At present, registered notes are issued in paper format and stored in physical vaults. With the announcement of the launch of new electronic global notes there will be the option to issue in electronic format. 

What should you be thinking about to get ready: 

1.Is your type of issuance included?

At launch it will only apply to: 

• New issuances of registered NSS securities 
• Those that are governed by English law 
• Those that are issued by non-governmental issuers located in England & Wales, or by Supranational issuers

2. What do you need to do to issue a new global e-note?

• Two new legal packs are available on the ICSDs' websites (Clearstream Banking, Luxembourg and Euroclear Bank)
• One for e-global notes, and one for non-electronic issuances
• This includes a new ICSD Agreement which will need to be signed before issuing e-global notes
• You cannot issue an e-global note unless you use the correct documentation 

3. What if you don't want to make changes, and only want to issue traditional physical notes?

• That's fine as well, it's optional, not mandatory

4. When can you start issuing e-global notes?

From 3 June 2024. But only if you use the new wording. Don't forget to check out the ICSDs' websites for the legal packs.

What else is changing? 

Alongside e-global notes, electronic signatures for issuance documents are also being rolled out. This means that from 3 June 2024, the ICSDs can accept electronic signatures on certain issuance documents. Again, it's optional, but you have to update your issuance documents to include the new electronic signature wording if you want to make use of this option. 

Are there any issues you need to be aware of ? 

Digitizing the storage of registered notes clearly has a benefit not only in terms of efficiency, but also in reducing paper usage. Likewise introducing the ability to sign electronically should create further efficiencies in the issuance process. 

But this is still a technical legal area and care must be taken to ensure that the signatures are legal, valid and binding. 

One risk to look out for is if an issuing corporation lacks capacity to issue or sign electronically. That is unlikely to be a problem for now because the launch is largely limited to corporations incorporated in England & Wales, which should have capacity. But when e-global notes are rolled out for companies elsewhere, care should be taken. 

Even if the notes are governed by English law, the capacity of a non-UK corporation is likely to be decided by the law of incorporation. If the issuing corporation lacks capacity, then the notes would be void. That would mean that the contract to repay would be void. Bondholders or corporate trustees would need to bring a claim in restitution (otherwise known as unjust enrichment) to recover money paid out. That can lead to complex disputes concerning whether some other transaction documents are still valid, defences to restitution based on change of position and public policy, and foreign law.

There are quite a few English judgments concerning companies that have relied on lack of capacity which would have the effect of not needing to repay a financial contract, and counterparties then claiming restitution. There is also at least one judgment where a bond issuer argued that the bonds were void because of lack of capacity. 

The ICSDs are emphasising that it is the responsibility of the issuer to check it has capacity and authority to issue and sign electronically. Other transaction parties and prospective investors may well want to check this also.

To recap, this is unlikely to be a problem for corporations incorporated in England & Wales – but it’s worth checking capacity of foreign corporations in the future.

Of course, this does not change the fact that e-global notes and electronic signatures are an exciting and useful development in the capital markets – we look forward to seeing how quickly they are taken up!