The successful European launch of Euroclear’s Cash+ solution for optimizing the financial value of optional dividend (DVOP) payments in the corporate actions process could offer a new path forward for Hong Kong Exchange as it seeks to drive innovation across APAC securities markets.
Piloted by Euroclear in Belgium, France and the Netherlands in partnership with fintech company Scorpeo, Cash+ is a new offering for asset owners that creates an additional electable option on scrip dividend events to capture the ‘optimal election’.1 Euroclear estimates that “for optional dividends, about 85% of investors opt for cash and miss out on the opportunity to maximise their financial benefit”.2
By identifying the dividend option (cash or shares) that would yield the highest financial value, Euroclear states that Cash+ “provides a third option beyond the traditional cash and stock choices, ensuring shareholders can maximise their revenue without compromising their standard cash entitlement”.
It allows CSDs to partner with asset owners, enabling direct investor relationships in what has typically between a relationship intermediated by a custodian. However, those interested asset owners would still need to partner with their custodian to ensure that these CSDs have appropriate agent agreements in place in order to facilitate the Cash+ transaction.
The three parties would also need to work together to ensure that announcements reflect the new Cash+ offering in addition to enriching their SWIFT messages to ensure that the new election offering can be processed.
As new corporate events are announced across Europe, asset owners are beginning to reap the benefits of being able to regularly elect optimally on their scrip divided events, with yield increases reported as high as 10%.3
There is a clear opportunity for other exchanges to take note of how Cash+ changes the dynamic of how a CSD can interface with their local market and be a value-add partner to asset owners through the optimization of corporate events. A natural landing zone for Cash+ – given the opportunity for expansion and scalability it offers – would be Hong Kong.
As a gateway where East meets West, Hong Kong has always been at the forefront of APAC finance and continues to champion innovation. This past March, for example, CMU Omniclear – the Hong Kong Monetary Authority’s CSD for debt securities – and the Hong Kong Exchange signed a memorandum of understanding to deepen their collaboration in enhancing the post-trade securities infrastructure of Hong Kong’s capital markets.4
A solution similar to Cash+ – or indeed Cash+ itself delivered in partnership with a local institution – slots nicely into Hong Kong’s long term strategic objective of continuing to expand its product offerings across asset classes and marketing itself as an enticing place for asset owners to invest in.
Cash+: how it works
The mechanics of the optimal election are straightforward: when an investor is presented with the choice of electing ‘cash’ or ‘stock’ on an optional dividend, a decision needs to be made based on the true value of each option. Cash+ allows investors to send their election to a CSD – in this case Euroclear – which then processes the event details through an advanced algorithm which presents a continuous, real-time comparison.
Where ‘stock’ will yield a more favorable results, a long-dated trade is executed via an appointed broker to capture the additional value. If ‘cash’ is better, the shareholder receives the cash as usual.
The process is reminiscent of a well-known and popular trade in securities lending – scrip dividend arbitrage – where traders monitor their client’s election options in custody (or outside of custody for more advanced lenders) and trade out those client positions that have opted for ‘cash’ to brokers on the street. Where the optimal election would have been ‘stock’ in terms of gross value, the stock is sold by the borrowing broker and proceeds are split with the lender.
Cash+ (or a similar offering) helps to democratize the value that scrip dividend arbitrage brings for securities lending clients, making it available to all investors who are electing non-optimally – all the while taking an ad valorem charge on the additional value in addition to a 50% processing fee charged on those extra proceeds generated. The investor always receives the full cash dividend to which they are entitled.
The Hong Kong opportunity
Hong Kong already ranks among the top 10 global exchanges with a market capitalization of over US$3.3 trillion and more than 1800 listed companies, with many of these issuers offering scrip dividend options on their corporate event and issuing rights offerings on an ad-hoc basis as well.5
The favorable tax regime eliminates any concerns of would-be tax implications of this new dynamic way of looking at corporate events, while the flexible listing rules that the Hong Kong Exchange offers creates a favorable environment for a healthy pipeline of companies to IPO and mature within the market.
Entities such as HKEX, through its subsidiary Hong Kong Securities Clearing Company Limited, or CMU looking to define a business model in region would need to take some initial steps such as gathering informal feedback from brokers, custodians, investors and industry bodies to validate the market demand. Pain points will need to be identified across the current election, proxy and scrip processes, and it would also be essential to engage the SFC early in an informal dialogue to explore the core concept and fully assess the necessary regulatory parameters.
Closing thoughts
The launch of Euroclear Cash+ has demonstrated how CSDs both in APAC and globally might change up how they interface with their markets, allowing for a new level of engagement that supports their existing strategic objectives – with jurisdictions such as Hong Kong being prime locations for expansion or collaboration.
While implementation will inevitably have its challenges and complexities, benefits such as opening up direct investor relationships and diversification of revenue would justify the effort involved and provide the foundations for future innovation.
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References
1 https://www.euroclear.com/services/en/corporate-actions/cash-plus.html
2 www.euroclear.com/content/dam/euroclear/Services/corporate-actions/Flyer-EuroclearCash.pdf
3 https://www.scorpeo.com/euroclear-cashplus/event-data
4 https://www.hkma.gov.hk/eng/news-and-media/press-releases/2025/03/20250304-4/