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
Thanks @Luciano . Based on my understanding, any time a lifecycle effect is claimed in Daml Finance, the result of this is to generate a
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?
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
custodian as signatories.
Hope this helps.