Corporate actions - You are not alone…but should you be?

73% of the industry think corporate actions are a challenge.

If you are one of the 73% you are not alone. If you look around, the chances are that you will see most of your industry peers here.

32% of firms still process more than 50% of their corporate actions manually- illustrating the extent to which day-to-day operations remain heavily contingent on human intervention. This is not surprising. Corporate action processing is not very exciting, and unlike customer engagement and other front office tools, it is unlikely (in isolation to all the other services that you provide) to create a unique selling point, attracting new customers and assets under management. It is however a source of considerable cost and risk regardless of where you sit in the corporate event daisy chain. Additionally, its complexity has historically made it difficult to negate these through automation, resulting in poor levels of straight through processing, especially in the management of voluntary events.

80% of the industry consider corporate action processing to be a risk

There are many risks inherent in corporate action processing. Whether you are talking about operational, reputational or regulatory risk, all start with missing an event, missing a date, misinterpreting / mismanaging an event, or miscalculating an entitlement. Most of these can be mitigated with a combination of more data and modern technology, automating processes and bringing best practice.

More data is counterintuitive. More notifications from more sources would normally increase the complexity, increasing risk. However, as long as you have the means to effectively manage the extra data, it goes without saying that the more people you have telling you about an event, the less chance you have of missing it. And if one of those people is a market data vendor, you are likely to get much earlier notice of events.

However, receiving more notification from more sources will lead to more conflicting data, especially in dates and default options. Custodians routinely set their own deadline dates of voluntary events by differing amounts to facilitate their own processing. This creates the possibility of missing one or more custodians’ deadline if the wrong date is chosen. To simplify the challenge often the earliest of custodian deadlines is chosen, but even this is difficult and subject to error if managed manually. Modern applications use rules automation to deconflict data including dates or can even apply different deadlines for holdings held by different custodians.

These same applications apply workflows and tasks based on event type, or even the specific security to facilitate complex events such as the Rolls Royce dividend. These workflows and tasks, once configured, engender consistency and best practice, ensuring events are not misinterpreted or mismanaged, and that all regulatory requirements are meet.

54% of the industry perceive corporate actions to be poorly automated

It’s not really anybody’s fault! Historically data was either not available, or expensive, or inconsistent in content / format, or all three. Add in the complexity of many events and it was unsurprising that applications capable of managing even some of the processes were sold at a premium, viable only for the larger players with the scale to make them economic. This left the remainder, the majority, to fall back on people… manual processing!

But today this it is not the case. Yes, there are still challenges with the data, but new technologies are better able to manage notifications and their amendments from multiple sources, creating flexible workflows and digitising tasks, including election / options capture. STP rates of 80 – 90% or more should now be possible, even for voluntary events.

And the new technology has brought other advantages. It is now possible to measure the effort needed to complete events, and project this into future, identifying possible bottlenecks and allowing periods of high activity to be smoothed by managing internal deadlines or temporarily transferring resources from other teams.

There has been a shift in mind-set to adopting new technology models for Corporate Actions efficiencies. Automation is resolving the paradoxes around Corporate Actions. In a survey of 95 financial institutions, 100% of respondents cited reducing operating costs as the most significant reason for increasing the automation in corporate actions processing, while 98% cited managing growing corporate actions volumes.

60% of the industry is still at the lowest levels of automation in the corporate actions

So, if you are one of the 60% you are not alone. But I think I would prefer to be in with the 40% who are confident in their corporate action processing, achieving high rates of STP, reducing costs and risks, whilst providing a better service and positive image to internal and external stakeholders. Especially when today, this is now available off the shelf, scalable for the largest and economical for the smallest.

The only question you should be asking now is how to get started on the Corporate Actions automation journey. Well, we can help you with that. Speak to us at info@contemi.com