSD based in the United Kingdom operated under the CREST settlement system. Once the UK becomes a third country under the relevant European legislation, the central securities depository, Euroclear UK & Ireland, may no longer be able to provide a service into Ireland, so it has to find a new provider. The Minister has outlined in great detail how all of that will happen.
On section 8, in respect of the calling quorums, there are new ways of holding corporate meetings now and they are done online and through conference calls and all that.When a quorum is called, will people have to be present physically or will it be possible to have a quorum through a conference call, etc.? I would like clarification on that issue. I welcome the Bill.
I will try to clear up those issues. The UK becoming a third country as a result of Brexit and the potential knock-on effects for settlement is a market issue that will require a market-led solution. Ultimately, CSDs are private market operators. Euronext Dublin, formerly the Irish Stock Exchange, announced in October 2018 that it would transfer the settlement of trades in Irish equities and other exchange traded instruments from CREST to Euroclear Bank Belgium. The National Treasury Management Agency, NTMA, and the Central Bank use the Euroclear Bank ICSD in Belgium for their monetary operations.
This legislation for the issuers that choose to avail of it will facilitate this migration. Issuers, however, are free to migrate to any CSD that complies with the requirements of the legislation. No CSD provider has come forward to offer this service in Ireland. The Central Bank, with funding from the European Commission, is finalising a CSD authorisation framework for use should a service provider look for authorisation in Ireland. In effect, it was a decision of what was the Irish Stock Exchange to move in this direction. There was a consultative process.
There was a question regarding why we do not have our own one. We did, but we had a joint one between Ireland and the UK. That was a single entity going back to 1995. There was interconnectivity, therefore, in respect of what was a much smaller market in Ireland. We used the UK system and we piggybacked on that because, going back to that period, it was not essential for us to have our own. At some point in the future, I would like an Irish CSD, but that is for the market to provide, if it sees fit and if the size and scale of the Irish market requires it.
I would like to clarify for Senator Burke that there will have to be a physical presence for a quorum.