Treatment of Corporate Events

Rules on adjustments of buy/sell-back transactions novated by BME CLEARING are stablished by the CCP itself, but IBERCLEAR will generate adjustments in BME CLEARING instructions along with those carried out for failed transactions on Record Date (day on which the issuer determines which positions are to be taken into account for the calculation of the corporate event), that were not novated. The adjustments carried out by IBERCLEAR will be between the failed seller and the affected buyer.

It means, if a corporate event occurs and there are unsettled balances on Record Date, it is necessary to ensure that the Benefit of the corporate event reaches the buyer of a failed transaction.

In case of repo transactions with an intermediate coupon payment, BME CLEARING will do a settlement process on the value date of the coupon payment, through TARGET2, to charge the coupon amount to the holder of the securities at that time, and pay to the original owner.

The corporate event types, according to how they affect to the characteristics of the underlying security, are:

• Distribution: In these corporate events, the characteristics of the underlying security is not modified. Cash or securities are distributed according to the position in the registry at the close of the Record Date. For example: Coupon Payment.
• Reorganization: In this type of corporate events the underlying security is modified. For example: Final Redemption.