Corporate Actions Pain Points

April 27, 2011

When looking into the pain points experienced by those involved in financial services, handling corporate actions often comes up as one of the most excruciatingly complex components of their operation.  In fact, Securities Technology Monitor recently (December 27, 2010) published the “5 Top Data Nightmares in 2011”—and listed as number three was “Correctly Notifying Investors of Corporate Actions.”

Managing corporate actions can be an intricate, risky, and time-consuming task for investment professionals.  Both the number and nature of corporate actions present the challenge of interpreting, processing, and reporting these actions.  The related workflows are typically manual and as a result tend to be operationally inefficient, costly, and error-prone.

With more than 60 different types of corporate actions–some mandatory, some voluntary, and many with multiple options–coupled  with the fact that different counterparties are involved in communication at different points in time, the process becomes very tricky.  From the time a corporate action is issued things are complicated, starting with the challenge of receiving timely and accurate notification and then interpreting the action and its application.  As information travels from the issuer through various intermediaries on to the investor, risk and cost are introduced along the way.  Incomplete and/or incorrect data, human error, and numerous other problems raise the cost of corporate action processing well beyond the cost of human capital required.  The Securities Technology Monitor report quotes an operations executive at a New York custody bank as saying, “Even the smallest error in interpretation can add up to millions of dollars in compensation and we dread having to tell our chief executive officer who made the error and why.”

The labyrinthine nature of the process is such that adding human resources can help to a limited extent; human error is always a possibility which is why automation through technology is where the greatest workflow improvements can be found.  As reported by Aite, the last 10-15 years have seen significant maturation of software that automates processing; in tandem, the trend over the last dozen or so years has been to focus on leveraging these technological improvements to increase efficiency.

As technology solutions in the market have evolved, we have also felt the positive impacts of standards and radically improved notification, including ISO 15022 and the upcoming SWIFT/DTCC effort with the ISO 20022 messaging format. .  End users’ faith in the advancements and their commitment to better results is reflected in their investment in this area—a December 2010 report states that global spending on corporate actions processing will be approximately $70M (USD) in 2010 and will grow to $93M (USD) in 2015.

Thomson Reuters closely monitors corporate actions processing and has made significant investment in and enhancements in this area.   PORTIA can help reduce the time and risk associated with manual entry and processing of corporate actions events by offering a centralized and efficient corporate actions workflow, flexible processing options, and automated feeds.  The Corporate Actions Module includes support for many new corporate action types including Mergers for Cash & Shares, Exchanges, Capital Gain Payments, Security name, ticker, or CUSIP changes, Sector Changes, Consent Fees, and more.

Have you had challenges processing corporate actions and how have you dealt with them?  Are you experiencing workflow improvements from the changes in technology and/or the introduction of standards?  What do you feel as other points of pain?

-Nicole Comeau, Product Manager


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