The diagram below shows the different processes which are commonly used:
Subscription directly into the register of the Issuer (SPV below)
Subscription made by the investor through a nominee bank
Subscription is made in Delivery Versus Payment through the clearing system (DVP)
Subscription is made in DVP via Fundsettle Euroclear (for fund shares)
5. Dematerialised Subscriptions directly into the register of the Issuer via FundNav
Preliminary Step : The issuer drafts the investment memorandum, or the prospectus of the security it will issue, and obtain an ISIN number (LU or XS) for the said security. A subscription form is also drafted in respect of the specific format.
Step one: The investor fills in a subscription form and sends it with the KYC document to the issuer (SPV).
Step two: The investor wires the subscription amount from his bank account to the bank account of the issuer.
Step three: The SPV issues a contract note or a confirmation of subscription upon receipt of the funds which shows the extract of the share/bond register held by the issuer.
Step four: The SPV periodically pays the yield due on the securities, this being interest, coupons or dividends, directly to the investor's bank account.
Step one: The investor orders its bank to subscribe in such a security and act as a nominee.
Step two: The nominee fills in a subscription form and sends it to the issuer (SPV). Being a regulated bank the process of KYC will be simplified.
Step three: The bank withdraws the amount of the subscription from the investor's bank account. The bank wires at its own name, and the amount of the subscription to the issuer's bank account.
Step four: The SPV issues a contract note or a confirmation of subscription on receipt of the funds which shows the bank to be registered as a share/bond-holder in the register held by the issuer. The nominee bank then books the position on the investor's security portfolio.
Step five: Periodically, the SPV pays yield due on the securities, this being interest, coupons or dividends, to the nominee bank which then credits the investor's bank account.
Step one: The investor instructs its banker to subscribe or invest in a particular security.
Step two: The banker sends instruction to Clearstream of subscription in DVP (delivery versus payment).
Step three: Clearstream receives instruction and payment from the banker, and sends the instruction to the paying agent (of the issuer/SPV) requesting the subscription into the security under a global certificate format.
Step four: The paying agent informs the issuer and requests issue of a global certificate equivalent to the subscription which is printed and sent to Clearstream via the paying agent.
Step five: As soon as Clearstream receives the global certificate the funds are released to the paying agent who then credits the bank account of the issuer. The issuance of a global certificate to Clearstream then appears in the issuer's register.
Step six: The banker receives confirmation that the security is held by Clearstream and that the payment has been released.
Step seven: The banker confirms the subscription to the investor and the security is then booked into his security portfolio.
Step eight: Periodically, the SPV pays the yield due on the securities, this being interest, coupons or dividends, to the paying agent who then pays it to Clearstream which then credits the account of the nominee Banker. This in turn is credited to the investor's bank account.
For Subscription via Fundsettle Euroclear (for fund shares)
Step one: The Investor instructs its Banker to subscribe or invest in a particular security (only shares/units of funds, not applicable for bonds).
Step two: The Banker sends to Fundsettle/Euroclear an instruction of subscription in DVP (Delivery Versus Payment).
Step three: Fundsettle/Euroclear receives the instruction and payment from the Banker and sends the instruction to the Central Administration (of the Issuer / SPV) requesting the subscription into the security under a Contract Note.
Step four: The Central Administration informs and requests the Issuer to issue a Contract Note equivalent to the subscription which is printed by the Issuer and sent to Fundsettle/Euroclear via the Central Administration.
Step five: As soon as Fundsettle/Euroclear receives the Contract Note the funds are released by Fundsettle/Euroclear who sends the funds to the bank account of the Issuer. In the Issuer register appears the issuance of a Contract Note issued to Fundsettle/Euroclear.
Step six: The Banker receives confirmation from Fundsettle/Euroclear that the security is held by Fundsettle/Euroclear and that the payment has been released.
Step seven: The Banker confirms the subscription to the Investor and the security is then booked in his security portfolio.
Step eight: If/when the Issuer pays out dividends or redeem shares to the Investors, the Central Administration under the authority of the director of the Issuer informs Fundsettle/Euroclear of the amount of the distribution/redemption and the Issuer proceeds with a payment to Fundsettle/Euroclear which then credits the account of the nominee Banker which in its turn credits the Investor’s bank account.
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