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Strip bond processing

Are interest and principal components fungible if they share the same issuer, payment date and currency, and have no other distinguishing features? The interest and principal components are fungible and share the same security number if: 1) this was requested when the strip components were created and 2) the eligibility criteria for generic strip bonds are satisfied. How can I find out how much of an issue has been stripped? CDS publishes monthly reports showing the quantity stripped by book-entry; these reports are normally distributed by the third business day of each month, showing the actual quantities at the end of the previous month and other information. These reports are available both to participants and non-participants. To subscribe to these reports, contact CDS Customer Service. Public reports, with much less detail, are available on this website. These are published on or about the 15th day of the following month. What happens to residues from callable bonds when the call date is reached? If the issue is called, the payment is passed to the holders following normal procedures for strip bond maturities. If the issue is not called, the strip bond is converted to an equivalent position in the underlying security. If the underlying security is not eligible for CDS’s depository service, the underlying security will be distributed to participants. If the final component in a callable residue bond-type package is not called, the package is converted to an equivalent position in the underlying security or, if ineligible for the depository service, is distributed to participants. Can book-entry strip bonds be sold to U.S. investors? Yes, in certain circumstances. Following application by the Investment Industry Regulatory Organization of Canada (IIROC) and CDS, the United States Securities and Exchange Commission granted an exemption from the United States Investment Company Act of 1940 for CDS book-entry strip bond arrangements related to Canadian debt securities. For more details on the requirements for sales to U.S. investors, refer to IDA Bulletin No. 2205 dated October 27, 1995. How can I deliver book-entry strips to an institution in the U.S.? At present, there are two alternatives: deliver the securities to the institution's Canadian custodian, who must be a direct or indirect participant of CDS if the strips are eligible for deposit, transfer the securities to Euroclear or Clearstream (through CIBC Mellon) and then deliver the securities to the institution's custodian in Euroclear or Clearstream (through CIBC Mellon). Book delivery through DTC is not available at this time, as the book-entry strips are not eligible for deposit at DTC. Is there any difference in the ways that interest, principal and payment strip bonds are handled by CDS in the event of a default? What are the rules for handling voting rights? What rules are applied if the strip bonds are held in a package? CDS procedures for handling defaults and other similar situations are the same for interest, principal and payment strip bonds, in general. However, there are four sets of components where separate trust agreements apply to strip bonds in the event of default and certain other situations. CDS follows the same process for allocating voting rights. Specific details are outlined in the CDSX Procedures and User Guide. In general, to calculate the rate for each component, CDS: selects a “determination date” for the prices used in this calculation obtains prices on the “determination date” from two or more selected CDS participants and calculates the average price for each outstanding component based on recent prices calculates the economic interest for each component by multiplying the face value by the average price calculates the proportionate economic interest for each component in relation to the total calculates the distribution amount for each component by multiplying the total entitlement received by the proportionate economic interest calculates the distribution rate for each component by dividing the distribution amount for each component by the total face value on deposit in each component. If the strip bonds are held within a package, the payments due on the individual strip bonds are calculated as outlined above and then the total amount due on the strip bonds in the package is distributed to participants holding the package.