Effective July 1, 2009, CDS Clearing and Depository Services Inc. (CDS) is requiring all issuers that use the book-entry-only (BEO) services1 provided by CDS to enter into a new agreement (the BEO Securities Services Agreement) with CDS to make BEO issues eligible for deposit at CDS and to maintain the eligibility of securities of an issuer for BEO services. This requirement applies to both new issuers and to BEO issuers who have an existing agreement with CDS (i.e. a letter of representations, blanket letter of representation, or memorandum of understanding). If applicable, the BEO Securities Services Agreement replaces these agreements delivered by the BEO issuer or its predecessors prior to July 1, 2009. It is a standard form agreement and no amendments are permitted by the BEO issuer.
The BEO Securities Services Agreement, along with the Issuer Procedures to the BEO Securities Services Agreement (the Issuer Procedures), set out the provisions by which CDS will hold securities in its nominee name. They also provide CDS with a means to replace a lost or stolen BEO global certificate without purchasing a bond of indemnity, and ensure entitlements are distributed to participants on payment date with payments received by CDS electronically and in same day final funds. For existing BEO issuers, they apply to each previously issued BEO security or its predecessors delivered to CDS.
All global certificates issued by a BEO issuer shall bear a prescribed legend which states that such certificates have been issued according to the BEO Securities Services Agreement. This change to the legend may require the board of directors of the BEO issuer to approve a new form of security certificate prior to issuing securities post-July 1, 2009. Moreover, according to the BEO Securities Services Agreement, CDS reserves the right to refuse to accept any issues of securities as eligible for deposit at CDS, to determine that specific issues of securities at CDS be made ineligible for deposit at CDS as BEO securities, and to request the withdrawal of specific securities that CDS has determined are no longer eligible at CDS as BEO securities.
Once the BEO Securities Services Agreement is signed and accepted by CDS, it is kept on file by CDS for all future BEO issues by the BEO issuer. However, a completed BEO Acknowledgment in the requisite form must be filed and delivered each time the BEO issuer makes a deposit of securities with CDS. Each BEO Acknowledgment must be delivered at least two days prior to the closing for each specific issue of securities.
Issuers and counsel are encouraged to familiarize themselves with the new requirements, including the BEO Securities Services Agreement, the Issuer Procedures and the form of BEO Acknowledgment, available on CDS's website at http://www.cds.ca/cdsclearinghome.nsf/Pages/-EN-BEO_Registration?Open, each of which is available for downloading.
Footnote
1.A BEO issue is one where the entire issue is registered in CDS's nominee name (CDS & Co.) on the register of the issuer and is deposited with CDS for the life of the issue. Physical certificates are not available to beneficial holders for BEO issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
