Corporate actions, a largely manual function, has historically struggled to gain the attention of management, or to innovate. But BNP Paribas’ securities services business has decided to invest in the back-office process. In doing so, the bank estimates it has shaved three to four hours off the time it took for its ops team to process corporate action events per day.

“Someone had to put it into a template, review it, validate it with a four-eye check, and input it into the system. But all of that has now disappeared,” says Mark Wootton, regional head of local custody and clearing for Asia Pacific at BNP Paribas Securities Services.

As part of its strategy to automate corporate actions functions, BNP Paribas has implemented the Australian Securities Exchange’s real-time corporate actions straight-through processing (STP) feed. The feed, which ASX launched in June last year, is designed to deliver corporate actions event notifications to investors in an accurate, comprehensive, and timely manner.

Prior to using the STP feed, the bank’s corporate actions events team had to split the work into different buckets. For instance, companies whose names began with letters A through D would be managed by one corporate actions employee in the ops team, while companies beginning with D through G would be handled by another member of the team, and so on.

As part of the workflow, employees would log on to both company registry websites and the ASX site to download what is known internally as a “daily diary,” and try to contextualize and summarize large amounts of corporate actions information.

“Take BHP, for example. It’s a big mining stock in Australia. If BHP announces a dividend, that will come as a 60- to 70-page PDF and then the corporate actions team would have to read all the pages and translate that into one message that we can send to our clients,” Wootton says.

Turning that 70-page PDF into meaningful data that clients can decipher can be an exhaustive and time-consuming task. This was the catalyst that prompted BNP Paribas to adopt ASX’s STP feed, a decision that Wootton describes as a “no brainer”.

“It’s not just bringing those operational benefits to us, it’s also getting vital information to our clients in a timelier manner,” because whether a client elects to receive cash or stock can affect a company’s share price at that time, and impact clients’ investment decisions. “The quicker we can get vital information to our clients is also a competitive advantage to us,” he says.

By using the ASX feed, the bank’s clients now receive corporate actions information four to six hours earlier than before. Wootton says many clients have welcomed this efficiency because it also means they have more time to relay the information to their own downstream customers.

Innovation breeds innovation

In addition to saving time, implementing the ASX STP solution has enabled BNP Paribas to innovate in other parts of the corporate actions process, Wootton says.

The beauty of having a staff member that is a bot is they can work around the clock.

Mark Wootton, BNP Paribas Securities Services

As a custodian, after sending the corporate actions information to clients, BNP Paribas needs to collect clients’ instructions on the event, reconcile them, and then send that information to the relevant share registry.

“We’ve fully automated the [corporate actions] reconciliation process using robotic process automation, and the beauty of having a staff member that is a bot is they can work around the clock,” Wootton says.

BNP Paribas has built two bots that fully automate the corporate actions reconciliation process. The bank’s securities services arm has also developed a bot that logs into company registries and sends out automated emails on corporate action events. In one use case, the bank has a bot that can log into the website of one of the biggest company registries and elect on events, such as a decision about dividend payouts or a merger vote.

But many challenges remain, especially since some registries still ask to receive corporate action event elections by fax, which is further complicated by the way companies present the information in inconsistent formats on paper.

In the modern day we are not fans of fax machines.

Mark Wootton, BNP Paribas Securities Services

BNP Paribas looked at implementing a fax bot that could transpose an event election into readable and non-readable fields, but rather than create a workaround, Wootton says, the industry should work to remove the problem altogether.

“We’ve looked at that a few times, but we would rather push the registries to not use fax, and to either use an API interface, log into their GUI or [implement another] more automated way of doing that. In the modern day we are not fans of fax machines,” he says.

Work smarter, not harder

BNP Paribas has also run an internal proof of concept with Digital Asset, using smart contracts to automate elections on behalf of its clients. Clients provide custodians with instructions to follow during a corporate action event: For example, in a dividend payment, the client might want certain criteria to be met before it elects to receive a cash payout, versus different criteria that would prompt it to elect a stock payout instead.

By using smart contracts, Wootton says BNP Paribas is trying to develop thresholds or “cutoffs” for when an instruction should be followed and to provide the client with a pricing feed to support their decisions. “We could use a smart contract to work out, if the price is above ‘x’, to take stock, and if the price is below ‘x’ or ‘y’, to take cash,” he adds.

The PoC was run from the bank’s Asia-Pacific presence, but was based on a multi-market approach. While the smart contracts service for client elections was designed for the Asia-Pacific region, accounting for synergies between the Hong Kong and Singapore markets, in addition to other local markets, the Daml (Digital Asset’s smart contract language)-based tech will be adjusted to meet other regional specifications around the globe and incorporate new possible use cases.

“We’re also thinking of the next catalog of ideas and iterations, not necessarily all for corporate actions, but also what else can that technology do in our ecosystem,” Wootton says.

All custodians want to offer their clients better automation and the best cutoff timeframes possible, Wootton says. The closer BNP Paribas can bring that cutoff to the time the registry needs to process the corporate action election information, the better it will be for clients and consumers of corporate actions data.

“Whether they’re based in Paris or the US, giving clients an extra 5 to 10 hours still adds value so they can make decisions as late as possible. Important information in our clients’ hands is one benefit, but the second element of which we’re working on, and doing some internal automation around, is streamlining our processing to leave that cut off as late as we physically can for our clients to be able to instruct on what their intention for the event is,” he says.

If it ain’t broke…

Many industry participants believe, or want to believe, that the corporate actions data process is just not that broken, says Barnaby Nelson, CEO of Toronto-based research, benchmarking and sales enablement advisory firm The ValueExchange. Nelson knows BNP Paribas’ corporate actions firsthand, having served as head of business development and sales for Asia at BNP Paribas Securities Services between 2008 and 2014.

According to a survey authored by The ValueExchange, there is a clear case for transforming the corporate actions process but many participants that took part expect savings of only 2% to 3% from automating the processing of corporate actions data.

Nelson says that the market has evolved to the point where the corporate actions space isn’t setting off any big alarms, and where there are no immediate “fires” to put out, and that this has led to complacency and a lack of innovation. Many firms in the corporate actions lifecycle also struggle to see the gravity of the potential risks of not innovating and the ultimate benefits of any investment.

Another issue the Australian market faces is despondency around whether a solution like ASX’s real-time STP feed can work. Nelson says that there are strongly divided opinions between those who have used the ASX feed and those that haven’t. The skeptics believe “It’s not that broken, it’s alright, we can manage”, he says, but those that have trialed and tested it have seen a major reduction in inefficiencies.

“They say it has triggered an increase of 80% in their STP, and it’s letting them restructure their data models. It’s weird, this general despondency around the ability to change, but when people have made the change, the size of the change is incredible,” he says.

This feeling of despondency is not unique to Australia. The inefficiencies around corporate actions processing are a global problem that has existed for more than 30 years, Nelson says, and there is no silver bullet.

“There’s a lot of manual work, so it’s more a case of peeling away the problem rather than solving it in one fast go. So, people must buy into the journey,” he adds.

Karen Webb, senior manager for issuer services, securities, and payments at the ASX, says another reason why participants are more reluctant to change is the reliance on corporate actions experts.

Yet, this could change if the pool of corporate action talent continues to shrink. Research from Firebrand Research suggests corporate action specialists are leaving the space, with older specialists moving on to more exciting roles in the industry. And it’s becoming harder to attract younger people to fill these roles.

“Many of those experts have been around for a long time and we’re starting to see attrition. Some of the work has moved offshore, and the experts are relied on only on a need-to-basis. So, there might come a point where they [market participants] might be forced to make a change because of that,” Webb says.

Industry buy-in

Automating corporate actions fully would also require end-to-end, industry-wide buy-in and investment. Participants—registries, issuers, custodians, brokers, and their clients—must identify the business case and the work needed to take on a straight-through process and how to build towards it.

Some ASX customers are automating the corporate actions process today, says Webb, though such an implementation is a long-term commitment, and the exchange needs to convince those participating of the future benefits they could reap. She adds that part of the problem is that everyone along the corporate action lifecycle understands their issues but is not necessarily looking at the bigger picture.

BNP Paribas’ Wootton says all participants play a significant part throughout the lifecycle of one corporate action event. 

“Everyone understands intimately their own process but there hasn’t yet been a consolidated view of all the players getting together and understanding the pain points that everyone goes through,” he says. 

So while BNP Paribas can enhance its internal processes, it does not solve the overall market issue when dealing with corporate actions.

“Part of me thinks that the industry is still comfortable with the process that has existed for 20 years,” Wootton says. “There are some registries that are further advanced than others, but if one registry doesn’t advance, that means you’ve only got 95% of the solution and not 100% of the solution.”