A Shakespearean approach to Corporate Actions

"For my own part it's Greek to me"

What is a corporate actions system and how can a business case be made to invest in one? There are plenty of software vendors who purport to have cracked the STP nut in the corporate actions department but how real are they? Equally what constitutes a corporate action for the financial services firm? Research has shown that financial services firms have diverse requirements for corporate actions system support. For some it's merely a data source, with a diary noting dates when action needs to be taken, for others its more concerning risks, ensuring actions are undertaken and the reporting of failures. Custody corporate actions operations are not the same for Asset Managers and Brokers operate a hybrid service between their clients and the custodian. Some people believe that corporate actions services revolve around tax management and reporting, while others see this operation as outside the corporate actions department and more accounting. An industry wide non standard specification of a corporate actions operation has produced diversity in systems in the market.

"Though this is madness, there is method in it"

The divide between the requirements of different market users for corporate actions systems is ultimately a good thing, as the software vendors will eventually all build their systems functionality to cover the full range of users needs. Research reports published recently specify generic user requirements and examine the reality of these leading corporate actions systems and their functionality. These reports also reveal that there are only a few genuine full corporate actions systems available in the market today. This is when measured against the complete requirements of the users to support full corporate actions functionality for Broker Dealers, Custodians and Asset Managers. However, these systems are still evolving and are significantly different from each other. How has this materialised, as you would have thought there was only one way to skin the corporate actions cat!

"Nothing either good or bad, but thinking makes it so"

The answer lies with the origins of the systems architecture followed by the many different specifications from first users as described previously. Corporate actions systems are still a relatively new product and are seemingly evolving quite differently from legacy back office systems. The reason is mainly down to the modern technology they have been created on and the complexity of operations they need to support.

"In my minds eye"

Corporate actions systems have had to cope with many and various different integration problems with a user's systems architecture requiring a high degree of dexterity and enormous range of flexibility. A normal list of integration requirements will include; initial corporate data from vendors, date cleansing, workflow, communication, databases, reconciliations and risk management. This has enabled corporate actions systems to be able to incorporate the most modern technology rather than be encased in legacy straight jackets like many of the systems they are required to interface too.

"Nothing will come out of nothing"

Most of the back office systems are encumbered with huge legacy problems that today must be a concern for everyone but corporate actions systems are clear of such risks. Corporate actions vendors have had to be hugely knowledgeable of the industry operational requirements within the corporate actions department but also just as aware of horizontal and vertical industry practices and dependencies. The result is that their systems functionality has achieved a higher degree of STP than virtually any other system supporting securities operations.  Each vendor has utilised their different technology capabilities to solve various problems for their users this has produced a highly competative market place for corporate actions systems but with significant differences in design. There is no doubt that a technology solution for corporate actions STP within a corporate actions department has now been produced. However, there is an enormous industry wide gap to be filled if industry wide STP can be achieved. This includes the need for various tax feeds and linkages for reclaims and reports.

"What's done is done"

Research has shown that there are really only five vendors who have invested in their products to such a degree, that it has elevated their corporate actions systems above the majority, but where does this leave the users? With variable systems functionality and diverse requirements by the system users! This is obviously good for the vendors as they should find a happy customer nearby that fits with their system.

"Is this a dagger I see before me?"

A regulatory case for investing in a corporate actions system may not be made unless there is some breakdown drawing the board's attention. These instances do not necessary make into the media and its possible this is because there is a rarity of regulatory breaches in the corporate actions department. We can assume the regulators give a lot of attention in ensuring that whatever the system used or procedure operated will fulfil client protection and be as secure as possible. So the problem of creating a business case for corporate actions system investment might not call on a regulatory imperative. What then is the business case to invest in a corporate action system? This is not as easy as you might think to answer. The old adage of "its not broke why fix it" will prevail first, immediately followed by job protection by some corporate actions staff. Unless there is a focal point to change or buy systems (and by this I mean a substantial loss or regulatory pressure) it's difficult to see the motivation to invest in new systems.

"That it should come to this"

By common consensus in the industry the corporate actions department is one of the remaining market obstacles for achieving STP despite there being really excellent systems available. There needs to be another ingredient added into the question, "a corporate actions system, to be or not to be"?

"To-morrow, and to-morrow, and to-morrow"

Perhaps the missing ingredient is already in front of our eyes! The legacy systems that underpin the markets are in dire need of replacement before they completely collapse under the strain of continued regulatory enhancement. Could the corporate actions systems already developed on modern technology, with their inbuilt flexibility to manage data and control processes, their modern integration capability, as well risk management and reporting capability, be evolved further to replace ageing legacy functionality? If this is a possibility, then the purchase of a corporate actions system should be more strategic than tactical and form part of a wider brief when presented to the board.