An unintended effect of Brexit is that CREST’s operator will no longer be authorised in Ireland. This has important implications for the settlement of trades in securities of Irish incorporated public companies after Brexit. The Migration of Participating Securities Act 2019 is intended to facilitate migration of settlement of uncertificated equity trades to Belgium’s Euroclear Bank. Showing appropriate dedication to the Irish equity securities markets, President Higgins signed the Migration of Participating Securities Bill 2019 into law on Christmas Day 2019.
What does this Bill address?
Euroclear UK, which operates the CREST settlement system, will cease to be authorised as a central securities depository (CSD) when Brexit eventually takes effect, subject to interim measures which extend its authorisation until 31 March 2021. As a result, the current system of trading in uncertificated equity securities of Irish incorporated public companies will need to be replaced by a migration of these Irish companies’ securities settled via their current CSD, Euroclear UK & Ireland, in order to be migrated to another EU-based CSD.
Facilitating migration without a scheme of arrangement
The Migration of Participating Securities Act facilitates the migration of these Irish listed securities from Euroclear UK & Ireland. Most countries operate their own domestic CSD but for historic reasons - principally the close links between the Dublin and London stock exchanges - the Irish market regularly relies upon a UK CSD. This Act will allow for the coordinated migration of the relevant Irish securities to a CSD based in the EU on a single day. This measure will reduce the legal and administrative burden on issuers to effect migration individually. This Act also makes consequential amendments to certain provisions in the Companies Act 2014 to take into account the changes in the settlement model.
Under the Act, it will be necessary for each relevant company to pass enabling resolutions at either its next AGM or at an EGM. The enabling resolutions must be in force by 31 March 2021. A template circular for use by relevant companies is being prepared by a working group coordinated by Euronext Dublin in which our Equity Capital Markets team is actively participating.
While the details are not clear, it is not intended that the new settlement system will result in any reduction in stamp duty rates, so as to preserve the roughly €400m annual contribution to the exchequer from trades in shares in Irish public companies.
A different model – Irish company law implications
The Euroclear system involves settlement in Belgian law governed contract rights, which are associated with registered securities in the name of a nominee. A further bulletin from our team will outline the main Irish company law implications of this very different settlement model. The ramifications of President Higgins’ Christmas day distraction from his turkey will continue to be felt by the Irish equity securities market for many years to come.