Corporate Actions Standardization

The need for standardization remains at the forefront of all industry efforts in the corporate actions market. The financial crisis resulted in standards not just being seen as a necessity, but an urgent requirement. Still, so far, the need for corporate actions standardization continues to be more a dream than a reality.

The need for an industry-wide global push continues to be the main focus area. In fact, in a poll carried out during the web seminar, 21% said the global adoption of standards is one of the hottest topics in the corporate actions space right now (see figure 5), while 40% of participants said global standardization of corporate actions at the issuer level is even more important for the industry.

The question is whether a global push by market participants is enough without regulatory involvement. But the consensus is that it is worth trying to make a difference, and that the industry should solve any problems for the greater good. Forty per cent of participants said they think the lack of global adoption of standards is currently a major barrier for corporate actions standardization in the industry (see figure 1). And while 48% said lack of consistency was the main obstacle, only 11% claimed the lack of support remains problematic.

Dublin-based Barry Adams, vice-president, corporate actions, BNY Mellon, said he thinks geographical differences are one of the main barriers corporate actions standardization faces at the moment. "If you look at the issues from a global standardization point of view, you have to look at regional differences, the different systems, different languages and different exchange requirements," said Adams.

In fact, 45% of participants said the lack of universally accepted global standards remains the outstanding challenge in the corporate actions space (see figure 3). And this is high up the agenda, as the poll results showed only 23% considered the interpretation of information to be the most important challenge for the market, while the need to validate issuer information from multiple sources received 16% of the votes.

However, Boston-based Deborah Culhane, chief operating officer at Fidelity ActionsXchange said that while there is collaboration in the industry, there is still no singular international perspective to move forward. "A clear preference would be for an industry initiative," she said, adding it would have to be one standard, fully transparent, non-partisan and preferably industry-led.

Even if standardization remains one of the main discussions in the corporate actions space, this does not mean it will be easy to adopt. While there is consensus that standardization is a must for corporate actions, the road to achieve the goal is less than barrier-free.

London-based Gert Raeves, senior vice-president of strategic business development and marketing, GoldenSource, said: "Everyone will agree with the desirability of global standardization, but there are so many real-world obstacles to achieving this."

While having global standardization in place would be ideal, speakers said it would not help in the short term to make standardization a core part of the corporate strategy. "There would be more leverage in the short term if the work that has been done by the data vendors, the banks and the servicing community was used to move forward the existing data management tools firms already use," said Raeves.

"The pragmatic view is that we have to accept there is going to be a very wide divergence globally, and that many of the current operational models that focus on multi-source validation and the need to build a golden copy, for example, are not going to go away in a hurry," he added.

Panelists said in some cases, aiming to standardize 80% of the events as opposed to 100% may be the best way forward to ensure the reduction of both risk and manual processing. Stockholm-based Christine Strandberg, product manager at SEB merchant banking, said: "When it comes to standardization of complex events, I think the main goal should be to try to make the processes and standards more flexible to not always reflect exactly what the issuer says, but looking into what the issuer is trying to accomplish. If you do that, you may find the event is not as atypical as it would seem, making it easier to standardize," she added.

Still, in a market that is ever-evolving, standards cannot be expected to solve all issues. "I think  it is a dangerous way to think of standards as something that creates good data," said Fidelity ActionsXchange Culhane. "With new event complexities and security types, you can't expect standards to address all the issues we see in a market as dynamic as this," she said, adding that while there is a place for standards in complex events, as well as routine event types, they do not replace a more comprehensive assessment of the validity of the data.

XBRL & Issuer Adoption
Yet, even though it may not be a silver bullet, market participants continue to try to come up with innovative solutions. For more than a year, the industry has made a push for issuers to use data tagging standard eXtensible business reporting language (XBRL) for corporate actions announcements to help standardization at the root level.

The Issuer to Investor: Corporate Actions initiative, a joint effort in the US between The Depository Trust & Clearing Corporation (DTCC), Swift and XBRL US, has been at the heart of this activity. In June, the group issued the results of a business case, advocating a transformation in the way corporate actions announcements are communicated in the US. The case recommends that all parties adopt a single set of global information and technology standards, that issuers tag corporate action documents using XBRL and that intermediaries consume and disseminate the electronic version of the corporate action information as close to real-time as possible or within a timeframe as requested by investors.

The proposed transformation of the industry could represent a drastic change. But the move to XBRL would require issuer adoption, and the question remains how to compel them to move forward and take an active role. This represents a major barrier, as one of the challenges in this space remains harmonizing the business processing from the issuer to the end investor.

In a poll, 50% of participants said the expansion of XBRL to corporate actions is now regarded as having the potential to solve the problems in this space (see figure 2), while only 11% said they think the impact of XBRL in corporate actions would be significant. Fifteen percent still claimed it would not make a difference to data quality, and 24% said they were unsure about the potential impact of XBRL.

Speakers said there is a need to involve the issuers, particularly organizations such as the European Corporate Actions Working Group (CAWG), as such groups facilitate discussions. Issuers are fairly well represented within the CAWG, for example, but involving the issuers has traditionally been a complex task. Not all regions have established issuer groups, and it would have helped if this changed. Strandberg said communication via these groups can be effective as it can be difficult to involve all the issuers or even a small set of them without going through organizations.

Still, even if the issuers do get involved, there has to be a reason for them to invest in change. "The issue here is: who has the most direct influence on the issuer and where can you leverage existing filing requirements to expand, whether it be XBRL or another data tagging effort?" she said, adding that the issuers will be more inclined to support this if the market is leveraging an existing filing requirement, and not introducing something entirely new.

Zurich-based Nourredine Yous, head of reference data management at SIX Telekurs, said regulation could be the way forward. "Standardization is seldom a priority.... Some will only implement standards when they see clear incentives or are forced to do so by the regulator," he said, adding that he thinks the enforcement of the adoption of standard messages would be a good step forward for the industry.

Other panelists also said the regulatory option should not be discarded fully. "I think the debate is open whether the industry steps up to cohere around a singular standard, which is free and open to all market participants, or whether regulatory intervention is required," said Culhane.

Yet, these data standardization challenges do not only apply to corporate actions. "I think the whole corporate actions community should stop thinking about corporate actions as a unique problem," said Raeves, adding that this is a "fairly predictable data management problem we see for all sorts of other types of data attributes as well." In fact, Raeves said right now the flow of information is by and large comparable to flows of pricing information, for example.

Ongoing Investment
The financial crisis did not stop firms from investing in corporate actions, and it seems they are still willing to invest in this space. More than 80% of participants said firms are still investing in corporate actions, with more than 33% claiming this is a topic high up the agenda and 52% saying it remains an area of focus.

Only 15% of voters said investment is no longer taking place as there isn't enough management support within firms (see figure 6). SEB's Strandberg said some of the smaller players may still find it difficult to invest in this space as much as they should. "This lack of investment may force some players out of the market simply because they cannot invest enough in asset servicing or in the other market infrastructure changes that will take place in the next few years, especially in Europe," she said.

Yet, speakers agreed that even if there were no more than 15%, who said lack of support is the reason behind little investment management, support should not be taken for granted. "It cannot be taken for granted, even though management support has increased, as the risk factor has been more significant and more visible," said Strandberg.

GoldenSource's Raeves said he thinks the results portray how the market has changed from being process-centric in the early years of corporate actions automation to becoming more data-centric. "I think the nature of the funding request and the nature of the automation request has moved from spending on software in corporate actions to looking back at the data sources and data quality issues around corporate actions before we take those initial steps," said Raeves.

Only 4% highlighted cost concerns to be a major focus in the corporate actions space at the moment (see figure 5). Raeves said he thinks the fact that cost control received such a low vote represents the fact that people now take it as a given. "No IT investment or automation project today will get funding or approval without strong cost containment or a cost control case, so I think it's not unique enough to the corporate actions business case to really stand out," said Raeves.

"There is a willingness to invest where it directly influences a comprehensive risk mitigation process, but I think the problem is to what standard, and is there a clear direction in the market-place from an international perspective, and I think that is mixed right now," said Culhane.

The focus on standardization in this space promises to stay. More than 60% of participants said they expect standardization to be the focus for corporate actions going forward, while 22% said automation (see figure 4).

But while standardization continues to be a topic of discussion, panelists also highlighted that firms are increasingly focusing on timeliness. So far, timeliness only achieved 8% of the votes, but this figure may increase in the future. "Having access to timely corporate actions data when we need it is an essential part of our and our clients' business," said BNY Mellon's Adams, adding that on specific occasions when providers are not able to give them the information they need in a timely fashion, it is up to the users to negotiate with the companies themselves.

While standards are still set to remain one of the main topics of conversation in this space, it is important that the industry has a clear understanding of what can  and cannot be achieved by improving standardization in the corporate actions market. It is, of course, essential to continue the push to global standardization, but it may be worth keeping an eye on other barriers too.

Web seminar 0710