Time to move on corporate actions
Corporate actions remain one
of the last bastions of manual
processing. Alan Jones, Product
Manager, SmartStream, argues
that given the stability and
maturity of ISO messaging
standards, as well as the risks
inherent in paper-based processing,
financial institutions should be
more ambitious in their plans for
data processing and automation.
Processing corporate actions is a datedriven, workflow-based activity. A financial
institution must collate and cleanse
event data from numerous sources, in
order to create a single record of truth or
golden record. Once an accurate record
has been established, event data needs
to be communicated to clients and their
instructions solicited. The financial
institution is responsible for the correct
distribution of benefits and also has to
reconcile clients’ positions accurately with
statements from custodians.
A great deal of information is involved
in corporate actions processing, with
multiple information flows from clients and
custodians. An event may remain active
anywhere from a week to several months
and, during this time processing teams
must be constantly on the alert to ensure
that no important deadlines are missed.
The large number of event types which
financial institutions have to handle – there
are currently over seventy different types
defined by ISO Standards – creates a further
challenge.
Yet for many financial institutions, corporate
actions processing is still very manually
intensive, using spreadsheets, paper files
and tasks & reminders created by hand. It is
expensive, as many resources are required,
while the lack of automation can also lead
to administrative effort being duplicated.
Take, for example, the case of a bank with
corporate actions teams in Singapore, Hong
Kong, the US and the UK, each managing
the processing of event information, client
communications and so forth. Effort is
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currently quadrupled, at considerable cost.
Clearly, one centralised processing unit,
with smaller regional teams to provide local
support to clients, would make far greater
economic sense.
Processing corporate actions manually is
also inherently risky. Missing an event –
which can be extremely easy to do – can
result in significant losses, amounting to
tens or hundreds of thousands of dollars, all
of which have to be made good in relation
to clients’ positions. There is also the threat
of serious reputational damage. The rising
volume of corporate actions, as well as the
new, increasingly complex event types that
continue to emerge, looks set to amplify
these dangers.
Financial institutions are still surprisingly
cautious about replacing existing manual
processes with electronic ones. Forwardthinking companies have begun to introduce
greater levels of automation but projects
typically focus on data collection and
cleansing. There has been far less emphasis
on digitising the full corporate actions
lifecycle and firms have tended to overlook
the many manually- intensive processes –
beyond data collection and cleansing – that
would benefit from automation, as well as
the efficiency gains and cost savings that
could be achieved by doing so.
There are signs, however, that change is
afoot, both at industry and individual firm
level. Regulatory intervention is already
beginning to drive change in the way
corporate actions data is communicated.
Financial authorities in a variety of locations,
including Singapore, Australia and Italy, now
stipulate that securities issuers must provide
event data in a computer-readable format,
directly to the exchange. This will streamline
the issuer to investor communication
flow, removing the need for re-keying of
information and guaranteeing that investors
receive the correct data.
Interestingly, some industry experts believe
that the financial services sector will
ultimately move towards a utility-based
approach to the collection and cleaning of
corporate actions information. Thousands
of firms currently gather and scrub the same
data, entailing massive expenditure and
operational effort. It is surely only a matter
of a few years before the financial sector
wakes up to the value of a centralised utility
ALAN JONES
Firms have tended
to overlook the many
manually- intensive
processes – beyond
data collection and
cleansing – that
would benefit from
automation.
that could perform the task of collation and
cleansing, and into which all parties could
tap. Clearly, this would also free firms up
to focus on the complex lifecycle of events,
such as managing entitlements and tax
calculations, which exists in addition to
data collection and the creation of a master
record.
At individual firm level, there are also
indications of a change in attitude. At
SmartStream, during the last twelve months,
we have experienced an upsurge in interest
from financial institutions which are keen to
add greater levels of control and automation
to their corporate actions processing. New
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industry regulations relating to capital
adequacy are partly driving this increased
interest in automation but it is chiefly the
fear of making large losses that is prompting
firms to review operations in this area.
We are also witnessing a growing interest
amongst financial institutions in cloudbased, on-demand, corporate actions
processing, a trend reflected by SmartStream
survey evidence. Five years ago, we
questioned a range of market participants
with only 20% saying that they would
consider carrying out corporate actions
processing in a hosted environment. Our
most recent survey indicated that 75% would
be interested in cloud-based servicing. Buyside respondents were notably keen to make
use of this type of service.
Actions. It is the most advanced end-toend solution in today’s market. Based on a
mature industry standard, TLM Corporate
Action’s workflow structures and packaged
configuration reflect industry best practice,
in full compliance with guidance issued
by the SMPG (Securities Market Practice
Group) and the NMPGs (National Markets
Practice Groups).
TLM Corporate Actions has matured
and evolved through client projects and
engagement and is already used extensively
by both buy- and sell-side participants,
including custodians, asset managers and
investment banks. It can be supplemented
by cleansed, enriched corporate actions
event data, supplied via SmartStream’s data
management service.
Some industry experts believe that the financial
services sector will ultimately move towards a
utility-based approach to the collection and cleaning
of corporate actions information.
A growing band of sophisticated institutions
has emerged that are evaluating solutions
which not only offer core processing
capabilities but provide additional value to
other areas of the business, such as the front
office. In particular, we are hearing from
firms whose trading desks are looking to
arbitrage against corporate actions. These
companies require a solution that can assist
the corporate actions team to produce
extremely timely, enriched notifications – for
example, updated with extra information on
holdings related to the asset against which
the event has been announced, and where
the price might well therefore be affected.
At SmartStream, we strongly believe that
conditions are now right for financial
institutions to invest in fully automating
their corporate actions processing
operations. In particular, the ISO message
standards – which facilitate automation of
the entire event lifecycle – have matured,
enhancing the ability to digitise and
improve STP rates in this area. Financial
institutions should capitalise on the maturity
and stability of the standards, taking the
opportunity to automate. It is our belief
that firms stand to reap the greatest possible
operational efficiencies and cost savings
by shifting their attention from simply
implementing data collection and cleaning
projects – important and necessary though
these currently are – to digitising the entire
corporate actions processing lifecycle.
Our solution is released to clients fully
configured and can be installed in weeks.
For a highly sophisticated application of
this type, offering full lifecycle processing,
such short implementation times are
unprecedented. At present, only solutions
providing straightforward data collection
and cleansing can match this level of rapid
installation.
If clients wish to deviate from the solution’s
standard configuration, changes can be made
during the implementation process. TLM
Corporate Actions is highly flexible, making
it possible to reconfigure the system within
days. Unlike some other products it is not
necessary to make an enhancement request
and then wait for an update to be delivered
as a patch – a process which can take several
months and cause considerable frustration,
projects to overrun or for non-desirable
workarounds to be adopted.
Our solution is also available as an
on-demand, cloud-based service. This
makes it possible for companies to access
full lifecycle event processing in a hosted
environment. The service is therefore an
ideal choice for companies looking to
automate their corporate actions processing
with an IT-free and extremely quick
implementation.
Above all, TLM Corporate Actions greatly
reduces the risk inherent in processing
corporate actions. The solution automates
manually-intensive tasks into a fully
controlled, task-based workflow, with
exceptions presented to business users via
alerts and escalations. Additional validations
for riskier event types ensure that all
necessary actions must be performed before
a task can be passed back into the STP
stream, thereby minimising the likelihood
that important dates are overlooked and
losses incurred.
Our technology, by allowing financial
institutions to break away from traditional
manual processing, enables them to
mitigate risk and improve client services. It
provides firms with a single repository of all
corporate actions data, facilitating detailed
and accurate management reporting, as
well as allowing better risk analysis and
closer control over risk. The words of one
client reflect this well; “The implementation
was a quick and smooth process without
any disruption to our day-to-day activities.
We now have complete visibility, control
and flexibility for all of our event processing
requirements. We are very pleased to take
on board the SmartStream TLM Corporate
Actions product into our back-office
operations.”
To assist firms to achieve this end we have
developed a complete end-to-end corporate
actions processing solution, TLM Corporate
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