Researched and written by:
BUILDING THE BUSINESS CASE FOR OUTSOURCED
CORPORATE ACTIONS VALIDATION
January 2012
An industry briefing prepared
by A-Team Group for
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
Introduction
Industry leading financial institutions are reaping operational benefits and avoiding
significant unnecessary financial exposures by ensuring the quality and the timeliness of
their corporate actions data. As well as minimising costs from operational disruption caused
by incorrect or incomplete data, these firms are able to reduce the risk of litigation and
compensation claims arising from corporate actions errors, allowing them to save on the
capital they set aside to mitigate these risks and avoid reputational harm. In many cases, the
amounts involved are measured in the millions, of pounds, euros or dollars.
Certainly, broad industry uptake of automated corporate actions processing platforms
illustrates a desire to gain control over this unwieldy and potentially costly area of the
business, but while corporate actions platforms are a step in the right direction, it’s a myth
that the corporate actions story ends there.
Financial institutions of all sizes continue to struggle with corporate actions data quality.
The use of disparate sources of corporate actions of varying completeness and quality
is giving firms operational headaches, and leaving them vulnerable to risk of legal action
resulting from faulty corporate actions information, which can have serious repercussions
for investors. Indeed, firms routinely put aside vast sums to mitigate the risk of client actions
against them.
Even where the consequences of poor quality corporate actions may not incur direct
financial penalty, at a minimum, firms may be hit by losses themselves, and damaged client
relationships, possibly even resulting in the loss of clients.
At the same time, Operations Managers seeking funding for resources to improve or
automate the corporate actions processing situation find it difficult to compete with frontoffice or regulatory projects, often seen by senior management as more pressing. It’s no
longer enough merely to tout operational streamlining and efficiency as the basis for backoffice projects like corporate actions validation; as competition for internal budgets gets
fiercer Operations Managers need to demonstrate clear business benefits if they are to
stand a chance of getting their corporate actions project funded.
The validation of corporate actions does not in itself differentiate a firm, and is a service
that can be provided externally by a trusted provider, freeing up the firm’s own resources to
concentrate on activities that are more core to the firm and focus on internal and external
clients. Outsourcing of corporate actions validation can solve many of the issues involved
with scrubbing, consolidating and delivering corporate actions data in an effective way.
Properly executed, it can yield superior results to a firm’s own data validation initiatives, and
can be provided in a more cost effective way.
This paper offers insight into how financial institutions of all kinds across both the buy and
sell sides can take advantage of high-quality corporate actions outsourced services. It
presents a checklist of capabilities for Operations Managers considering outsourcing to a
third-party service provider, and most importantly, it demonstrates the value of performance
metrics in building a business case in support of outsourcing this key function.
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 2
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
Current Landscape and Trends
Corporate actions data has long posed operational issues for financial institutions, but a
number of factors are conspiring to raise the profile of corporate actions among operations
executives. For one thing, managing these corporate actions is becoming more difficult.
The availability of new products and services is swelling the volume of corporate actions
messages firms need to manage. Pressure on firms for greater returns is forcing them to
seek out new markets, each bringing with it a new corporate actions data stream.
Despite the direct correlation between corporate actions data quality and high mitigation
costs, corporate actions processing continues to be a relatively low-profile activity in
many institutions. Typically, these firms see more potential for reward from their historically
profitable front-office activities. Elsewhere, many current operational or IT projects are driven
by new regulation or anticipation of new regulation, where the penalty for failure is a hefty
fine or, in extreme cases, even imprisonment of responsible senior executives.
Compared with these
seemingly more pressing
initiatives, corporate
actions data quality issues
often struggle to make an
impact. Corporate Actions
Managers find it difficult to
get approval for enhancing
or improving validation
processes that could mitigate the substantial risk posed by losses resulting from faulty
corporate actions data. Although in many cases firms do perform the validation in house,
this is costly, error prone, highly labour intensive, and does not differentiate the firm.
Although in many cases firms do
“perform
the validation in house, this is
costly, error prone, highly labour intensive,
and does not differentiate the firm.
”
Practitioners concede that corporate actions validation is an expensive business. On
top of the cost of systems and data sources, a New York based practitioner says, “you
need quality people. You can use the tools in corporate actions systems from commercial
software vendors, but it’s not the final answer. You still need people to interpret what you
have.”
The people requirement is difficult to measure. But for many firms the corporate actions
tentacles extend to many areas of operation, including fund management, alternative
investments, front and middle office, custody services and beyond. Indeed, one practitioner
estimates that between 6% and 8% of total head count is involved in corporate actions in
some way. “It’s often under-estimated and under-measured,” he says.
Another points out that her firm employs a team of 15 corporate actions professionals to
validate data covering the UK marketplace alone. “You need to have the right people,” she
says, “and you need to train them and keep them.”
Those firms that have implemented corporate actions processing software platforms have
taken a step in the right direction, but unless they have specifically addressed the issue of
improved data validation, they may still have left themselves vulnerable to corporate actionsrelated losses. This is because while corporate actions processing platforms provide tools
that can aid in the cleansing and verification of corporate actions data, they do not remove
the need to deal intelligently with the manual exceptions.
These platforms assist you by providing tools, but they do not remove the need to
perform manual validation of many types of event, and to continue to need the domain
expertise in many markets required to deal with the nuances of global corporate actions
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 3
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
announcements. An outsourced validation service does not seek to replace these software
tools, rather it complements them by providing external expert resources to greatly reduce
the amount of manual processing that has to be done by the firm.
The table below shows the number of manual operations carried out weekly as part of the
DTCC’s Global Corporate Actions Validation Service (GCA VS) in the first six months of
2011. These figures exclude the additional operations to approve each operation as part of
the DTCC’s Four Eyes process, and illustrate the large amount of manual processing that is
necessary to ensure an accurate ‘golden’ record of corporate actions announcements.
GCA VS manual operations per week, H1 2011. Source: DTCC
It is not enough to rely on a single un-validated source of corporate actions from a broad
data service provider for quality corporate actions data. Metrics show that no single vendor
has the breadth of coverage for the global market. Some estimates suggest that as much as
30% of securities of interest are not covered by the industry’s leading commercial suppliers
of corporate actions data.
Overall coverage data shows that neither of the two leading vendors announces an event
in approximately 10% of cases for a global securities of interest list (SOI). The problems
primarily occur in less developed markets such as South America and the Middle East,
but some poor results are often observed in mature European markets including Germany,
Sweden and the Netherlands.
There is a similar picture on timeliness with firms relying on sources other than the global
vendors for the initial announcement for about 12% of events. No single vendor provides the
first announcement for more than approximately 70% of all events.
There are significant discrepancies between vendors – particularly in emerging markets
and for complex event types – and timeliness can vary greatly between vendors too.
Statistics show that ‘scrubbing’ of corporate actions data across multiple sources, along
with validation and enrichment, is necessary to provide the quality of data that is required in
today’s markets. This can be complex and costly for an individual firm to achieve, but can be
provided more effectively by a specialised outsourced provider at no downside to the firm.
Many firms have been unable to take full advantage of their corporate actions platforms.
Corporate actions teams are stretched, and the risk of error is rising. Many buy-side firms,
meanwhile, rely on their custodians/prime brokers to handle corporate actions quality, which
can be expensive in terms of fees and yet still risky as many providers lack the expertise
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 4
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
to deliver a truly quality service. In most cases the timeliness of this information does not
meet the requirements, so many buy-side firms find that they need an additional source of
corporate actions to supplement those provided by their custodians and prime brokers.
As corporate actions data grows ever more complex and voluminous, corporate actions
teams are increasingly stretched and the risk of error continues to rise.
Moreover, many customers have no way of understanding the quality of information they
receive from their providers, most of which don’t routinely provide performance metrics on
timeliness, accuracy and other key parameters. Without this kind of information, corporate
actions consumers are largely in the dark about data quality, and by extension their
exposure to the risk of a major corporate actions-related payout. It’s not a tenable position.
To further illustrate these issues, DTCC’s studies show that Custodians typically provide
limited data on certain events:
•
•
•
•
•
•
•
•
•
•
Partial call redemption - provide about 16% of the data needed
Full calls - 30% of data needed
Put-voluntary - 50%
Return of capital - 26%
Put-mandatory - 28%
Reorg-mandatory - 6%
Liquidation - 15%
Bankruptcy - 24%
Redemption of rights - 35%
Redenomination - 24%
Further statistics show that:
• Overall, Custodians are slower than other data sources – usually FIRST only 20% of the
time. You therefore need other sources to trigger timely event creation.
• Overall, 30% of data needed is imbedded in text, and therefore nearly impossible to
automatically process to achieve Straight Through Processing (STP).
• Overall, 44% of data will conflict with data from other trusted sources.
• Overall, 39% of data received from Custodians is sent with an event code of ‘other’ or
‘general information’.
These findings illustrate the continuing need for manual intervention, exception processing,
and manual enrichment to insert missing data.
Examples of thorny corporate actions data quality issues aren’t focused on any given
market. Challenging situations may originate from any marketplace, and their resolution
requires detailed understanding of the market’s particular nuances. A London-based market
practitioner says her team handles many market- and supplier-specific data quality issues,
based on their experience of dealing with these sources over time.
As an example, BM&F Bovespa, the Brazilian equities and derivatives exchange, is the
primary source of corporate actions data for the Brazilian marketplace. The exchange
typically distributes cash dividend information on the same day as the Ex-date, or at the
close of trading the day before. This can lead to late arrival of that data from commercial
providers, and data consumers have to retrieve the information themselves if they want to
be certain to receive the data on time.
Moreover, some of these Bovespa announcements involve more than simple cash dividends.
They may also include interest on cash, which may impact withholding tax. This introduces
an investigative element to the task of getting the right data at the right time, as practitioners
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 5
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
need to understand the values for both gross and net amounts involved. In fact, subtle
differences between events such as a cash dividend and interest on own capital are often
misclassified (even though in some markets they have very different tax implications) and
these issues are a barrier to effective STP.
Or take the case of Portugal. The market doesn’t generate large volumes of event
messages, but one instance of a missing completion date, say, could result in several hours
of investigation to retrieve it.
Even in Germany, widely regarded as one of the most well regulated markets, it’s common
practice not to disclose the dates of forthcoming share issues. Again this forces practitioners
to contact exchanges, companies or agents manually to find out when the issue will take
place.
The world’s markets are littered with such examples. Often, they stem from simple
interpretation problems. Some announcements state that a stock distribution will take place
in 10 days’ time: is that 10 business days or 10 calendar days? Experience of the nuances of
a particular marketplace will provide the answer. But that experience takes time and money
to accumulate.
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 6
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
Corporate Actions - Unique Challenges
Corporate actions present data managers within financial institutions with a unique set of
challenges. This, combined with the fact that the consequences of an exception caused by
erroneous corporate actions data can be huge, makes it a crucial function to get right.
Corporate actions data is only useful if it’s accurate and timely. Accuracy is important
because corporate actions data can have a direct bearing on the value of a portfolio,
optimisation of which is ultimately the end-goal of the financial services industry. The use of
erroneous corporate actions data can lead to mistakes and discrepancies, and the potential
for client losses – hence the need for mitigating the risk of poor data quality.
Timeliness is key. Many fund managers need to apply corporate actions to client positions,
which are being affected by price changes throughout the trading day. This is becoming
increasingly important to the front office in areas such as equity derivatives trading.
Many aspects of the
business depend on
corporate actions data,
which often touches
many parts of the trade
and post-trade lifecycle. As a result, the impact of an incorrect or incomplete corporate
action can have a wide-ranging impact further downstream, again raising the potential for
client losses, mis-priced assets, the prospect of penalties or litigation, and missed trading
opportunities.
Growing complexity makes it difficult to
“achieve
timeliness and accuracy.
”
The growing complexity of the business makes both timeliness and accuracy difficult to
achieve. Firms’ participation in new markets means that the sheer volume of data they need
to take into account is increasing. As the coverage expands, so does the requirement for
expertise in handling new corporate actions data sources, many of which may have different
characteristics in terms of data sets, timeliness and market nuances. This can strain firms’
internal corporate actions departments as resources are stretched.
Moreover, the use of multiple sources also expands the resource requirement for data
validation. First, it simply means that more messages that need to be checked when there
are perceived errors. But second, where different sources cover the same securities,
discrepancies also need to be checked, further adding to the validation burden and the
depth of expertise required. Firms need to decide on what basis they will decide to use one
data element over another, and this can add a new level of expertise requirement to the
overall equation.
These challenges are similar to those faced by data managers in other areas of the business,
but corporate actions’ unique place within the trade lifecycle makes them that much more
important, and more prone to serious repercussions if something goes wrong.
It’s this aspect of corporate actions data quality that leads many firms to take a risk-based
approach to validation, taking into account the seriousness of the consequences should an
erroneous corporate actions message slip through the net. Together, these elements make
corporate actions unique, making it more difficult for managers to achieve the Holy Grail of
timely and accurate corporate actions across global markets.
A big part of the challenge comes from the time-consuming, highly manual task of validating
incoming corporate actions messages from multiple, disparately formatted sources.
Validation is increasingly a specialist activity that requires a thorough set of processes to
avoid the potential for serious loss – both to clients and to the firm itself.
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 7
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
A Check List for Corporate Actions
Processing Functional Requirements
A serious evaluation of the set of tasks and expertise needed for highly effective corporate
actions validation should lead any organisation to think again about performing this function
in-house. It’s a serious business.
As discussed, corporate actions validation is a manually intensive process, but on top of that
it needs a significant degree of human expertise in the subject matter. The corporate actions
validation team needs to have a sound understanding of the corporate actions process, and
where corporate actions fit within the trade lifecycle. Additionally team members need to
understand the nuances and idiosyncrasies of the individual markets in which their firm operates.
For many firms, this points to a requirement for a team of analysts who are expert in their
field, and whose number will increase as the firm moves into new and additional markets.
The cost of this resource, clearly, also increases linearly as the team expands, creating a
direct brake on potential profits from new market activities.
Any in-house corporate actions management process, meanwhile, needs to address certain
core functions. As well as keeping track of dividends, stock splits and other major actions,
the process must be able to handle a multitude of administrative messages. So, the process
must be set up to handle all entitlements, elections, and client communications. These and
other tasks that rely on details of a firm’s positions or holdings are well suited to automation
that may be provided by a software vendor solution. The acquisition and validation of
corporate events, however, is often better handled by an outsourced service.
The diagram below shows the six stages in the corporate actions lifecycle.
In Stages 1 and 2, the collection and validation of the events is common to all events and
not specific to the firm, making these complex and manually intensive parts of the cycle
an ideal candidate for an outsourced or managed service. Here, the cost reduction and
elimination of management headaches make a compelling case against the in-house
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 9
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
retention of a process that essentially adds no differentiation or commercial upside for
financial institutions.
Conversely, Stages 3 to 6 are much more specific to the individual firm and require
knowledge of the firm’s positions and holdings. These stages are typically better handled by
a dedicated software solution, so the diagram shows how these two approaches are highly
complementary and where the demarcation lies (i.e. the managed service is responsible
for Stages 1 and 2 and supplying the validated data to the software system that performs
Stages 3-6). Typically, the software system provides upstream information to the managed
service detailing which instruments are of interest.
All this must be handled on a timely basis. It’s true that any incoming data needs to be
received in a timely way from external sources, but any validation process must also
handle validation, enrichment and exceptions processing in a timely way driven by high
performance SLAs.
The stress on accuracy throughout the process indicates a requirement for the process to
handle exceptions across all markets covered. This is no trivial task, as once more it draws
upon the expertise of the corporate actions team, which needs to understand the nuances
of the individual markets involved. To achieve this across the entirety of a firm’s securities of
interest (SOI) – that is to say for the superset of all securities held by the firm and its clients
– involves significant resource that stretches the capabilities of many organisations while not
directly differentiating the firm.
This checklist of capabilities – and the resources they require to maintain them – points
to a significant investment for firms seeking to handle corporate actions processing and
validation themselves. In many cases, this investment will involve a substantial upfront cost
to cover implementation of a corporate actions automation platform, plus the ongoing costs
of a team to maintain the platform. But the major recurring cost for many firms will be the
investment they make in in-house teams to validate corporate actions data.
Corporate Actions Validation – Are You Qualified?
1. Knowledge of market-specific conventions and nuances across all markets followed.
2. Knowledge of securities and markets covered and not covered by major data suppliers.
3. Language and cultural expertise across all markets covered. A corporate actions
validation team needs knowledge of English, French, German, Italian, Spanish,
Portuguese, Russian, Japanese, Arabic, Chinese and more.
4. Understanding of intricacies of corporate actions messages (eg., domicile restrictions,
conditions, multiple listings, etc.).
5. Familiarity with corporate prospectuses and sources of additional information (eg.,
exchanges, registrars, agents, investor relations departments, etc.).
Maintaining a corporate actions validation team with the expertise and thoroughness
required to handle the gamut of securities of interest held by many firms is a major
investment in money, time, and management energy, and the team needs to be resourced
to cover the seasonal ebbs and flows in corporate actions messaging, with spikes during
the spring and summer as dividend reinvestments and optional dividends – drips and scrips
– come into play. An outsourced global team, meanwhile, can yield benefits by working on
tricky data around the clock.
To add to the challenge, a serious initiative to handle corporate actions data validation
requires a robust approach to performance measurement. Any such operation needs to offer
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 10
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
metrics to monitor performance on an ongoing basis, allowing the corporate actions team
to identify recurring issues and improve overall results over time. It’s a big ask, and one that
many firms are increasingly willing to consider outsourcing to a centrally provided service.
Business Case Check List
1. Can you quantify the quality, timeliness, and completeness of the corporate actions
you use today?
2. Have you engaged with key stakeholders that are internal or external customers of
your service?
3. Can you quantify the commercial and operational risks in your current operation?
a. have you taken loses in the past due to missed, incomplete, or incorrect
corporate actions?
b. can you predict what future exposures may be?
c. if these exposures are potentially large or unpredictable would you benefit from
taking an outsourced service to reduce these risks?
4. Can you quantify the real costs in collecting and validating corporate actions in
house today?
5. If you are using multiple data sources today could you reduce data and integration
costs by utilising a single aggregated feed?
6. What are the staffing costs and inefficiencies in dealing with periods of peak demand
such as ‘dividend seasons’?
7. If you have requirements to support new markets and support them with
knowledgeable staff (see above) what are the incremental costs of adding specialised
staff?
8. Can you attract and retain knowledgeable staff in this area at reasonable rates?
9. Are there some areas of the operation where there are particular ‘pain points’ and
where the validation could be outsourced initially to provide ‘quick wins’?
10. How is your current service to the business perceived, could you benefit from
improving your SLAs?
11. Are there areas of activity where your skilled staff could be better utilised (for both
them and you) other than collecting and validating corporate actions?
12. Do you have the ability to cost effectively support the business globally on a 24x7
basis (if applicable)?
13. Have you quantified the costs of not taking action?
a. in terms of operational risk
b. opportunity costs of bad data
c. high fixed costs in manually validating data
d. costs of dealing with manual exceptions if you have some level of software
automation in place
e. inefficient use of resources
f. inefficient cost of vendor data (do you have quality and timeliness metrics
available for any or all sources you may use?)
14. Based on this checklist can you determine the real total cost of performing
collection and validation in-house today?
15. Can you show significant ROI, reductions in risk exposure, and increases in service
and efficiency by outsourcing collection and validation of corporate actions to an
external provider?
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 11
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
New Entry-Level Possibilities of
Outsourcing
Faced with these challenges – and very much restricted in terms of budget by the
current financial climate – many firms are giving serious consideration to the possibility of
outsourcing the corporate actions validation process. Even where they’ve implemented a
dedicated corporate actions processing software platform, many firms are finding the tools
for data cleansing they provide still require significant investment in specialist teams of data
analysts and are considering outsourcing this portion of the workflow to a specialist provider.
Indeed many leading financial firms have already taken this step, and this paper is aimed
at firms who have not yet taken this path but who are interested in achieving the proven
benefits that these other firms have already enjoyed.
to information received from
“ourIn addition
custodians, we wanted to receive
a ‘golden copy’ service to ensure all
notifications were communicated and
financial losses were minimised.
corporate actions data quality needs.
”
One such firm
is UBS Wealth
Management in
London, which
is using the
DTCC’s Global
Corporate
Actions
Validation
Service (GCA
VS) for its
“We decided to start working with DTCC’s GCA due to our clients requiring an efficient,
reliable and comprehensive corporate action notification service,” says Thomas Morley,
Director, Operations, at the firm. “In addition to information received from our custodians, we
wanted to receive a ‘golden copy’ service to ensure all notifications were communicated and
financial losses were minimised.”
The benefits to UBS Wealth Management were clear. Says Morley: “As a consequence,
we now have minimal issues with missed corporate actions, enhanced information and a
notification source that we have absolute confidence in. The success of our partnership has
meant that we have recommended GCA’s service to other UBS locations and will continue
to do so.”
The most obvious incentive for many firms seeking to outsource corporate actions
validation is financial. Hiring and maintaining a team of data specialists capable of handling
the extensive requirements of a firm’s corporate actions validation function is a nontrivial
expense. Practitioners have to grapple with the growing complexity of the institutions they
work for, many of which have undergone mergers and acquisitions that add new business
operations and different ways of doing things.
With Operations initiatives generally struggling to gain internal management support
from a budgetary standpoint, it’s unlikely that a proposal to staff up to improve corporate
actions data quality would get serious consideration. As a result, frustrated project owners
are looking at ways to avoid significant upfront and on-going costs, and outsourcing can
provide the answer.
Management overhead can also be minimised by outsourcing to a service provider.
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 12
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
Nurturing talent is part of this overhead. Likewise, an internal group can’t compete against
a dedicated external entity that devotes 100% of its resource to developing expertise in this
specialist area of the business.
As with any outsourcing experience, firms typically retain a core team internally to direct the
operation, liaise with the business side and maintain institutional expertise in the corporate
actions function. By pushing the high-maintenance, onerous task of corporate actions
validation to a third party, a firm can free up this core internal team to focus on higher value
activities. These may include providing more focus on firm-specific operations related to
the portfolio and elective actions, and spending more time servicing client needs (internal or
external) rather than on the costly – but frankly thankless – task of validating the incoming
events.
From an operational standpoint, the outsourcing option can provide a number of key
benefits, particularly relating to scale. Even a well resourced internal operations department
can be stretched when there are spikes in activity, where incoming messages present
a particularly thorny
validation challenge,
or when the firm wants
to move quickly to
take advantage of an
opportunity in new
markets.
Unlike other services, GCA VS provides
“detailed
service level agreement (SLA)
metrics, demonstrating data quality and
timeliness of processing across a range
of factors.
Outsourcing allows a firm
to share in the scale and
expertise built up by the
third-party service provider
as a result of providing
the service to many organisations across the global market. This includes both the depth of
expertise in solving data issues within the corporate actions environment, and the breadth of
coverage required to participate in today’s global markets.
”
Perhaps the most compelling argument for outsourcing strikes at the heart of the matter: no
internal data validation team can match the resources – and, crucially, the performance – of
a specialist outfit whose sole activity is to verify corporate actions data across the breadth of
global markets.
By outsourcing to an established provider, and ensuring performance through rigorous
service level agreements (SLAs), firms large and small can ensure the accuracy, timeliness
and breadth of coverage they need for participation in any and all markets they wish.
SLAs are of utmost importance. It’s essential that firms get assurances from their provider
that they can prove sustained performance benchmarks for error-handling, timeliness,
coverage and exception resolution.
Of course, minimising the risk of loss through poor corporate actions data quality is the
ultimate object of the exercise. By outsourcing data validation to a properly resourced
specialist team, firms can be comfortable that they are mitigating the risk of penalties or
litigation from clients for corporate actions mistakes. It is this element – alleviating the
need for setting aside perhaps millions in contingency funds – that makes outsourcing a
compelling option for firms seeking to improve their corporate actions performance.
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 13
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
Introducing DTCC Global Corporate
Actions Validation Service (GCA VS)
The Depository Trust & Clearing Corporation’s Global Corporate Actions Validation Service
(GCA VS) is a completely outsourced data validation service, providing a centralised source
of ‘scrubbed’ corporate action announcement information for more than two million active
securities.
The service offers global coverage, across more than 170 countries/territories, of all asset
classes, including equities, fixed income and structured securities.
GCA VS creates the highest quality corporate action information through a comprehensive
cleansing process which comprises data mapping, data normalization, consolidation and
verification.
Unlike other services, GCA VS provides detailed service level agreement (SLA) metrics,
demonstrating data quality and timeliness of processing across a range of factors. The
GCA VS SLAs represent a contractual obligation to clients, an arrangement that’s unique in
the corporate actions data quality segment. SLAs cover factors such as ‘timeliness’, ‘error
rates’, ‘close time’ and overall ‘Six Sigma’ performance.
The Timeliness SLA, for example, measures the performance of the service against the SLA
to ensure that each event reaches a ‘clean and approved’ state within the pre-agreed SLA
timeframes. DTCC backs the SLA with financial penalties that are applied if GCA VS doesn’t
hit its monthly timeliness target of 99.0%. Recent SLA timeliness scores include:
2008 – 99.8%
2009 – 99.7%
2010 – 99.8%
YTD 2011 – 99.8%
Similarly, the Error Rate Quality performance SLA measures the proportion of error inquiries
from clients that are processed to resolution by GCA VS analysts. Most inquiries are simple
clarifications. But some highlight ‘errors’, where clients have identified discrepancies before
DTCC analysts have fully validated the event. Examples of these errors include:
• text not completed in accordance to template;
• the rate is missing from the option text description, despite being contained as a field in
the payout;
• the event is a ‘duplicate’ and should be deleted;
• the sub-classification of a Tender is set to ‘with consent’ rather than ‘offer to buy’.
This process is the final backstop to ensure the data is correct. If an error slips through the
validation process, the process makes sure it is caught before the event’s Important Date.
GCA VS’s target data quality error rate is 0.05%. Recent SLA scores include:
2009 – 0.022%
2010 – 0.018%
YTD 2011 – 0.015%.
GCA VS is available as a raw feed, allowing users to integrate the scrubbed data into their
internal corporate actions processing and automation platforms. At the end of 2011, GCA
VS will be one of the first providers to offer its clients the option of receiving corporate
actions data via the latest industry standard, ISO 20022. This XML-based technology
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 14
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
will allow customers to implement the service more efficiently and will require DTCC to
constantly review, scrutinise and maintain its standard to ensure compliance with market
practice. This in turn will lead to less ad hoc maintenance and instead institute a systematic
approach to the business rules driving the file formats, not the other way around. An entrylevel browser option is available as an alternative to the full service.
This proven service is used effectively by more than 50 of the world’s leading buy-side and
sell-side firms. The service is ideal for any organisation that needs access to accurate and
timely corporate actions information on global securities, including broker/dealers, asset
managers, hedge funds, custodian banks and others.
For users of all kinds, GCA VS offers a compelling range of benefits, including:
• Comprehensive, round-the-clock coverage across all event types and all global markets
with service centres in New York, London and Shanghai, working in local times zones in
the local language and according to local market practice.
• Timely and accurate delivery of the information to allow straight through processing
(STP), driven by contractual service level agreements (SLAs).
• Streamlined data source via a single ‘golden copy’ for all corporate actions
announcement information.
• Reduced back-office operational cost and inherent risk associated with a manual, errorprone process.
• Optimized front-office trading by providing critical and timely information to individuals
making trading decisions.
• Standard delivery of all events in a single format.
• Client feedback via an active Working Group
• Close consultation with formal standards bodies and industry associations to ensure
world-class market practices.
For more information on how GCA VS can help your organisation with its corporate actions
validation process, call
Americas:
Patrice Lott, Director, DTCC Solutions
Tel. +1 212 855 4215
Email [email protected]
Asia Pacific:
Catherine Deng, Director, DTCC Solutions
Tel. +86 213 220 4710 ext.8015
Email [email protected]
Europe, Middle East and Africa:
Carl Jones, Director, DTCC Solutions
Tel. +44 207 650 1421
Email [email protected]
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC 15
BUILDING THE BUSINESS CASE FOR OUTSOURCED CORPORATE ACTIONS VALIDATION
The Depository Trust & Clearing
Corporation
The Depository Trust & Clearing Corporation
(DTCC), through its subsidiaries, provides clearance,
settlement and information services for equities,
corporate and municipal bonds, government
and mortgage-backed securities, money market
instruments and over-the-counter derivatives. DTCC
is also a leading processor of mutual funds and
insurance transactions, linking funds and carriers
with financial firms and third parties who market
these products.
In addition, the Depository, a subsidiary of DTCC,
provides custody and asset servicing for more
than 3.6 million securities issues from the U.S.
and 121 other countries and territories, valued at
$36.5 trillion. In 2010, DTCC settled more than
$1.66 quadrillion in securities transactions. DTCC
has operating facilities and data centers in multiple
locations in the United States and overseas. For
more information on DTCC, visit www.dtcc.com.
DTCC Solutions LLC is a New York limited liability company
and wholly owned subsidiary of The Depository Trust & Clearing
Corporation. The GCA Validation Service is a service offering of
DTCC Solutions LLC.
www.a-teamgroup.com
A-Team Group, founded in 2001, provides a range
of global online news, in-depth research reports,
and events focused on the business of financial
information technology.
A-Team Group serves its global client base of IT
and data professionals within financial institutions,
technology and information suppliers, consultants
and industry utilities with insight into the business of
reference data, enterprise data management and risk
management technology, as well as the impact of
regulation upon these industry segments.
A-Team Group’s Reference Data Review and RiskTechnology.net news services offer news analysis
and interviews with key newsmakers, giving busy
financial IT executives all they need to know to
stay on top of our fast-moving industry via regular
updates on our website.
Find out if you qualify for a complimentary
subscription and sign up for a free 30-day trial at:
www.A-TeamGroup.com/complimentary-access.
A-Team Group’s research division provides
industry professionals with focused and in-depth
research offerings to better understand the specific
uses of data and technology in today’s trading and
investment processes across the financial enterprise
from front to back office. These include a series
AN INDUSTRY BRIEFING PREPARED BY A-TEAM GROUP FOR DTCC of topical white papers, survey-based research
reports and focused directories (eg: algorithmic
trading, valuations and alternative trading systems
directories). Many of A-Team’s research publications
are available for free at: www.A-TeamGroup.com/
site/research.
A-Team offers custom research solutions,
commissioned by clients seeking answers to specific
questions for in-house product development or
marketing, or looking to support their marketing
activities, promote thought leadership and generate
sales leads. Find out how our custom research
solutions can boost your marketing campaigns by
contacting A-Team Group.
A-Team Group’s events division produces a series
of Insight events annually. These events combine
A-Team’s expertise in financial markets IT with
thought leadership from world-class technology
innovators and practical experience from financial
market practitioners. For a schedule and more
information, visit: www.A-TeamGroup.com/
Insightevents.
A-Team also partners with customers to produce
custom physical and webinar events.
For more information about A-Team Group,
visit www.A-TeamGroup.com.
16
Researched and written by:
An industry briefing prepared
by A-Team Group for