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23. Who can exercise the voting rights and decide on corporate actions attached to equity and corporate bonds being used as collateral in a repo?
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During the term of a repo, the buyer holds legal title to the collateral. In other words, the collateral is his property and he is entitled to any benefits of ownership. In the case of equity and sometimes corporate bonds, this may include voting rights. The buyer can, if he wishes, vote in accordance with the wishes of the seller, but he is under no obligation whatsoever to do so. It is unacceptable market practice to use repo to buy equity solely in order to exercise the voting rights.

Also in the case of equity and sometimes corporate bonds, options may arise such as rights issues and stock splits --- so-called corporate actions --- on which, holders are required to make a choice. As with voting rights, where the security is being used as collateral in a repo, the decision rests entirely with the buyer. However, while the seller cannot dictate what decision the buyer makes on the collateral sold to the buyer at the start of the repo (assuming the buyer is still holding that collateral when a decision has to be made), the seller has the contractual right to specify the form of the fungible collateral to be sold back to him at the end of the repo (see question 1). This would include the result of exercising any option. As a practical matter, this may determine the decision of the buyer on the corporate action.


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