Hi there, in traditional finance, holders of an asset do not always get to choose whether to participate in a corporate action. For example, if a stock split is announced the holders have no choice but to accept the replacement of their existing holdings with holdings of the newly created companies. I was wondering if there is any way to model this in Daml Finance without the asset holder needing to accept the lifecycling event explicitly? Or is it the intention of the library that the holders delegate responsibility for doing these tasks to another party/agent/automation tool?
Hi Huw. The instrument modelling functionality describe in the docs can be used to model stock splits and other types of corporate actions. It is possible to distinguish between scenarios where the holder has a right to elect (for instance, exercising a convertible), but also those where the holder is passive, e.g. receive a coupon payment, or a stock split. This is achieved by the lifecycle function in the ContingentClaims module; it’s then up to the developer to decide when/how this gets called - in your example, it might be desirable to execute this on a daily schedule.
The only caveat is that in it’s current implementation, if these events are not known a-priori, you will need to mutate your existing instrument, and any references to it (to append the corporate action event to the set of Claims).
Thanks @Luciano . Based on my understanding, any time a lifecycle effect is claimed in Daml Finance, the result of this is to generate a Batch and Instruction(s). Each Instruction will need to be approved and allocated in order for the Batch to be settled. Therefore, if the issuer wants to replace the investor’s holdings, the investor will still need to allocate their Holding to the Instruction. Is this correct?
That sounds about right. Is it not possible to delegate that workflow to the investor custodian himself? i.e. via an intermediate contract?
Hi @huw,
That is correct. As you suggest in your first post, the investor would usually delegate this operation to their holding custodian (which is often the same party as the issuer, but not necessarily), who can allocate the Holding on behalf of the investor.
An alternative approach is to change the Claim rule used to claim an Effect to perform the replacement directly instead of creating the corresponding settlement instructions. Such a claim rule will need stronger authorisation compared to the default one, having e.g. the holding owner and custodian as signatories.
Hope this helps.
Matteo
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