Corporate Action Information

• Corporate actions affect all customers who hold security positions, and encompass a wide variety of different situations. For example, an issuer may decide to pay a dividend to all shareholders, where each receives a cash amount for every share owned. Or, one company could get purchased by another, and existing shareholders exchange their shares for stock in the acquirer. Situations like these occur frequently, and your product will need to display these changes appropriately for customers to understand what's happening to their account.

Mandatory actions

• Brokerage firms like DriveWealth that handle customer-facing account adjustments receive corporate action details reported to the DTCC, the central custodian in the United States. Corporate actions are one of the most operationally intensive processes firms are required to fulfill. Many of these actions are mandatory, meaning they are automatically applied to customer accounts.

• Imagine that ABCD is being acquired by WXYZ, in an all-stock deal. Existing ABCD shareholders will automatically see their ABCD position removed, and a new WXYZ position added. Often times this is not one-for-one (meaning the position quantities will differ), or there may also be cash credited. Ensure that you are displaying the full details of this transaction in the customer's activity view, and consider having support staff prepared to answer questions regarding this event.

• You can learn more about mergers and other voluntary action types from the sidebar.

Voluntary actions

• Some corporate actions are optional, and not applied to an account automatically. The most common example of this is a proxy vote opportunity, when shareholders can cast votes for an upcoming shareholder meeting. Customers can choose to take advantage of this opportunity, or do nothing, and there will be no impact on their account.

• Sometimes, a corporate action occurs which is voluntary for the shareholder, but if opted-in, triggers a mandatory change. For example, a tender offer could be announced to tender ABCD stock at $10 per share. If a shareholder opts-in, their position will be frozen until pay date and automatically swapped for cash. You can learn more about tender offers and other voluntary action types from the sidebar.

Corporate action timeline

• In general, a corporate action has several important dates:

• Both the Transactions API and Events system will reflect corporate action updates overnight after the pay date.

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Orders that are pending for a security can be modified if a corporate action takes place. Read Order workflow and edge cases for examples and more details.

Displaying action details

• When requesting current account information via the Transactions API or Account Summary API, positions and cash will automatically be updated for any corporate actions that take place.

• DriveWealth will send emails to shareholders of record when a voluntary corporate action occurs. Read Shareholder communications to learn more about these communications.

Receiving action information over the Events system

• Partners using the Events system will receive real-time notifications of corporate actions and in turn be able to send real-time notifications to customers and better understand/anticipate corresponding updates to positions and/or cash entries to underlying customer accounts that will be processed by DriveWealth.

  Corporate actions trigger three core types of Event notifications:

• Instrument Events

• Account Events

• Transaction Events

• Depending on the action type, a combination of all 3 might be utilized. Refer to the sidebar for specific examples of processing for each type.

Instrument Events

• Instrument Events alert of a newly created or modified security. For certain actions, instruments may be created and/or updated to properly process the downstream Account and Transaction Events as part of the action processing. An important aspect of Instrument events is the status, which governs the tradability of the instrument and is used during processing to ensure that instruments subject to a action are ineligible from accepting orders (Inactive State) during processing.

  Examples:

• ABCD is delisted. ABCD's status is changed to inactive

• ABCD changes its symbol. The instrument symbol field is updated

• Instrument Events are triggered when DriveWealth updates any information within the Instrument API. DriveWealth attempts to ensure that all instrument updates are completed in one action (triggering only a single event), however, under certain circumstances a counterparty may receive more than one event for an instrument if it is updated more than once.

Account Events

• Account Events notify of a position that has been modified without any impact to cash or other securities.

  Examples:

• ABCD is delisted. An account's position quantity is changed to zero

• ABCD undergoes a 2-for-1 split. An account's position quantity is doubled

Transaction Events

• Transaction Events alert of a journaled transaction that impacts cash, positions, or both. These are line items that will appear in a customer's official Monthly Statement.

  Examples:

• ABCD is bought by a private company. An account receives cash in exchange for all held shares

• ABCD pays a dividend. An account receives cash for each share held

Proxy Voting

DriveWealth, LLC enables all investors to vote their shares, even fractional ownership. The manner in which this is done, is customers submit their votes for each votable item on a proxy notification. All votes are tabulated by response for all customers who hold the respective security. Once the voting window has elapsed, all votes for all customers are aggregated to the nearest whole share and DriveWealth votes the shares held in its possession on behalf of its customers pursuant to our customers' elections. Any customers who do not vote their shares, DriveWealth submits a broker abstention vote.

Proxies

• Consent Solicitations
• Info statements
• Firm Meetings
• Fund Meetings
• Annual Report
• Semi-annual Report
• Contested Meetings

Corporate Actions

• Repurchase Offer
• Dividend Reinvestment
• Dividend Option
• Consideration Election
• Tender Offer
• Exchange Offer
• Odd Lot Sale/Purchase
• Rights Issue
• Priority Issue

Symbol Changes

A Symbol change can occur for a variety of reasons, but a symbol change does not have a conversion component, impacting underlying share number, price, etc. of the underlying symbol. Note: a symbol and instrument changes are used interchangeably.

Operational/Technical Sequencing

1. After the market close, on the last day of trading under the prior SYMBOL, the symbol will be marked as “Inactive” in DriveWealth’s system. By marking it inactive, will ensure that any orders being received or queued under the prior SYMBOL are rejected, rendering them unable to be executed.

   1. Events API: When the prior SYMBOL is marked as “Inactive”, the Events API will produce the following event: Instrument Status Update Event

2. Once the prior SYMBOL has been made “Inactive”, DriveWealth will update the prior symbol to the new symbol. Effectively, the information being updated is the SYMBOL, COMPANY NAME & RIC.
   2. Events API: Event Trigger will be: Instrument Symbol Update Event

3. All other operational processes occur on DriveWealth’s side, which fundamentally ensure that the instrument information is available via API and that the market data is active for when the symbol begins trading. The key element relating to market data is that depending on the nature of the corporate action, which may include a SYMBOL change, the SYMBOL may or may not trade on the open of the first day of trading.

• **Corporate Actions with only a SYMBOL change typically trade on the open. More complex Corporate Actions, symbol change plus say a conversion M&A element, are not guaranteed to trade on the open right at 9:30am, as a result of an SEC or Exchange halt.

• As noted previously, while the DW process will be to update all relevant information at the same time, to the extent any information is not available (e.g. RIC), and the SYMBOL and COMPANY NAME information is updated, with the RIC being updated when available; this would produce 2 events.**

Dividends

• Dividends are Issuer determined and paid as a corporate action type, owed to the customer.
• While dividends are announced in advance, and the payment date is generally known, dividends processing largely rely upon the timing in which DTC processes them through the network on to DTC brokers, this can occur at any point throughout the payment day.
• DriveWealth’s service provides that dividends are paid to customer the day after the payment date, as we cannot guarantee that payment will be received in time, for full processing down to the customer account.
• When a dividend is processed, it is received in bulk, and correspondingly booked to the customer’s account created a FinTrans record for Dividend.
• Events API Trigger: Dividend Transaction Event

Delisting and Going Private

• Corporate events can happen for a number of reasons. Generally, a delisting will occur when the security no longer meets exchange reporting requirements (get links), or the exchange itself decides it no longer will facilitate trading the security. On the other hand, a company that decides to go private may do so to reduce regulatory and reporting requirements that can help free time and money to support longer-term goals, much like when Dell went private.

• The difference between these two events is shareholder compensation. In the event a company delists to an OTC exchange, the shareholder is not entitled to any financial compensation from the company. The customer is still viewed as a shareholder, and will be subject to market price fluctuations. In the event of a company going private, the shareholder will be entitled to a per share dollar amount decided by the company.

Standard Operating Procedure - Delistings

• DriveWealth does not offer trading directly in OTC listed securities, and as such has built out a procedure to help facilitate the liquidation of client OTC positions. At a high-level, when a customer intends to sell an OTC listed positions, DriveWealth must be notified, and will at that time submit a phone order to our executing broker. The order will then be executed and reflected as such against the customers account.

  Please see OTC for further information on how DriveWealth processes OTC related trades.

Standard Operating Procedure - Going Private

In the event a company goes private, DriveWealth will take 2 actions to reflect the corporate event:

• Once in receipt of the funds from the issuer, DriveWealth will create a transaction in the customer account to exchange stock for cash.

• Next, there will be a position adjustment to remove the existing position

• Finally, the symbol will be listed as INACTIVE once all actions have been processed.

  The corresponding events for this will include:

• Transaction create event: Credits cash to the account, and will have acquiree = acquirer

• Position updated event: Remove previous held shares in the company

• Instrument updated event: Instrument status update from “Open” to “Inactive”

Multi-facet Corporate Actions

• Generally are complex merger and acquisitions, which have both share conversion and cash elements. While the sequencing of events is largely in line with the above, whereby counterparties will receive a Instrument Update for Status (Active/Inactive) and the corresponding Instrument Updates – changing “Old” symbol to “New” symbol, counterparties will receive additional Events, to alert them to the various legs of the transaction. Below is an example of a multi-leg merger and acquisition:

  Example: CBS, VIA, VIAB changed to VIAC & VIACA (3 Old Symbols to 2 New Symbols)

• In this Merger & Acquisition CA, we had several symbols being retired, in exchange for two new symbols. While the CBS to VIAC which had a 1:1 conversion rate, would be processed as a symbol change, generating two Events:

1. Instrument Updated Event: “Active” to “Inactive”
2. Instrument Updated Event: Instrument Symbol Update – “Old” symbol to “New” symbol

• The other two legs, VIA to VIACA and VIAB to VIAC would be processed using the same Events above PLUS the Transaction Events of Removing and Adding Shares, at the conversion rates, for EACH conversion:
  1. Symbol Change: Removing Shares Event – “Old” symbol
  2. Symbol Change: Adding Shares Event – “New” symbol

• In summary, to fully process one of the legs (VIA -> VIACA), the following Events would trigger:

1. Instrument Updated Event – “Active” to “Inactive”
2. Instrument Updated Event – Instrument Symbol Update – “Old” VIA symbol to “New” VIACA symbol
3. Symbol Change: Removing Shares Event – “Old” symbol (VIA)
4. Symbol Change: Adding Shares Event – “New” symbol (VIACA)

• The same Events would trigger for VIAB to VIAC leg of the transaction.